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Issues Involved
1. Whether the Appellate Tribunal was right in reducing the penalty levied under section 271(1)(c) to Rs. 1,725 for the assessment year 1961-62. 2. Whether the Appellate Tribunal's finding that there is concealment only in the original return is based on valid consideration and is reasonable view to take on the facts of the case. Comprehensive Issue-Wise Analysis Issue 1: Reduction of Penalty by the Appellate Tribunal The assessee, a firm with two partners engaged in the purchase and sale of cloth and export of art silk fabrics, disclosed incomes of Rs. 13,409, Rs. 36,324, and Rs. 28,785 for the assessment years 1961-62, 1962-63, and 1963-64, respectively. The assessments were completed, and the total incomes were determined as Rs. 16,409, Rs. 45,846, and Rs. 36,375, respectively. The assessee later sought to file revised returns disclosing additional income that had escaped assessment. Notices under section 148 of the Income Tax Act, 1961, were issued by the ITO, and revised returns were filed disclosing higher incomes. The ITO did not accept the estimates and determined higher total incomes, initiating penalty proceedings for alleged concealment of income. The IAC levied penalties, which were reduced by the AAC and further appealed to the Tribunal. The Tribunal held that the concealment was in the original returns and applied the pre-amendment provisions of section 271(1)(c), reducing the penalty to 25% of the tax sought to be evaded. Issue 2: Concealment in Original Return The Tribunal's finding that the concealment occurred only in the original returns was based on the fact that the offence of concealment was complete when the original returns were filed. The Tribunal considered whether the provisions of section 271(1)(c) as they stood prior to the amendment by the Finance Act of 1968 or the amended provisions were applicable. The Tribunal held that the pre-amendment provisions were applicable since the original returns were filed before April 1, 1968. The Tribunal also rejected the assessee's contention that only the minimum penalty of 20% should be imposed, instead imposing 25% of the tax sought to be evaded due to the lack of cooperation from the assessee in providing exact amounts. Legal Provisions and Interpretation Section 271(1)(c) prior to its amendment by the Finance Act of 1968 imposed penalties based on the amount of tax avoided, whereas the amended provision imposed penalties based on the amount of income concealed. The concealment in this case was related to the original returns filed before April 1, 1968, thus the pre-amendment provisions were applicable. The Tribunal's decision was supported by the principle that the offence of concealment is complete when the original return is filed, and subsequent revised returns do not constitute fresh offences. Case Law and Precedents The judgment referenced several decided cases, including N. A. Malbary and Bros. v. CIT, which held that the penalty should be correlated to the amount of tax evaded if the concealment was detected later. The Supreme Court's decision in Brij Mohan v. CIT established that the penalty should be in accordance with the law operating on the date of the wrongful act. The judgment also referenced decisions from other High Courts, reinforcing the view that the offence of concealment is tied to the original return and not to subsequent revised returns. Conclusion The court affirmed the Tribunal's decision, holding that the penalty should be based on the concealment in the original returns as per the law prior to April 1, 1968. The reduction of the penalty by the Tribunal was deemed appropriate, and the references were answered in the affirmative, against the revenue. The assessee was entitled to costs, with counsel fees set at Rs. 500. This detailed analysis preserves the legal terminology and significant phrases from the original text, providing a comprehensive understanding of the judgment while maintaining privacy by not mentioning the names of any parties or individuals.
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