1986 (7) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 271(1)(c) of the Income-tax Act, 1961.
2. Establishment of concealment of income by the assessee.
3. Quantum of penalty to be levied.
4. Validity of the Tribunal's order setting aside the penalty.
5. Impact of settlement proceedings on the penalty for the assessment year 1965-66.

Detailed Analysis:

1. Applicability of Section 271(1)(c) of the Income-tax Act, 1961:
The primary issue was whether the provisions of Section 271(1)(c) read with the Explanation were attracted. The Tribunal initially held that the charge of concealment was not established. However, the High Court found that the Explanation to Section 271(1)(c) was indeed attracted as the returned income was less than 80% of the assessed income. The court noted that even if the Explanation was not applicable, concealment could still be established based on the facts.

2. Establishment of Concealment of Income by the Assessee:
The High Court scrutinized the assessee's conduct and found that the failure to produce the books of account, which were allegedly stolen, indicated mala fides. The assessee's confession of engaging in clandestine business further strengthened the case for concealment. The court emphasized that the assessee's deliberate non-disclosure of certain incomes and the false plea regarding the stolen books evidenced concealment.

3. Quantum of Penalty to be Levied:
The court examined the quantum of concealed income and the corresponding penalty. For the assessment year 1963-64, the Tribunal had set aside the addition of Rs. 16,000, but upheld the addition of Rs. 33,193. The High Court held that the penalty should be levied for the concealed income of Rs. 33,193. The court clarified that the penalty has a ratio with the extent of concealment, which must be ascertained with the aid of the Explanation to Section 271(1)(c).

4. Validity of the Tribunal's Order Setting Aside the Penalty:
The High Court disagreed with the Tribunal's decision to set aside the penalty for the assessment year 1963-64. The court found that the Tribunal erred in concluding that the charge of concealment was not established merely because the additions were based on estimates. The court cited the Madras High Court's decision in A. K. Bashu Sahib v. CIT, which held that deliberate underestimation of income could infer concealment.

5. Impact of Settlement Proceedings on the Penalty for the Assessment Year 1965-66:
For the assessment year 1965-66, the court noted that the matter was subject to settlement proceedings, which could affect the penalty. The court remanded this issue to the Tribunal to ascertain the final quantum assessment and reconsider the penalty in light of the settlement. The court refused to answer the question for this year, emphasizing the need for the Tribunal to re-evaluate the facts post-settlement.

Conclusion:
The High Court answered the references in favor of the Revenue for the assessment year 1963-64, confirming the concealment of income and the corresponding penalty. For the assessment year 1965-66, the matter was remanded to the Tribunal for reconsideration in light of the settlement proceedings. The assessee was ordered to pay costs of Rs. 250.