H.V. Venugopal Chettiar vs Commissioner of Income Tax

Ramanujam, J.—The assessee is running a shroff shop and pawnbroking. He personally undertook reconstruction work of his residential

house during the years 1968 to 1970. The original assessment for he year 1971-72 was completed on December 13, 1972. During that

assessment, he did not disclose the cost reconstruction in respect of the said house. In the wealth-tax proceedings for the assessment year 1972-

73, it came to light that the value of the assessee''s residential house was more than the admitted value of Rs. 50,000 and the Inspector of the

Department was direct to inspect the house and give a valuation report. The Inspector inspected the house on January 19, 1974, and made

enquiries. At that time, the assessee pointed out that he had purchased on old house in 1947 and reconstructed the same in 1956, the expenses the

reconstruction having been advanced by the assessee''s wife''s grandfather. However, the Inspector''s report revealed that the municipal authorities

sanctioned the reconstruction only on December 12, 1967, and the assessee started reconstruction on April 1, 1968, and completed the same in

1970. The Inspector estimate the cost of reconstruction for the three years'' period at Rs. 98,000 as against the value admitted by the assessee at

Rs. 50,000. On the basis that the assessee had omitted to disclose the reconstruction and had also not debited the cost of construction in his

books of account, the ITO issued notice under s. 148 of the I.T. Act for reopening the assessments for the three assessment years 1969-70,

1970-71 and 1971-72. Before such notices could be served on the assessee, the assessee filed returns on March 8, 1974, purporting to be

revised returns wherein he had included a sum of Rs. 15,000 for each one of the three years under the head ""Other sources"". The ITO started

reassessment proceedings and examined the assessee on oath on January 22, 1977. At that stage, in his deposition, he admitted that the cost of

reconstruction of his residential house was met out of his business income, which was not recorded in the accounts. He also admitted the value of

the house to be Rs. 95,000 as against the original cost of Rs. 50,000 already admitted by him. The ITO estimating the value of reconstruction,

made an addition by him. The ITO estimating the value of reconstruction, made an addition of Rs. 18,000 for each one of the three assessment

years and made the said addition under the head ""Business income"".

The ITO initiated penalty proceedings also and in spite of objections raised, he levied a penalty of Rs. 18,000 for 1971-72.

The assessee took the matter in appeal before the AAC, who, however, confirmed the levy of penalty in a sum of Rs. 15,000. Being aggrieved,

the assessee took the matter before the Tribunal. The Tribunal sustained the levy penalty of Rs. 15,000 on the ground that the value of the house

had been estimated by the assessee to be Rs. 95,000, and it was also admitted by the assessee that the sum of Rs. 45,000 represented his

concealed income for a period of three years. The Tribunal also held that the assessee could not escape the levy of penalty merely on the ground

that the Department had not made an independent enquiry to find out whether the assessee had the requisite money or whether there was any

concealment. Aggrieved by the order of the Tribunal, the assessee had sought for a direction to the Tribunal to refer the following questions :

Whether, on the facts and in the circumstances of the case, the Tribunal had material to come to the conclusion that the assessee had

consciously concealed or deliberately furnished inaccurate particulars of his ''income earned'' during the assessment year under consideration for

justifying the levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961 ?

Whether in a case where the Explanation to section 271(1)(c) was not attracted and not invoked, the burden of proof of conscious concealment

of income or deliberate furnishing of inaccurate particulars of income in penalty proceedings is discharged by the Revenue within the meaning of the

provisions of section 271(1)(c) and in the light of the judgment of the Supreme Court in Commissioner of Income Tax, West Bengal I, and

Another Vs. Anwar Ali,

When the cost of construction is not properly determined in penalty proceedings when it was put in issue by the assessee, whether the Tribunal

is correct in law in holding that the assessee has concealed the particulars of income in the light of the judgment of the Madras High Court in B.

Muniappa Gounder Vs. Commissioner of Income Tax,

When he Tribunal had not given specific finding of conscious concealment of fraud or dishonest intention or deliberate furnishing of inaccurate

particulars of ''income'' relating to the year under reference, whether the levy of penalty of Rs. 15,000 u/s 271(1)(c) is valid in law ?

Though as many as four questions have been framed and a reference was sought on those questions, all the four questions are various aspects of

the only question, namely, whether the levy of penalty of Rs. 15,000 for the year 1971-72 could be sustained under s. 271(1)(c) of the Act.

The facts found by the Tribunal are these. At the stage of the original assessment for 1971-72, the assessee did not disclose the real value of his

residential house and he valued the same only at Rs. 50,000. Subsequently, it came to light during the wealthy-tax assessment that the house had

been undervalued and that the real value of the house was Rs. 95,000. The assessee himself had admitted the value of the house to be Rs. 95,000

and he stated on oath before the ITO at the stage of the reassessment proceedings that the house had been undervalued to the extent of Rs.

