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Judgment
Ramanujam, J.—The following two questions have been referred to this court for its opinion by the Income Tax Appellate Tribunal at the
instance of the Revenue :
Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in the law in cancelling the penalties for the
assessment years 1967-68 to 1969-70 ?
Whether the Appellate Tribunal''s finding for each of these years that the assessee had not concealed particular of its income is a reasonable
view to take on the facts of the case ?
The assessee in this case is a registered firm carrying on business in tannery. As against their export of tanned skins, the assessee received
import licences which were based on a percentage value of the goods exported. The assessee, however, did not actually import the goods against
the said import licences, but had sold them as such. Since the assessee could not furnish the details of commodities covered by the licences at the
time of the assessment, the ITO called for full details of the parties to whom the licences were sold, the details of the commodities and the profits
earned with reference to each of the import licence. Since complete details had not been furnished by the assessee, the ITO, estimated the income
earned by the sale of licences based on the market quotations on premiums published in financial journals. The income determined by the ITO for
each of the three years and the income finally sustained by the Appellate Tribunal are as follows :
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Assessment year Income determined by the Income finally
Income Tax Officer sustained by
the A.T. on
appeal
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Rs. Rs.
1967-68 2,07,361 1,23,380
1968-69 1,07,860 92,070
1969-70 1,50,770 1,23,380
Thereafter, penalty proceedings under s. 271(1)(c) of the I.T. Act, 1961, were initiated. The IAC did not accept the assessee''s explanation that
since the additions were made on estimated basis, there was no justification for levy of penalty, and proceeded to impose penalties of Rs. 43,939
for 1967-68, Rs. 29,136 for 1968-69 and Rs. 22,634 for 1969-70. The said orders of the IAC passed under the penalty proceedings were
challenged before the Income Tax Appellate Tribunal. The Tribunal took the view that merely because the income from the sale of licenses was
fixed at figures higher than the amount disclosed by the assessee for each of the three years, it does not mean that the difference represents the
concealed income of the assessee justifying the imposition of penalty under s. 271(1)(c) of the Act, that since the income from the sale of licences
was adopted at an estimate that cannot form the basis for the levy of penalty and that merely on the ground that the names and addresses of some
of the Bombay parties furnished by the assessee as the persons to whom the licences were sold could not be traced or due to the fact that the
assessee was not in position to produce all the relevant correspondence with regard to the sale of import licences due to lapse of time, penalty
cannot be levied under s. 271(1)(c). Aggrieved by the order of the Tribunal, the Revenue has sought the obtained the reference on the questions
set out above.
The learned counsel for the Revenue contends that the Tribunal is in error in proceedings on the basis that there can be no levy of penalty under
s. 271(1)(c) wherever the assessment is based on an estimate, and that the said view in inconsistent with the decisions of this court in A.K. Bashu
Sahib Vs. Commissioner of Income Tax, Madras, , Additional Commissioner of Income Tax Vs. E. Bhoopathy, and Rathnam and Co. Vs.
Inspecting Assistant Commissioner and Another, .
The learned counsel for the assessee contends that the view taken by the Tribunal that wherever an assessment is based on estimate, ignoring
the return filed by the assessee, the penalty provisions cannot be invoked, is correct and is legally tenable, and relies on the decisions in
Commissioner of Income Tax, Tamil Nadu-IV Vs. Imperial Automobiles, and Commissioner of Income Tax, Tamil Nadu-V Vs. Prakasam
Readymade Store S., .
In this case, there is no dispute that the assessment is based on an estimate after ignoring the return filled by the assessee showing the income
from the sale of import licences. The assessing authority however, felt that the sale price shown in the return was considerably low when compared
with the market quotations published in financial journals while estimating the assessee''s income by sale of import licences. Though the estimates
have been reduced by the Tribunal, still the assessment is one based on estimate. The question is, whether the view taken by the Tribunal that
wherever the assessment is based on an estimate, the penalty provisions are not applicable, can be legally sustained. A.K. Bashu Sahib Vs.
