Aiyasamy Nadar vs Commissioner of Income Tax

Ramanujam, J.—The following two questions have been referred to this court u/s 66(2) of the Indian Income Tax Act of 1922 :

(1) Whether, on the, facts and in the circumstances of the case, penalty u/s 28(1)(c) of the Indian Income Tax Act, 1922, has been rightly levied ?

(2) If the above question is answered against the assessee whether the quantum of penalty levied is justifiable ?

The assessee is a firm carrying on business in grocery such as sugar, rice, etc., both in wholesale and in retail. For the assessment year 1959-60,

relevant to the previous year ending March 31, 1959, the assessee disclosed in its return a turnover of Rs. 3,48,088 and an income of Rs. 52,894

showing a gross profit of 5.1 per cent. Before the Income Tax Officer completed the assessment, the following facts came to his knowledge. The

assessee''s place of business was inspected by the sales tax authorities on August 26, 1958, and a pocket note book was found to be in the

possession of one Dharmalinga Nadar, a clerk of the assessee. The said book contained entries relating to certain purchases effected by the

assessee between April 1, 1958, to September 4, 1958, (not clear whether it is 4-9-1958 or 4-8-1958 but it is immaterial for our purpose). Some

of the entries in the said book did not find a place in the regular books of the assessee. Before the sales tax authorities, the assessee had contended

that the pocket note book did not relate to its business, that the entries therein had been made by the said clerk for a different purpose and that he

did not effect any purchases outside the books of account. The sales tax authorities, however, rejected the assessee''s contention and held that the

entries in the pocket note book related to purchase omission and the turnover of such transactions came to Rs. 92,000. They also found that there

wore unaccounted stocks worth Rs. 12,437 in the assessee''s shop on the date of the inspection. The assessee was, therefore, assessed under the

Sales Tax Act on a best judgment basis by making an addition of Rs. 92,000 to the taxable turnover returned by the assessee. The assessment

order was challenged in appeal before the Appellate Assistant Commissioner. That appeal having failed, they went before the Sales Tax Appellate

Tribunal. The Tribunal also upheld the said addition of Rs. 92,000 on the ground that it represented the suppressed turnover of the assessee.

The Income Tax Officer, at the time of the assessment, had before him the findings rendered by the sales tax authorities including the Sales Tax

Tribunal in relation to the sales tax assessments. Therefore, the Income Tax Officer required the assessee to produce the said pocket note book

which was the basis for making an addition in relation to the sales tax, assessment, with a view to find out whether the Income Tax return submitted

by the assessee is correct and complete. After going through the pocket book and the other materials produced by the assessee, he found that

there was no regular stock book recording the receipt of goods and that the finding of the sales tax authorities that a sum of Rs. 92,000 should be

the suppressed turnover is acceptable. The Income Tax Officer, therefore, included the sum of Rs. 92,000 in the turnover of Rs. 3,48,088

disclosed by the assessee and estimated the income by adopting the gross profit rate of 8.5 per cent. as against the gross profit rate of 5.1 per

cent. returned by the assessee. This resulted in the addition of Rs. 19,000 to the income returned by the assessee. He also added a sum of Rs.

12,000 as income from other sources. As against the said order of assessment, the assessee filed an appeal before the Appellate Assistant

Commissioner who granted relief in respect of a sum of Rs. 12,000 which has been added as income from other sources, but upheld the addition

of Rs. 19,000 made by the Income Tax Officer on the ground that a turnover of Rs. 92,000 had been suppressed and as such an estimate was

called for. There was no further appeal to the Tribunal.

