1973 (3) TMI 37 - HC - Income Tax

Whether on the facts and in the circumstances of the case the levy of penalty under section 271(1)(c) of the Income-tax Act 1961 was valid in law - Whether materials gathered during assessment proceedings are sufficient for the purposes of penalty proceedings or whether fresh materials to prove concealment are necessary

Summary

Issues Involved:
1. Validity of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Assessment of income from sales of chicory and French coffee.
3. Assessment of income from the biscuit business.
4. Legal applicability of section 271(1)(c) for concealment prior to the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The primary issue was whether the levy of penalty under section 271(1)(c) was valid. The assessee argued that the materials available could not justify the levy of penalty, asserting that the mere non-acceptance of the explanation offered by the assessee does not lead to the inference of deliberate concealment of income. The court, however, found that the Income-tax Officer's assessment was not solely based on the rejection of the assessee's explanation but on additional evidence such as the statements of purchasers and the lack of electricity usage for roasting and grinding coffee seeds. The Tribunal reduced the penalty from Rs. 36,000 to Rs. 10,000, considering the reduced additions in the chicory business.

2. Assessment of Income from Sales of Chicory and French Coffee:
The Income-tax Officer determined that the assessee sold chicory as such, not French coffee, based on the lack of evidence of roasting and grinding coffee seeds and the testimony of purchasers. The initial assessment added Rs. 25,108 as net profit from the coffee-chicory business. The Appellate Assistant Commissioner, upon reassessment, increased the addition to Rs. 32,559, but the Tribunal later reduced it to Rs. 20,000. The Tribunal's rationale was that the materials did not justify an estimate exceeding the amounts mentioned in the assessee's bills, concluding that the assessee sold chicory at Rs. 90 per case against an average purchase price of Rs. 70.

3. Assessment of Income from the Biscuit Business:
The original assessment estimated the income from the biscuit business at Rs. 27,000. Upon reassessment, the Income-tax Officer added Rs. 15,000 as the estimated profit. The Tribunal directed the Income-tax Officer to estimate the gross profit at 25 percent, modifying the addition.

4. Legal Applicability of Section 271(1)(c) for Concealment Prior to the Income-tax Act, 1961:
The assessee contended that section 271(1)(c) could not be invoked for concealment occurring before the Income-tax Act, 1961. However, this argument was conceded by the assessee's counsel in light of the Supreme Court's decision in Jain Brothers v. Union of India, which upheld the applicability of section 271(1)(c) for concealment prior to the enactment of the 1961 Act.

Conclusion:
The court upheld the penalty under section 271(1)(c), finding sufficient evidence of deliberate concealment of income. The materials gathered during the assessment, including purchaser testimony and lack of electricity usage, supported the finding. The reference was answered in the affirmative and against the assessee, with the revenue awarded costs of Rs. 250.