1969 (6) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Imposition of penalties under section 18A(9)/28(1)(c) of the Indian Income-tax Act, 1922.
2. Validity of the assessee's estimates of income.
3. Obligation to file revised estimates.
4. Burden of proof on the revenue to establish conditions for penalties.
5. Consideration of the nature of the assessee's business and its impact on income estimation.

Issue-wise Detailed Analysis:

1. Imposition of Penalties under Section 18A(9)/28(1)(c):
The primary issue in this case was whether the penalties imposed under section 18A(9)/28(1)(c) of the Indian Income-tax Act, 1922, were justified. The Income-tax Officer (ITO) had issued notices and imposed penalties on the assessee for the assessment years 1959-60 and 1960-61, citing that the assessee had furnished estimates of income that were untrue. The Tribunal upheld these penalties, leading to the reference to the High Court.

2. Validity of the Assessee's Estimates of Income:
The assessee, United Asian Traders Ltd., had filed estimates showing nil income for the accounting years 1958-59 and 1959-60, which were later found to be incorrect. The assessee argued that the estimates were based on the state of accounts at the time of filing and that the business's nature, dealing in jute and hemp, made it difficult to predict profits due to heavy price fluctuations. The Tribunal, however, noted that the assessee should have been aware of the income from credit and debit notes by March 15 of the subsequent year and failed to file revised estimates accordingly.

3. Obligation to File Revised Estimates:
The assessee contended that there was no obligation to file revised estimates under section 18A(2) and that failure to do so did not imply that the original estimates were knowingly false. The Tribunal and the High Court considered that while the proviso to section 18A(2) gave the assessee an option to file a revised return, the failure to exercise this option, combined with other factors, indicated that the assessee had reason to believe the original estimates were untrue.

4. Burden of Proof on the Revenue:
The assessee's counsel argued that section 18A(9) is penal in nature, and the burden of proof lies on the revenue to establish that the conditions for invoking the section were met. The High Court agreed that the revenue must prove that the assessee knew or had reason to believe the estimates were untrue. The Court examined whether there were materials before the ITO to be satisfied that the assessee's estimates were knowingly false.

5. Consideration of the Nature of the Assessee's Business:
The High Court took into account the nature of the assessee's business, which involved export in jute and hemp and the receipt of credit and debit notes. The Court noted that the receipt of such notes was a normal incident of the business, and the assessee should have been aware of the probable income by March 15 of the subsequent year. The Tribunal's finding that the assessee had reason to believe the estimates were untrue was upheld, considering the business's nature and the timing of the estimates.

Conclusion:
The High Court concluded that the Tribunal was justified in confirming the penalties imposed under section 18A(9)/28(1)(c) of the Indian Income-tax Act, 1922. The Court held that there were sufficient materials for the ITO to be satisfied that the assessee had filed estimates it knew or had reason to believe were untrue. The answer to the referred question was in the affirmative, in favor of the revenue, and the assessee was ordered to pay the costs of the reference.