1996 (11) TMI 64 - HC - Income Tax

Summary

Issues Involved:
1. Justification of the enhancement of penalties under section 271(1)(c) of the Income-tax Act, 1961.
2. Determination of concealed income with reference to original returns versus returns filed in response to notices under section 148.
3. Validity of penalties imposed for the assessment year 1973-74.

Issue-Wise Detailed Analysis:

1. Justification of the Enhancement of Penalties under Section 271(1)(c):
The primary issue was whether the Appellate Tribunal was justified in confirming the enhancement of penalties made by the Appellate Assistant Commissioner under section 271(1)(c) of the Income-tax Act, 1961. The penalties were initially levied by the Income-tax Officer for concealed income for the assessment years 1966-67, 1968-69, 1969-70, and unexplained investment for the assessment year 1973-74. The Appellate Assistant Commissioner enhanced these penalties based on the returns filed in response to notices under section 148, which showed "nil" income, despite the original returns showing positive income.

2. Determination of Concealed Income:
The court had to determine whether the concealed income should be based on the original returns or the returns filed in response to notices under section 148. The assessee argued that the original returns, which disclosed certain incomes, should not be ignored simply because "nil" income was shown in the subsequent returns filed under section 148. The court agreed with this argument, stating that the original returns are not rendered useless or inconsequential after reassessment proceedings. The court emphasized that the penalty should be computed based on the original returns, as they disclosed the income initially, and what is disclosed cannot be said to have been concealed.

The court referenced the Supreme Court's decision in CIT v. Onkar Saran and Sons [1992] 195 ITR 1 (SC), which established that penalties should be computed based on the law applicable at the time of the original return, not the reassessment. The court concluded that the original returns should form the basis for determining the extent of concealment and the quantum of penalty.

3. Validity of Penalties for the Assessment Year 1973-74:
For the assessment year 1973-74, the court found that the penalty was rightly imposed by the Appellate Assistant Commissioner on the difference between the income disclosed and the income assessed. The court did not find any issue with the penalties imposed for this year, as the unexplained investment was correctly identified and penalized.

Conclusion:
The court concluded that the Income-tax Appellate Tribunal erred in affirming the decision of the Appellate Assistant Commissioner based on the incomes shown in the returns filed in response to notices under section 148. The original returns should not be ignored for determining concealed income. Therefore, the question was answered in the negative, in favor of the assessee and against the Revenue for the assessment years 1966-67, 1968-69, and 1969-70. However, for the assessment year 1973-74, the penalties were upheld, favoring the Revenue.