1988 (2) TMI 95 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee concealed its income and thus made itself liable to the imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Whether the quantum of penalty should be determined with reference to the provisions of law in existence at the time when the return was filed or as per the provisions of the statute on the date the order levying penalty was passed.

Issue-Wise Detailed Analysis:

1. Concealment of Income:
The primary issue was to determine if the assessee had concealed its income, making it liable for a penalty under section 271(1)(c) of the Income-tax Act, 1961. The assessee, a registered firm running a petrol pump, was found to have discrepancies in its cash book. The Income-tax Officer (ITO) noticed that the cash book was credited with amounts on account of petrol leakage, which reduced the cash balance but did not correspondingly affect the stock-in-trade. The ITO concluded that these manipulations resulted in the suppression of assets and thus the concealment of income by Rs. 6,406. The Tribunal confirmed this addition, holding that the assessee had no satisfactory explanation for the cash withdrawals and had failed to pass entries in the normal manner. The Tribunal stated, "The profit for the year is determined by comparing the net assets at the end of the year with the net assets at the beginning of the year. The assessee by suppressing its assets at the end of the year, suppressed its profit for the year."

2. Quantum of Penalty:
The second issue was whether the penalty should be calculated based on the law existing at the time the return was filed (21-8-1975) or the law as it stood on the date the penalty order was passed (18-3-1980). The law was amended by the Taxation Laws (Amendment) Act, 1975, effective from 1st April 1976. Before the amendment, the penalty was calculated with reference to the amount of income concealed, whereas after the amendment, it was calculated with reference to the amount of tax sought to be evaded.

The Tribunal initially had a difference of opinion on this matter. One view held that the penalty should be imposed based on the law as it stood at the time of the order, stating, "It is immaterial as to when the offence of concealment was committed. Penalty is required to be imposed in accordance with the provisions on the date of the imposition of penalty." However, the dissenting view, supported by judicial precedents, argued that the penalty should be based on the law at the time the wrongful act (filing of the return) was committed. This view was supported by several High Court decisions and the Supreme Court ruling in Brij Mohan v. CIT [1979] 120 ITR 1, which stated, "When penalty is imposed for the concealment of particulars of income, it is the law ruling on the date when the act of concealment takes place which is relevant."

The Third Member, agreeing with the dissenting view, held that the penalty should be calculated based on the law as it stood on the date the return was filed, i.e., prior to the amendment. The Third Member stated, "The concealment of income was, thus, effected on 21-8-1975 and the law ruling on that date would be applicable." Consequently, the penalty was reduced to the minimum imposable under the pre-amendment provisions.

Conclusion:
In conformity with the majority opinion, the Tribunal concluded that the assessee had concealed its income to the extent of Rs. 6,406 and that the penalty should be levied in accordance with the law prior to the amendment of section 271(1)(iii) by the Taxation Laws (Amendment) Act, 1975, which came into effect from 1-4-1976. The penalty was thus reduced to the minimum imposable under the pre-amendment provisions, and the appeal was partly allowed.