1982 (6) TMI 18 - HC - Income Tax

Issues Involved:
1. Justification of penalty levied for assessment years 1966-67 and 1967-68.
2. Whether the notice issued for penalty was valid.
3. The impact of the appellate orders on the penalty proceedings.
4. Jurisdiction of the Income-tax Officer (ITO) and the Inspecting Assistant Commissioner (IAC) in penalty proceedings.

Detailed Analysis:

1. Justification of Penalty Levied for Assessment Years 1966-67 and 1967-68:
The Tribunal was tasked with determining whether the penalties of Rs. 20,000 for the assessment year 1966-67 and Rs. 10,000 for the assessment year 1967-68 were justified. The assessee, a registered firm, had admitted to certain unvouched sales not recorded in the books of account. For 1966-67, the assessee filed a revised return showing an additional income of Rs. 60,000, attributing the omission to an error by their accountant. The ITO rejected this explanation, treating the amount as a revenue receipt and initiated penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961.

For 1967-68, the assessee declared a total income of Rs. 1,34,504 but admitted to unvouched sales amounting to Rs. 13,348. The ITO added this amount to the income and initiated penalty proceedings on the same grounds of suppressed sales.

2. Validity of the Notice Issued for Penalty:
The assessee argued that the penalty proceedings were vitiated because the notice was issued on the basis of suppressed sales in the cement trading account, whereas the Appellate Assistant Commissioner (AAC) later determined these were in the general trading account. The court found this argument unconvincing, stating that both the ITO and AAC agreed on the existence of suppressed sales and the resultant profits. The court clarified that the crucial issue was whether the suppressed sales were deliberate or inadvertent, irrespective of whether they were in the cement or general trading account. Hence, the notice was deemed valid.

3. Impact of the Appellate Orders on Penalty Proceedings:
The AAC, in his appellate orders, modified the ITO's findings but did not fundamentally alter the basis for the penalty. For 1966-67, the AAC concluded that the Rs. 60,000 represented profit from suppressed sales in the general trading account and adjusted the total income accordingly. For 1967-68, the AAC upheld the addition of Rs. 13,349 for suppressed sales. The court noted that these modifications did not change the fundamental fact of suppressed sales, thereby not affecting the validity of the penalty notices.

4. Jurisdiction of the ITO and IAC in Penalty Proceedings:
The court examined whether the IAC had jurisdiction to impose penalties based on the ITO's findings. The IAC levied penalties of Rs. 90,000 for 1966-67 and Rs. 10,000 for 1967-68, concluding that the revised returns were not filed voluntarily but due to the detection of suppressed sales by the ITO. The Tribunal reduced the penalty for 1966-67 to Rs. 20,000 but upheld the penalty for 1967-68, affirming the IAC's jurisdiction.

The court distinguished this case from others cited by the assessee, where penalties were imposed on different grounds than those in the original notices. Here, the penalty was consistently based on suppressed sales, whether in the cement or general trading account, and thus the IAC's jurisdiction was upheld.

Conclusion:
The court answered the referred question in the affirmative, holding that the Tribunal was justified in sustaining the penalties for both assessment years. The assessee was ordered to pay costs to the Commissioner.

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