1983 (11) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Concealment of Income
2. Penalty under Section 271(1)(c) of the Income-tax Act, 1961
3. Application of CIT v. Ramdas Pharmacy [1970] 77 ITR 276 (Mad)
4. Explanation to Section 271(1)(c) of the Act

Detailed Analysis:

1. Concealment of Income:
The assessee, a firm engaged in the manufacture and sale of handloom cloth, filed a return for the assessment year 1964-65 disclosing an income of Rs. 58,574. Subsequent investigations revealed that the firm had trafficked in import licences for art-silk yarn, making false entries in its books of account to show import and sale of silk cloth. The Income Tax Officer (ITO) estimated the total income at Rs. 4,02,279 after allowing a 50% discount. The assessee appealed, and the Appellate Assistant Commissioner (AAC) reduced the total income to Rs. 1,56,102 based on further reliefs. The Tribunal, however, concluded that the charge of concealment of income could not be sustained and cancelled the penalty levied by the Inspecting Assistant Commissioner (IAC).

2. Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The IAC initiated penalty proceedings under Section 271(1)(c) for alleged concealment of income. The assessee argued that the discrepancies were not due to gross or wilful negligence or fraud. However, the IAC found that the assessee had admitted to falsifying its books and had not disclosed particulars relating to the sale of licences. The IAC levied a penalty of Rs. 20,000, which was later cancelled by the Tribunal. The High Court, however, found that the assessee had deliberately furnished inaccurate particulars of income and had not discharged the burden of proof under the Explanation to Section 271(1)(c). The High Court held that the requirements of Section 271(1)(c) were fulfilled, thereby justifying the levy of penalty.

3. Application of CIT v. Ramdas Pharmacy [1970] 77 ITR 276 (Mad):
The Tribunal applied the principle from CIT v. Ramdas Pharmacy, which states that a true disclosure of income made in a revised return before the completion of assessment may be considered in deciding the liability for penalty. However, the High Court found this inapplicable as the assessee had not filed a revised return and had maintained that the income returned earlier was correct despite admitting that the entries in the books were false. The High Court emphasized that the Tribunal erred in applying this decision.

4. Explanation to Section 271(1)(c) of the Act:
The Revenue argued that the Explanation to Section 271(1)(c) was applicable as the income returned was significantly lower than the assessed income, and the assessee had not proven that the failure to return the correct income was not due to fraud or neglect. The High Court concurred, stating that even without invoking the Explanation, the facts indicated deliberate concealment and furnishing of inaccurate particulars of income, fulfilling the conditions for penalty under Section 271(1)(c).

Conclusion:
The High Court concluded that the Tribunal erred in cancelling the penalty and upheld the IAC's decision to levy a penalty of Rs. 20,000. The Tribunal's reliance on CIT v. Ramdas Pharmacy was deemed inappropriate, and the High Court emphasized that the assessee's actions constituted deliberate concealment of income. The question of law was answered in the negative, in favor of the Revenue, and the Department was entitled to recover costs from the assessee.