1971 (9) TMI 19 - SC - Income Tax

Penalty - Tribunal holds that there was no deliberate attempt at concealment - Tribunal s conclusions were on the facts of the case. These facts cannot be questioned in a reference

Summary

Issues Involved:
1. Legitimacy of penalty under section 28(1)(c) of the Indian Income-tax Act, 1922.
2. Whether the Income-tax Appellate Tribunal was correct in canceling the penalty of Rs. 35,000.
3. Whether the High Court was justified in dismissing the appellant's application under section 66(2) of the Income-tax Act, 1922.

Detailed Analysis:

Legitimacy of Penalty Under Section 28(1)(c) of the Indian Income-tax Act, 1922:
The respondent firm was engaged in manufacturing various products, including silk and chemicals. For the assessment year 1955-56, the respondent declared a taxable income of Rs. 51,214. However, upon examination, the Income-tax Officer (ITO) increased the assessable income to Rs. 3,30,474, later reduced to Rs. 2,09,575 on appeal. The ITO identified two significant additions: Rs. 77,518 for the pharmaceuticals section and Rs. 9,900 for the chemicals section, citing forged sale bills and unaccounted sales of ethyl acetate. The ITO inferred that the firm sold alcohol illicitly and concealed income.

Whether the Income-tax Appellate Tribunal Was Correct in Canceling the Penalty of Rs. 35,000:
The ITO issued a notice under section 28(1) for concealing income and furnishing inaccurate particulars, proposing a penalty of Rs. 35,000, which included additional items totaling Rs. 32,267. The Appellate Assistant Commissioner (AAC) deleted these additional items but upheld the penalty for the pharmaceuticals and chemicals sections. The respondent argued that the ITO and AAC did not independently assess whether the omissions fell under section 28(1)(c). The Tribunal set aside the penalty, stating that the department did not establish that the respondent sold alcohol illicitly or deliberately concealed income. The Tribunal noted the presence of excise authorities and proper permit numbers on sale bills, indicating no deliberate concealment.

Whether the High Court Was Justified in Dismissing the Appellant's Application Under Section 66(2) of the Income-tax Act, 1922:
The Commissioner of Income-tax sought a reference to the High Court, which the Tribunal rejected, stating the findings were based on facts, not law. The High Court upheld this, noting the Tribunal's findings were factual. The appellant argued that the High Court erred in not recognizing a legal question. However, the Supreme Court agreed with the High Court, emphasizing that penalty proceedings are penal in nature and require the department to prove conscious concealment or deliberate furnishing of inaccurate particulars. The Supreme Court cited the case of Commissioner of Income-tax v. Anwar Ali, stressing that mere falsity of the assessee's explanation does not justify penalty without additional evidence.

The Supreme Court concluded that the ITO and AAC did not provide independent discussion or evidence beyond the original assessment reasons. The Tribunal's approach was deemed correct and judicial, leading to the dismissal of the appeal. The Supreme Court affirmed that the High Court was justified in rejecting the application under section 66(2), as no question of law arose from the Tribunal's factual findings.

Conclusion:
The appeal was dismissed, with the Supreme Court supporting the High Court's decision and the Tribunal's findings that the department failed to prove deliberate concealment or inaccurate particulars by the respondent. The penalty proceedings were found to lack independent and cogent evidence beyond the original assessment reasons.