Commissioner of Income Tax vs Punjab Tyres

Sohani, J.—By this reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the Income Tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion;

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that even in such cases of agreed addition to the total income on account of unexplained investments, the Department had to prove by independent evidence in addition to the evidence already brought on record from various sources during the assessment proceedings that that amount represented the concealed income of the assessee earned during the relevant accounting year and on that basis cancelling the penalty of Rs. 40,000 imposed u/s 271(1)(c) of the Income Tax Act, 1961 ? "

The material facts giving rise to this reference, as set out in the statement of the case, briefly, are as follows:

During the assessment year 1974-75, the assessee derived income from business in tyres. The assessee filed a return disclosing an income of Rs. 74,670. During scrutiny, the Income Tax Officer found that the assessee had made certain investments and the Income Tax Officer, therefore, found that an addition of Rs. 40,000 over and above the income declared by the assessee under the voluntary disclosure scheme was called for. Learned counsel for the assessee agreed to this addition. The Income Tax Officer thereupon assessed the income of the assessee at Rs. 1,64,670. The Income Tax Officer also initiated penalty proceedings u/s 271(1)(c) of the Act. The matter of imposition of penalty was then referred to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner held that the assessee had concealed an income of Rs. 40,000. The Inspecting Assistant Commissioner accordingly imposed penalty on the assessee. Aggrieved by that order, the assessee preferred an appeal before the Tribunal. The main contention advanced on behalf of the assessee before the Tribunal was that since the assessment had been made on agreed basis, there was an implied understanding on the part of the Department not to initiate penalty proceedings and that with a view to co-operate fully and to purchase peace, the assessee had offered a sum of Rs. 30,000 for inclusion in its income. The Tribunal was of the opinion that, under the circumstances of the case, the levy of penalty was not justified. The Tribunal accordingly allowed the appeal. Aggrieved by that order, the Revenue sought a reference and it is at the instance of the Revenue that the aforesaid question of law has been referred to this court for its opinion.

Having heard learned counsel for the parties, we have come to the conclusion that this reference must be answered in the affirmative and against the Revenue. As observed in Addl. Commissioner of Income Tax Vs. Bhartiya Bhandar, it cannot be held as an inflexible rule that when the assessee agrees to have certain items included in his total income, he makes an admission which by itself would warrant the imposition of penalty. It has been found by the Tribunal that the assessee agreed to the inclusion of additional amount in the income disclosed by it in the return to purchase peace. In such a case, unless there is evidence showing that the assessee had consciously concealed the particulars of his income, any admission made by the assessee surrendering a particular amount as his income will not by itself justify the imposition of penalty. Learned counsel for the Revenue referred to the decisions in Commissioner of Income Tax Vs. P.B. Shah and Co. (Pvt.) Ltd., and Commissioner of Income Tax Vs. Krishna and Co., . However, in view of the decision of this court in Addl. Commissioner of Income Tax Vs. Bhartiya Bhandar, it must be held that when a surrender is made to purchase peace or for other similar reasons, the surrender cannot amount to an admission, constituting evidence of concealment in penalty proceedings.

For all these reasons, our answer to the question referred to this court is in the affirmative and against the Revenue. In the circumstances of the case, parties shall bear their own costs of this reference.