1968 (1) TMI 22 - HC - Income Tax

Inaccurate particulars of income - reason to believe - legality and propriety of the penalty levied on the assessee under section 28(1)(c)

Issues Involved:
1. Justification of initiation of proceedings under Section 34 of the Indian Income-tax Act, 1922.
2. Lawfulness of the inclusion of various amounts as income of the assessee.
3. Propriety and legality of the penalty levied under Section 28(1)(c) of the Act.

Detailed Analysis:

1. Justification of Initiation of Proceedings under Section 34:

The initiation of proceedings under Section 34 was challenged on the basis that the Income-tax Officer had all the materials before him during the original assessments. However, the court held that the reassessments were justified as they were based on new information obtained from the assessee's advocate, which led to a probe into the accounts and discovery of undisclosed income. The court emphasized that the Income-tax Officer had "reason to believe" that income had escaped assessment due to the assessee's failure to fully disclose material facts. The court cited several precedents, including *Commissioner of Income-tax v. Jagan Nath Maheshwary* and *Calcutta Discount Co. Ltd. v. Income-tax Officer, Calcutta*, to support the view that the reopening of assessments under Section 34 is permissible if the Income-tax Officer acts on reasonable grounds and new information.

2. Lawfulness of the Inclusion of Various Amounts as Income of the Assessee:

The court examined the inclusion of various amounts as the income of the assessee for different assessment years:

- 1943-44: The Tribunal found that the amounts expended for the purchase of properties and realized by the sale of jewels were from undisclosed sources. The explanation that the funds came from the mother-in-law and wives of the assessee was rejected due to lack of credible evidence.
- 1944-45: The Tribunal upheld the inclusion of Rs. 38,775 for property purchases and Rs. 90,000 for bank deposits as the income of the assessee, rejecting the claim that these funds belonged to the mother-in-law.
- 1945-46: The addition of Rs. 17,900 for sale proceeds of jewels was sustained.
- 1946-47: The Tribunal did not accept the explanation that Rs. 10,000 and Rs. 20,000 were provided by the mother-in-law, and included these amounts as income of the assessee.
- 1947-48: The Tribunal found that the investments and properties were purchased from the assessee's undisclosed income.

The court upheld the Tribunal's findings, emphasizing that the assessee failed to provide satisfactory explanations for the sources of these amounts.

3. Propriety and Legality of the Penalty Levied under Section 28(1)(c):

The penalty proceedings under Section 28(1)(c) were challenged on the grounds that the assessee had disclosed all material facts during the original assessments. The court noted that the Income-tax Officer initiated penalty proceedings based on the discovery of undisclosed income during the reassessment. However, the court held that the mere non-acceptance of the assessee's explanation does not automatically attract penalty under Section 28(1)(c). The court emphasized that the revenue must establish that the assessee deliberately concealed income or furnished inaccurate particulars.

- 1943-44 to 1947-48: The court found that the explanation provided by the assessee, although not accepted, was not sufficient to establish deliberate concealment. The court noted that the original assessing officer had the same material before him but did not find any concealment. Therefore, the imposition of penalties was not justified.

The court concluded that the Tribunal erred in restoring the penalties imposed by the Income-tax Officer and answered the questions in favor of the assessee, setting aside the penalties for all the assessment years in question.

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