1980 (4) TMI 67 - HC - Income Tax

Issues Involved:
1. Reopening of assessments under Section 147(a) of the I.T. Act, 1961.
2. Validity of the penalties imposed under Section 271(1)(c) of the I.T. Act, 1961.
3. The impact of the assessee's disclosure petition on penalty proceedings.
4. Whether the Tribunal was justified in cancelling the penalties.

Detailed Analysis:

1. Reopening of Assessments under Section 147(a) of the I.T. Act, 1961:
The original assessment for the year 1957-58 was completed on October 28, 1957. The Income Tax Officer (ITO) reopened the assessment under Section 147(a) of the I.T. Act, 1961, due to the omission or failure on the part of the assessee to disclose fully or truly the particulars of income. The notice under Section 148 was issued on March 15, 1966, subsequent to the filing of the disclosure petition by the assessee on February 3, 1966. The assessee did not file a return or produce books of account in response to the notice under Section 148, leading the ITO to complete the assessment under Section 144 read with Section 147(a) ex parte.

2. Validity of the Penalties Imposed under Section 271(1)(c) of the I.T. Act, 1961:
For the assessment year 1957-58, the ITO found cash credits amounting to Rs. 1,80,000 in the accounts of six parties and treated these as the assessee's income from undisclosed sources. Similarly, for the assessment year 1961-62, the ITO found fresh cash credits of Rs. 1,92,500 in the names of eight parties and added these as the assessee's income from other sources. Penalty proceedings under Section 271(1)(c) were initiated for both years, and the Inspecting Assistant Commissioner (IAC) imposed penalties of Rs. 1,59,000 for 1957-58 and Rs. 90,000 for 1961-62.

3. Impact of the Assessee's Disclosure Petition on Penalty Proceedings:
The assessee's disclosure petition admitted that the unexplained cash credits represented its own income. The Tribunal noted that the additions in the cash credits were held to be bogus and disallowance of interest on the bogus loans formed the basis for the initiation of penalty proceedings. The Tribunal accepted the assessee's contention that the penal provisions of Section 271(1)(c) are to punish contumacious conduct for willful fraud or deliberate and utter disregard of the law. The Tribunal observed that the assessee had made a clean breast of the amounts in the disclosure petition before the department started the assessment proceedings or detected the concealments.

4. Whether the Tribunal was Justified in Cancelling the Penalties:
The Tribunal cancelled the penalties imposed, reasoning that the penal provisions should not be invoked merely because the law provides for it and it will be lawful to make the imposition. The Tribunal referenced the Supreme Court decision in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, emphasizing that penalty should not be imposed unless the conduct was contumacious or dishonest.

However, the High Court disagreed with the Tribunal's view. The Court noted that the disclosure petition indicated that the interest shown in the return was falsely and deliberately shown. The Court held that the assessee had deliberately concealed the particulars of income or furnished inaccurate particulars for both assessment years. The High Court emphasized that the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of income or had deliberately furnished inaccurate particulars.

Conclusion:
The High Court concluded that the Tribunal was not justified in cancelling the orders of penalties under Section 271(1)(c) of the I.T. Act, 1961, for the assessment years 1957-58 and 1961-62. The quantum of the penalty will have to be re-examined by the Tribunal in light of the law as enunciated by the Supreme Court in Mansukhlal and Brothers v. CIT [1969] 73 ITR 546. The question was answered in the negative and in favor of the revenue, with directions for the Tribunal to consider the quantum of penalty accordingly. The assessee was directed to pay and bear the costs.

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