1972 (5) TMI 13 - HC - Income Tax

Failure to disclose income - Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in deleting the penalty of Rs. 6, 000 imposed under section 271(1)(c) in respect of the sum of Rs. 41, 067 assessed under section 41(1) ?

Issues Involved:
1. Deletion of penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Assessment of income accrued due to the repeal of the Punjab General Sales Tax (Amendment and Validation) Act, 1960.
3. Interpretation and application of Section 271(1)(c) of the Income-tax Act, 1961.
4. Consideration of the deeming provisions under Section 41(1) of the Income-tax Act, 1961.
5. The burden of proof and the nature of penalty proceedings.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed under Section 271(1)(c) of the Income-tax Act, 1961:
The Income-tax Appellate Tribunal deleted the penalty of Rs. 6,000 imposed on the assessee under Section 271(1)(c). The Tribunal reasoned that the remission of liability occurred under peculiar circumstances where even the Punjab Government was uncertain, and thus, there was no intention on the part of the assessee to furnish inaccurate particulars. Additionally, the Tribunal held that Section 41(1) was a deeming provision and the income deemed to be the income of the assessee for assessment purposes could not form the basis for penalty, which presupposes concealment or furnishing of inaccurate particulars.

2. Assessment of Income Accrued due to the Repeal of the Punjab General Sales Tax (Amendment and Validation) Act, 1960:
The assessee did not disclose the income of Rs. 41,067 in the return for the assessment year 1962-63, which had accrued due to the repeal of the Punjab General Sales Tax (Amendment and Validation) Act, 1960. The Income-tax Officer issued a notice under Section 148 for escapement of income, and the assessee filed another return with the same income, claiming no escapement. The assessee argued that the amounts should be assessed in the years 1959-60 and 1960-61, but this plea was rejected by the Inspecting Assistant Commissioner, who imposed a penalty for concealment.

3. Interpretation and Application of Section 271(1)(c) of the Income-tax Act, 1961:
Section 271(1)(c) of the Income-tax Act, 1961, as it stood in the assessment year 1962-63, allowed for the imposition of a penalty if the assessee concealed particulars of income or deliberately furnished inaccurate particulars. The penalty provisions are penal in nature and must be strictly construed. The Madhya Pradesh High Court in Commissioner of Income-tax v. Punjabhai Shah held that penalty proceedings require a degree of proof akin to a criminal prosecution, and the findings in assessment proceedings do not operate as res judicata in penalty proceedings.

4. Consideration of the Deeming Provisions under Section 41(1) of the Income-tax Act, 1961:
The Tribunal's view that income deemed under Section 41(1) cannot form the basis for penalty was scrutinized. The court referred to the principle that if an income has accrued, whether actually or due to deeming provisions, it should be treated equivalently. The court cited Lord Asquith's observations in East End Dwellings Co. Ltd. v. Finsbury Borough Council, approved by the Supreme Court in Commissioner of Income-tax v. S. Teja Singh, emphasizing that the consequences of a deemed state of affairs must be treated as real.

5. The Burden of Proof and the Nature of Penalty Proceedings:
The burden of proof lies with the department to establish that the assessee concealed income or deliberately furnished inaccurate particulars. The Supreme Court in Commissioner of Income-tax v. Anwar Ali stated that penalty can only be imposed if the entirety of circumstances reasonably points to conscious concealment or deliberate furnishing of inaccurate particulars. The court noted that neither the Inspecting Assistant Commissioner nor the Tribunal had adequately examined whether there was conscious concealment or deliberate furnishing of inaccurate particulars.

Conclusion:
The court did not give a definitive opinion on the question referred but emphasized the need to examine the case in light of the legal principles discussed. The case was sent back to the Tribunal to consider whether the concealment was conscious or if inaccurate particulars were deliberately furnished. The assessee was allowed to present all relevant pleas before the Tribunal.

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