1959 (3) TMI 54 - HC - Income Tax

Issues Involved:

1. Whether the penalty of Rs. 4,760 is leviable under Section 28(1)(c) of the Indian Income-tax Act.
2. Whether penalty proceedings can be initiated in reassessment proceedings under Section 34 for concealment of income in the original return.
3. Interpretation of the terms "has failed" and "has concealed" in Section 28(1) of the Indian Income-tax Act.
4. Applicability of penalty provisions when a revised return is filed in response to a notice under Section 34.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 28(1)(c):

The primary issue is whether the penalty of Rs. 4,760 is leviable under Section 28(1)(c) of the Indian Income-tax Act. The assessee, being the managing director of a company, received dividends which were not disclosed in the original return for the assessment year 1947-48. The Income-tax Officer reassessed the income and included the undisclosed dividends. The Tribunal rejected the assessee's explanation for non-disclosure and held that the assessee deserved to be punished under Section 28(1)(c) for concealing income or deliberately furnishing inaccurate particulars of income. The Tribunal dismissed the Department's appeal, applying the principle in the case of Mayaram Durga Prasad v. Commissioner of Income-tax [1931] 5 I.T.C. 471, and held that no penalty is leviable because there was no difference between the income as returned under Section 34 and the income as accepted by the Income-tax Officer.

2. Penalty Proceedings in Reassessment under Section 34:

The contention was whether penal action can be taken in supplementary assessment proceedings under Section 34 when the assessee admits that the original return was incorrect and files a correct return which is accepted by the income-tax authorities. The court examined the language of Section 28 and concluded that the concealment or deliberate furnishing of inaccurate particulars can take place at the time of making the original return as well as at the time of the return in compliance with the notice under Section 34. The jurisdiction to initiate penalty proceedings arises with respect to the default or contumacious conduct in the initial proceedings or in the subsequent proceedings for escaped income. The court held that there is no warrant for the contention that if in Section 34 proceedings the assessee has returned the true income which has been accepted, the income-tax authorities have no jurisdiction to issue a notice for imposition of penalty with respect to the deliberate omission made at the time of the original assessment proceedings.

3. Interpretation of "has failed" and "has concealed" in Section 28(1):

The terms "has failed" occurring in clauses (a) and (b) of Section 28(1) and "has concealed" in clause (c) being in the present perfect tense, refer to both the original and subsequent proceedings. The court held that the use of the present perfect tense in Section 28 is not warranted to exclude the original proceedings which are reopened. The words "as returned" in reference to the quantum of penalty to be imposed for defaults mentioned in clauses (b) and (c) of Section 28(1) can only mean a "return" with respect to which the omission or default has been committed. Therefore, the penalty is leviable on the amount of the tax avoided by a reference to the income returned originally and which is being reassessed on the basis of the concealed income.

4. Applicability of Penalty Provisions with Revised Return under Section 34:

The court held that the return as originally filed cannot be said to have been accepted because if accepted, it would have avoided tax. The acceptance of the revised return does not absolve the assessee of the deliberate default committed at the time of filing the first return. The court cited Commissioner of Income-tax v. Badridas Ramrai Shop [1939] 7 I.T.R. 613, and Arunachalam Chettiar v. Commissioner of Income-tax [1931] 6 I.T.C. 58, to support the view that penalty may be imposed in respect of the previous false return notwithstanding the filing of a revised return. The court concluded that the penalty is attracted notwithstanding the fact that the return has been subsequently corrected. The court also referred to the provisions of sub-section (3) of Section 34, which prescribed a period of limitation for reopening assessments in cases to which the provisions of Section 28(1)(c) apply, indicating that the penalty provisions are applicable to the original proceedings as well.

Conclusion:

The court answered the reference in the affirmative, holding that the penalty of Rs. 4,760 is leviable under Section 28(1)(c) of the Indian Income-tax Act. The court emphasized that the concealment or deliberate furnishing of inaccurate particulars can take place at the time of making the original return as well as at the time of the return in compliance with the notice under Section 34. The court held that the penalty is attracted notwithstanding the fact that the return has been subsequently corrected. The reference was answered in the affirmative with costs to the Department.

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