Commissioner of Income Tax vs L. Vishnudas

Dr. Dr. Manjula Chellur, C.J.—In this appeal, the following substantial questions of law arise for consideration: 1. Whether, on the facts and in the circumstances of the case and in the light of the facts found and the findings entered into by the Assessing Officer and the same being not controverted or held to be wrong by the Tribunal, the Tribunal is right and with jurisdiction in upholding the order of the Commissioner of Income-tax (Appeals)?

Are not the facts found and the findings entered into by the Tribunal perverse and against reality and should not the Tribunal have remitted the case to the Assessing Officer for fresh consideration, the facts found by the Tribunal being inconsistent with the facts found by the Assessing Officer?

Whether, on the facts found by the Assessing Officer and concealment being always in the original return, the Tribunal is right in law and fact in interfering with the order of the Assessing Officer?

The assessment year in question is 1996-97. It is not in dispute, return of income came to be filed on February 6, 1998, admitting the net taxable income of Rs. 10,76,460 by the respondent-assessee. What happened thereafter is of much relevance. In the declaration made in the return filed on February 6, 1998, at the time of filing the return, the assessee categorically mentioned that in the light of the judgment of the apex court in Commissioner of Income Tax and Others Vs. N. Ramanatha Reddiar (Huf) and Others, no assessment can be made in the status of HUF, since the HUF status had been abolished in the State of Kerala with effect from December, 1975, therefore, income of the HUF in the hands of the assessee is also included in the return of income filed on February 6, 1998. Apparently, on February 23, 1998, a letter was addressed by the respondent-assessee intimating the Assistant Commissioner of Income-tax, Central Circle-2, Ernakulam, as follows: The above assessee has filed their returns of income for the assessment years 1996-97 and 1997-98 before you. Consequent to the decision of the Supreme Court, the assessee''s should include the income of Mr. Lachmandas B. Aswani (HUF) equally in their hands. We are enclosing herewith the following relation to Lachmandas B. Aswani (HUF).

(1) TDS issued by Lachmandas and Sons for the assessment years 1996-97 and 1997-98

(2) Advance tax challan for Rs. 1 lakh for the assessment year 1996-97.

(3) Advance tax challan aggregating to Rs. 1,10,000 paid for the assessment year 1997-98.

The Assessing Officer, while computing the taxable income, did not accept the explanation given by the assessee. He proceeded to impose penalty under section 271(1)(c) of the Income-tax Act. Aggrieved by the same, the assessee approached the Commissioner of Income-tax (Appeals). By referring to section 271(1)(c) of the Act and also the declaration made in the initial returns filed on February 6, 1998 and the particulars given in the letter dated February 23, 1998, the Commissioner of Income-tax (Appeals) opined that the contents of the letter amply prove that the assessee had voluntarily requested the Assessing Officer to include income of the HUF in his hands and there was justification for not furnishing the revised return as there was prevention, therefore, there was no justification on the part of the Assessing Officer in imposing penalty. Accordingly, penalty imposed under section 271(1)(c) of the Income-tax Act came to be cancelled.

Aggrieved by the same, the Revenue approached the Tribunal contending that there was no justification in the order of the appellate authority in interfering with the order of imposition of penalty levied by the Assessing Officer. The Tribunal though made discussion with reference to the particulars furnished by the assessee, ultimately opines that during the assessment proceedings itself omissions were understood by the assessee and immediately rectified the same by bringing to the notice of the authorities by letter dated February 23, 1998 and this being the only recourse that could be taken by the assessee prudently, there was justification in the orders of the first appellate authority cancelling the imposition of penalty levied by the Assessing Officer.

Aggrieved by the same, the present appeal is preferred by the Revenue, inter alia, contending that as the penalty contemplated under section 271(1)(c) of the Income-tax Act is a civil penalty, the question of establishment of either mens rea or wilful negligence on the part of the assessee to conceal the income or intentionally furnishing inaccurate details of income is no more required. Mere concealment or furnishing of inaccurate particulars would be sufficient to saddle the assessee with the liability of penalty under section 271 of the Act. He also places reliance on two decisions in support of his contentions, i.e., Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, and Commissioner of Income Tax Vs. K. Mahim, .