Commissioner of Income Tax, Madras, , however, this court was expressed a contrary view. In that case, the court had observed that ""it cannot
be said that in all cases where the taxing authorities estimated the income at a figure higher than that estimated by the assessee, no penalty was
leviable. Where the estimate of the assessee amounts to a deliberate under statement, an inference of concealment of income could certainly be
drawn"", if the facts and circumstances justify such an inference. In that case, the assessee, as be operator, though maintained accounts, did not
produce the same before the assessing authority, naturally, leading to an estimate of income, after rejecting the return of income filed by the
assessee. In the penalty proceedings, the contention of the assessee was that no concealment of income or furnishing of inaccurate particular could
be inferred from the difference between the estimates made by the assessee and those made by the officer. But this was negatived by the AAC as
well as the Tribunal. When the matter was taken to this could by the assessee, the court held that the facts of that case clearly showed that the
income had been deliberately underestimated by the assessee and that was not a case of mere furnishing of inaccurate particulars and, therefore,
the levy of penalty was quite justified. In Additional Commissioner of Income Tax Vs. E. Bhoopathy, , another Division Bench of this court
accepted the view expressed in A.K. Bashu Sahib Vs. Commissioner of Income Tax, Madras, . That was also a case where the income returns
filed by the assessee was not accepted and the assessing authority made an estimate of his own which was accepted by the assessee. Thereafter,
when penalty proceedings were initiated, it was questioned on the ground that since the assessment is based on an estimate made by the assessing
authority, penalty proceedings may not be applicable. The court, after referring to the view expressed by the court in A.K. Bashu Sahib Vs.
Commissioner of Income Tax, Madras, , that in cases where the taxing authorities estimated the income at a figure higher than what was estimated
by the assessee, no penalty was leviable, went on to say that when the assessee himself has accepted the estimate made by the ITO, it will lead to
the clear inference of concealment, and the difference between the assessee income and the returned income could represent the income
concealed. In Rathnam and Co. Vs. Inspecting Assistant Commissioner and Another, , there was an assessment by best judgment. When penalty
proceedings were initiated for concealment of income, the assessee contended that the penalty proceeding cannot be initiated and that, in any
event, no concealmenr of income or furnishing of inaccurate particulars by the assessee had been proved. This court, after referring to the decision
in A.K. Bashu Sahib Vs. Commissioner of Income Tax, Madras, proceeded on the basis that even in cases of assessment based on an estimate, s.
271(1)(c) could be invoked and if the assessee who should have been aware of his real income estimated his income for the assessment years in
question deliberately at a lower amount, he should be taken to have in question deliberately concealed his true income which is sufficient to attract
s. 271(1)(c). In a recent judgment of this court in T.C. No. 435, of 1978 dated September 28, 1983 Commissioner of Income Tax, Tamil Nadu-I
Madras Vs. E.V. Rajan, , this court, while construing the scope of s. 271(1)(c) specifically held that even in the case of assessment based on an
estimate, the penalty provisions could be invoked and the contrary decision taken by the Tribunal in that case is inconsistent with the statutory
provision. Thus, in cases of assessment on the basis of an estimate, applicability of s. 271(1)(c) cannot be ruled out.
Then the question arises as to whether the facts and circumstances of this case will lead to an inference of concealment of income or furnishing of
inaccurate particulars of such income as contemplated by sub-clause (c) of s. 271(1). As already stated, the assessee has furnished the income by
way of sale of import licences at a figure which was far below the market quotations. With a view to verify the correctness of the assessee''s return,
the assessee was asked to give details of the articles for which the import licences were obtained and the names of the parties to whom the licences
have been sold and other relevant details. But, except giving some few names as persons to whom the licences have been sold, no other material
were furnished by the assessee. Its explanation right through was that the documents were not available because of the time-lag. The few names
given by the assessee were verified. But they could not be traced. The Tribunal has chosen to accept the explanation give by the assessee that the
correspondence and other documents could not be produced at this distance of time, and held that the assessee cannot be said to have concealed
any particular of income. To find out whether the assessee has returned the income by sale of licences truly and correctly, the nature of the goods
sold, the time at which it was sold and the parties to whom they were sold were all materials, and, so long as the assessee has not furnished the
requisite particulars the assessee should be taken to have concealed the particulars of its income. Further, in this case, the Revenue seeks to invoke
the Explanation to s. 271(1)(c) of the Act. It is not in dispute that the facts of this case fall within the Explanation to s. 271(1)(c), and therefore, the
onus stand shifted to the assessee to show that there is no concealment of income. We are not inclined to agree with the following view expressed
by the Tribunal :
In spite of the Explanation to section 271(1)(c) of the Act, the initial onus is on the Department to show that there was concealment of the
particulars of income and no doubt the onus is then on the assessee to show that the return filed by it is a true one and that the failure to return the
correct income did not arise from any fraud or gross or wilful neglect on its part.