The Income Tax Officer had also initiated proceedings u/s 28(1)(c). In the said proceedings he specifically found that the assessee is guilty of the

suppression of the turnover to the extent of Rs. 92,000 and in that view he levied a penalty of Rs. 12,500. The said penalty order was challenged

in appeal. The Appellate Assistant Commissioner also sustained the order levying penalty on the ground that the materials available clearly

disclosed that the assessee had suppressed the turnover of Rs. 92,000 and this turnover could not have been detected but for the surprise

inspection made by the sales tax authorities on August 26, 1958. The assessee then went before the Tribunal. Before the Tribunal it was contended

that apart from the findings given in the assessment proceedings, there is no other material to lead to the inference that the assessee had wilfully

suppressed the income or that there has been non-disclosure of the particulars of such income, and that the turnover of Rs. 92,000 was added to

his total turnover only on the ground that its account books are not reliable. The assessee also stated that in this case the enhanced assessment has

resulted only because his explanation as to the ownership of the pocket note book and the relevancy thereof to his business has not been accepted

by the Income Tax Officer, and that such rejection of his explanation alone will not constitute a reason for holding that the assessee had in fact

deliberately concealed the said turnover of Rs. 92,000. The Tribunal, however, considered all the circumstances relating to the discovery of the

anamath pocket note book as a result of a surprise inspection in the assessee''s place of business, and the presence of some of the entries in that

note book which did not find a place in the assessee''s regular account books and held that from such conduct of the assessee in having such

suppressed transactions it could be reasonably inferred that the suppression was a deliberate act and that but for the seizure of the pocket note

book the turnover suppressed and the resulting income would have escaped assessment. The Tribunal also held that there were no mitigating

circumstances to reduce the quantum of penalty.

Before us the learned counsel for the assessee contended that the findings rendered at the stage of the assessment proceedings cannot be

conclusive and they cannot constitute sufficient material in penalty proceedings, and that there should be independent material to sustain a finding

that the assessee has deliberately suppressed the income. It is also stated that the enhanced assessment has resulted only because the Income Tax

Officer has rejected the assessee''s explanation relating to the ownership of the pocket note book and the relevancy of the entries therein to the

assessee''s business, and from the mere rejection of the explanation given by the assessee-resulting in the enhanced assessment it will not

automatically follow that the assessee has deliberately suppressed the income. In the connection reliance is placed on the decision of the Supreme

Court in Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, . We, however, find in this case that, apart from the rejection

of the explanation given by the assessee, there is concrete material in the form of entries in the anamath book which has been found to relate to the

assessee''s business. Some of the entries in the anamath pocket book actually find a place in the regular account books and this fact is not disputed

by the assessee. Therefore, the authorities are justified in holding that the anamath pocket book should relate to the assessee''s business. As a

matter of fact, the finding given by the sales tax authorities that the entries in the anamath account book related to the assessee''s business had not

been challenged before the Income Tax authorities. Therefore, it is not a case of mere rejection of the explanation which has led to the enhanced

assessment being made both under the Sales Tax Act as well as under the Income Tax Act. It is seen that the return for the assessment year 1959-

60 under the Income Tax Act had been submitted long after the surprise inspection of the place of business of the assessee which took place on

August 26, 1958, But curiously that return did not include the turnover found in the anamath pocket note book recovered at the time of the

inspection. Though the assessee was challenging the addition of the turnover referable to the anamath note book in the course of the sales tax

proceedings, the fact that he did not refer to the transactions in the anamath book in the return submitted by him to the Income Tax Officer leads to

the inference that the turnover referable to the anamath book was intended to be kept out of the knowledge of the Income Tax Officer. It is only

at, a later stage when the Income Tax Officer has called for the anamath pocket note book at the stage of the completion of the assessment, the

assessee produced the same. It is, therefore, possible from the above circumstances to draw an inference that the assessee intended to conceal the

turnover of Rs. 92,000 in the assessment proceedings under the Income Tax Act. We find that the Tribunal has referred to the above

circumstances which we have set out above as leading to the inference that the suppression of the turnover was a deliberate one which could not

have been detected but for the surprise inspection. We are, therefore, of the view that the Tribunal''s conclusion that the suppression of the

turnover was a deliberate one is supported by material on record. We have to uphold the view of the Tribunal in this case. Therefore, the first

question is; answered in the affirmative and against the assessee.

As regards the second question we find that it is covered by the decision of the Supreme Court in Mansukhlal and Brothers Vs. Commissioner

of Income Tax, Bombay City II, . Following the above decision we answer the said question also in the affirmative and against the assessee.

The revenue is entitled to its exists. Counsel fee Rs. 250.