As against this, learned counsel for the respondent-assessee took us through the orders of the first appellate authority as well as Tribunal and contends that in the absence of withholding of any information with the intention of evading payment of tax especially in the light of furnishing a letter voluntarily disclosing the income of the HUF in the hands of the assessee would absolve the liability of penalty as envisaged under section 271(1)(c) of the Act. Section 271(1)(c) of the Income-tax Act reads as under:

Failure to furnish returns, comply with notices, concealment of income, etc.--(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person--...

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or.

In the case of Dharmendra Textiles Processors (supra), while referring to the interpretation of statutes on the primary rule "casus omissus" Their Lordships had an occasion to refer to various provisions with reference to imposition of penalty. In that context, they referred to the Income-tax Act and also excise duty. With reference to section 271(1)(c) of the Income-tax Act, their Lordships opined, the Explanations appended to section 271(1)(c) indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return of income. The object behind the enactment of section 271(1)(c) of the Income-tax Act read with the Explanations indicate that the said section has been enacted to provide a remedy for loss of revenue. The penalty under that provision is a civil liability. Therefore, willful concealment is not an essential ingredient to attract civil liability but it is a matter of prosecution under section 276C of the Act. Their Lordships also referred to several judgments on the issue and ultimately opined that "casus omissus" ought not to be created by interpretation, save in some case of strong necessity. Therefore, in the absence of the words "wilful" or "mens rea", there was no justification to read in between the lines with reference to the abovesaid two words. Therefore, according to the learned standing counsel for the Revenue, the Department need not establish mens rea or wilful concealment in not furnishing the true income in the returns. Mere concealment or furnishing inaccurate details of income itself invites penalty as contemplated under section 271(1)(c) of the Income-tax Act. Therefore, in the present case, declaration given by the assessee in the return of income dated February 6, 1998, that the return of income includes the income from the HUF also was factually incorrect. The said fact itself would invite liability of penalty and nothing else need to be proved by the Revenue. In the case of K. Mahim (supra), their Lordships faced with a situation where an assessee should be exonerated from penalty on the basis of the original return filed by him in the absence of fraudulent intention at the time of filing the original return. While dealing with the said issue, their Lordships had beautifully analysed the purpose of section 271(1)(c) of the Act and also made clear how the social philosophy cannot work in the matter of taxation law. Courts of law are not concerned with the social philosophy behind a heavy dose of taxation or about the social attitudes in the matter. The laws enacted by Parliament, including the penal provisions thereof, have to be interpreted on their plain terms and given effect to, regardless of other consideration. If stringent measures such as section 271 of the Income-tax Act, 1961, are enacted, neither courts nor the taxation authorities nor the Tribunal can render them nugatory by adopting a fundamentally erroneous approach to the statutory scheme provided under the Act. They also refer to the difficulty in the preparation of return under the Income-tax Act and illustrated several circumstances in which there could be a bona fide mistake in giving all the details of income where voluminous records and accounts with a numerous figures have to be considered before filing the return. In such event, the mere omission or wrong statement may not amount to concealment as contemplated under section 271(1)(c) of the Income-tax Act, because there is no suppression of truth or of a known fact by the assessee to the prejudice of the Department. However, while opining that a concept of discovery is totally incompatible with the mental condition of an assessee who intentionally suppressed his income or the particulars thereof, their Lordships opined that, it is not the submission of a revised return that is crucial on the question, but the omission or wrong statement with what intention has to be seen. In other words, if the concealment is on account of honest and bona fide reasons, it could be considered and not otherwise. In the light of such observation of the apex court and also the earlier Division Bench of this court, what is required to be seen is what exactly was the declaration made by the respondent-asses-see at the time of filing his return of income on February 6, 1998. Filing of a revised return in response to scrutiny notice is also an admitted fact in the present case.