The Tribunal also proceeds to say that no doubt for the unsatisfactory explanation given by the assessee in the assessment proceedings, the
profits were estimated, but that would not be sufficient to hold that the assessee had really concealed its income and it had shown only lesser
income by way of sale of the licences and, therefore, s. 271(1)(c) is not attracted. We are not in a positions to agree with the Tribunal in this case
that neither the main part of s. 271(1)(c) nor the Explanation to that section stand attracted.
According to the Explanation, in cases where in assessee''s returned income is less than 80 per cent. of the income as ultimately assessee, he will
be presumed to have concealed particular of his income unless he establishes that the hiatus between his return and his assessment was not due to
fraud or wilful neglect in the filing of the return. It is true that even in cases where the Explanation initially applies because the returned in come is
less than 80 per cent. of the assessee income, if the assessee establishsed that this gap is not due to any fraud or wilful neglect on his part, he could
be taken to have rebutted the presumption of concealment, and it is than for the Department to establish by cogent material that the assessee had
concealed his income. In this case, the assessee has not established that the gap between the income returned and the income assessed is not due
to any fraud or wilful neglect on its part, for, it did not produce the requisite material even when called for, for proving the correctness of the
income. The only explanation given by the assessee is that it is not able to produce the record because of lapse of time. The non-production of the
material called for ascertaining the correctness of the income returned can be taken to be either due to fraud or wilful neglect.
The learned counsel for the assessee relies on the decision of this court in Commissioner of Income Tax, Tamil Nadu-IV Vs. Imperial
Automobiles, , in support of his plea that, on the facts of this case, fraud or wilful neglect cannot be taken to have been established, and that the
assessee should be taken to established that the difference between the returned income and the assessed income is not due to any fraud or wilful
neglect on the assessee''s part. However, we are of the view that the said decision will not apply to the facts of this case as the facts in this case
were entirely different. In that case, the assessee gave an explanation in respect of certain cash credits and that explanation was not accepted and
the cash credits were taken as the income of the assessee and asset. On those facts, the court held that apart from rejecting he explanation of the
assessee as regards the cash credits, there was not positive materials to show that the amount in question was really the assessee''s income and,
therefore, the levy of penalty in that case cannot be sustains. The learned counsel for the assessee relies on other decision of this court in
Commissioner of Income Tax, Tamil Nadu-V Vs. Prakasam Readymade Store S., , in support of his contention that merely because the
assessee''s explanation with regard a particular income has not been accepted, the penalty provisions cannot automatically be applied. The decision
was also based on the special facts of that case. There, on a general assumption that all Multani bankers were indulging in ""havala"" transactions, the
amounts standing to the credit of some Multani bankers in the assessee''s books off accounts were treated as representing ""havala"" transactions
without any finding as to whether the particular Multani bankers who was shown as a creditor to the assessee had in fact indulged in ""havala
transaction. It was, in those circumstances, the court held that there is no presumption that all discounted hundies were false documents without
exception and that though the assessment has been made treating the hundi loans as ""havala"" transactions, in the absence of such an admission by
the assessee, it cannot be treated as an admission of the assessee that the hundi loans in question in that case were not genuine. The decision in that
case rested on the special facts and, therefore, that has no application here.
In this view, we have to answer questions Nos. 1 and 2 in the negative and against the assessee. There will be no order as to costs.