45,000 and that the said sum of Rs. 45,000 came from his business income. This is contrary to the statement made by him in the return originally

filed by him that the entire cost of reconstruction came from his wife''s grandfather. In the return filed at the stage of the reassessment, the assessee

had shown the income which was not disclosed in 1971-72 as Rs. 15,000. Based on the said admission made by the assessee, the ITO made an

addition of Rs. 18,000 for the assessment year 1971-72 and completed the reassessment.

After completion of the reassessment, the ITO proceeded to initiate proceedings for the levy of penalty. The assessee was issued a show cause

notice for that purpose. But he did not choose to give any reply; nor did he come forward with any statement disowning or explaining the

admission made by him at the stage of the reassessment proceedings. The ITO, therefore, proceeded to levy penalty on the basis that there had

been a non-disclosure of business income to the extent of Rs. 15,000 and the said non-disclosure having been admitted, the assessee should be

made liable for the penalty.

The learned counsel for the assessee does not, however, dispute the fact that the assessee had made an admission that there had been a non-

disclosure of the income in a sum of Rs. 45,000 for a period of three years and that the income actually suppressed for the assessment year 1971-

72 was Rs. 15,000.

The learned counsel for the assessee submits that notwithstanding the admission made by the assessee, the Department has to made an

independent enquiry to find out whether there was any suppression of income during the year in question and that the mere fact an addition of Rs.

15,000 came to be made in the reassessment proceedings is not a ground for imposing the penalty automatically. However, we find that in this

case, the imposition of penalty is not automats. It is no doubt true that the reassessment proceedings should be taken to be independent of the

penalty proceedings and mere fact that some addition came to be made in the reassessment proceedings would not automatically be taken as a

ground for levying penalty. As already stated, in this case, the assessee was served with a show-cause notice in the proceedings for the levy of

penalty. The assessee at that stage did not disown the statement made by him during the course of the assessment proceedings admitting the

suppression of Rs. 15,000 for the year 1971-72. If, in fact, the assessee had come forward with a statement at the stage of the penalty

proceedings that the admissions made by him during the assessment proceedings could not be taken as the basis for levy of penalty, the

Department would have to establish the suppression of income by making requisite enquiry and collecting relevant materials. But, in this case, the

admissions made by the assessee at the stage of the reassessment proceedings had not been retracted by the assessee. In those circumstances, the

authorities were entitled to proceed on the basis of the admission made by the assessee at the time of the assessment proceedings and act upon the

same. We are not inclined to agree with the learned counsel for the petitioner that notwithstanding the assessee''s admission, the Department has to

made an independent enquiry to find out whether there was in fact any suppression and whether such suppression was due to any dishonest

intention.

So long as the admission made by the assessee in the assessment proceedings had not been retracted and so long as there is a variation between

the statement made at the stage of the original assessment proceedings and the admission made at the stage of the reassessment proceeding leading

to an inference that the suppression of income was intentional or wilful, the assessing authority is entitled to rely on the discrepancy in the statement

made by the assessee and act on the admission made by the assessee at the reassessment stage. The learned counsel for the petitioner would say

that notwithstanding the fact that the assessee had admitted the non-disclosure of income of Rs. 15,000 in the assessment year 1971-71, the

Department has to make an independent enquiry as to whether the non-disclosure was wilful.

In this case, the admitted fact is that at the stage of the original assessment, the assessee came forward with a case that the entire cost of

construction had been met by his wife''s grandfather and the account books of the assessee did not disclose any expenditure in relation to the

reconstruction of the house. It is only at the reassessment stage, the assessee filed a so-called revised return showing the actual cost reconstruction

of the house and admitted that a sum of Rs. 45,000 out of the total cost of Rs. 95,000 from his business income during the period of three years.

Thus, it is clear that at the stage of the original assessment proceedings, the assessee had claimed that the cost of the construction had been met by

his wife''s grandfather and at the stage of the reassessment proceedings he stated that the cost had been met by him out of his business income to

the extent of Rs. 45,000. This inconsistent statement would clearly lead to the inference that there was an attempt on the part of the assessee to

suppress a portion of the income. Merely because the penalty proceedings had been held to be independent of the assessment proceedings, it

cannot be said that the assessing authority should ignore all the materials collected at the assessment stage, including the admission made by the

assessee. If the assessee has chosen to question the evidentiary value of the materials gathered at the stage of the assessment proceedings or the

admission made by him at that stage, the Department is bound to made an independent enquiry to find out whether there is any wilful non-

disclosure of the income. But where the assessee does not retract the admission made by him and call upon the Department to make an

independent enquiry, the Department is entitled to act upon the materials gathered at the stage of the assessment proceedings.

In this view, we are inclined to agree with the view taken by the Tribunal. There is, therefore, no warrant for directing a reference to this court

on the above questions. The petition is, accordingly, dismissed. There will be no order as to costs.