Both the appellate authorities have placed much reliance on letter dated February 23, 1998, in concluding that the imposition of penalty is arbitrary, erroneous and not justifiable. Paragraph 2 of the proceedings of the Deputy Commissioner of Income-tax is relevant, which reads as under:

A scrutiny of the statement submitted for this year, with reference to the previous years records revealed that the assessee has not disclosed the under mentioned items of income for the current year.

Salary income from Lachmandas and Sons amounting to Rs. 50,000 disclosed for 1996-97 assessment year.

Income from a small HUF under the head ''Business'' in which he was a kartha.

Half share in another HUF M/s. Lachmandas B. Aswani.

On October 27, 1998, a letter has been issued, directing the assessee to furnish clarifications about the omissions mentioned above. In response to this letter, the assessee submitted another return on December 3, 1998, disclosing an enhanced income of Rs. 15,31,817. In the income computation statement the assessee has admitted the additional income of Rs. 2,60,079 from the erstwhile HUF M/s. Devi Enterprises and another amount of Rs. 1,95,278, towards his half share in another HUF M/s. Lachmandas V. Aswani. Revised statement were also submitted.

When the matter came up for scrutiny, it was noticed that the declaration made by the assessee while filing the return of income was incorrect and made a false statement that he has disclosed the HUF income as personal income. Factually only a small portion of the HUF income was declared leaving out a major portion of the income of the HUF as noticed from the income computation statement. Paragraph 2 stated above has to be read along with the contents of letter dated February 23, 1998. At the time of filing the return of income, there is a categorical statement that in the light of the judgment of the apex court with reference to the HUF income, i.e., N. Ramanatha Reddiar''s case (supra), no separate return of income of the HUF is to be filed and the return of income of the respondent-assessee includes the entire income from the HUF. In other words, the individual income of the assessee declared in the return of income on February 6, 1998, according to the assessee, reflects the entire income from the HUF. If that statement were to be correct, there was no need to send another letter on February 23, 1998. Letter dated February 23, 1998, does not refer to declaration made in the return of income. It simply indicates that they are giving details of the income from the HUF consequent to the decision of the Supreme Court. Ultimately, in response to the scrutiny notice, a revised return was filed wherein Rs. 4,55,000 in addition to the earlier, income shown in the return dated February 6, 1998, came to be disclosed. From these facts, it is discernible that in the initial returns filed by the assessee, income of Rs. 4,55,000 was not at all disclosed though a categorical statement to that effect was included. In the light of the observations of the apex court and also this court with reference to men rea or intention, while declaring the income by the assessee with reference to each case based on the facts and circumstances, court or authorities concerned have to determine whether there is an honest and bona fide declaration on the part of the assessee at the time of filing the returns.

Though we are not required to enquire into mens rea or wilful intention on the part of the assessee, we cannot close our eyes to the categorical declarations made by the assessee at the time of filing the return. In the light of the categorical statement that the entire income from the HUF was included in the individual income of the assessee which apparently was far from truth, we only have to opine that there was no honest and bona fide disclosure made by the respondent at the time of filing the return of income. On the other hand, but for the scrutiny taken up by the Department, the additional income from the HUF would have gone unnoticed and it would have escaped from computation of tax.

In the light of above observations, it is clear that what happened subsequent to February 6, 1998, though not crucial, the appellate authorities have placed much reliance on subsequent events than the categorical declaration in return of income on February 6, 1998. The criterion is not the contents of the letter dated February 23, 1998, nor the revised return filed in response to the scrutiny notice. The criterion in this case is categorical declaration made by the assessee at the time of submission of returns. The categorical statement with reference to the above reasoning clearly indicates there is concealment of income from the HUF, i.e., knowingly the assessee furnished inaccurate particulars of income for computation of tax. Accordingly, the substantial questions of law raised in the above memorandum of appeal are answered in favour of the Revenue and the orders of both the appellate authorities are set aside confirming the order of the assessing authority.