Judgment of Supreme Court against the order of High Court. - Income Tax - 1134/CBDT

INSTRUCTION NO. 1134/CBDT Dated : January 9, 1978 Enclosed is the copy of the judgment of the Supreme Court in an appeal filed by the department against the order of the High Court rejecting reference application under Section 256(2), which is first of its kind, in a case where Explanation to Section 271(1)(c) was applied to make out a case of concealment. The judgment, though not rendered in an appeal against any substantive decision of the Gujarat High Court, may in a way prove to be of help in persuading the Tribunal/High court in reference applications filed by the Department to accept the same. Briefly the facts of this case are that the assessee firm running the Hotel at Ahmedabad was found to be consistently maintaining incomplete and incorrect books of account from assessment year 1963-64 and was every year being assessed on estimated income as was determined after applying gross profit rate of 30 % under section 145. In the two assessment years 1967-68 and 1968-69 which were the subject matter of penalty under Section 271(1) (c) read with Explanation, the IAC held that there was a wide difference between the assessed and returned income resulting in income being returned at a figure much lower than 80% of the income assessed and that the assessee's book results were being rejected year after year entailing substantial additions. Still the assessee persisted in maintaining the same type of accounts. For assessment year 1967-68 the assessee's authorised representative stated before the ITO that he had no objection to the adoption of a rate of 30% resulting in addition of Rs.1,30,000 to the returned income of Rs.34,131. It was, however, made clear by him that the addition was agreed to only with a view to avoid unnecessary litigation and that no adverse inference should be drawn otherwise in any respect whatsoever. For assessment year 1968-69 there was no such agreement on the part of assessee. The IAC also relied on the additional fact that for that year the firm paid tax under section 140A amounting to Rs.35,931 which was in excess of the tax payable on the returned income of Rs.68,841. For this year the assessed total income was Rs.2,80,457. The IAC also noticed that higher payments on self-assessments were made by the 3 partners of the firm. The Tribunal while disposing of the appeal had observed that though the assessee's representative agreed to the addition of the income returned by the adoption of the rate of 30% profit resulting in an addition of Rs.1,31,000 to the income returned, he agreed to the addition only with a view to avoid unnecessary litigation and no adverse inference should be drawn in any other respect. The Tribunal held that there was no fraud or gross or wilful neglect on the part of the assessee and cancelled the penalty. According to the Tribunal the questions sought to be referred to the High Court were questions of fact. In its view whether there was any conscious or deliberate concealment by the assessee was a question of fact and no question of law arose therefrom. Similarly, there was nothing to indicate anywhere that the conclusion of the Tribunal was contrary to material on evidence on record and hence it was not bad in law. The High Court also rejected the reference application under Section 256(2). The Supreme Court in its judgment did not agree that no question of law arose out of the Tribunal's order and directed the High Court to call for a Statement of case from the Tribunal on the two questions mentioned in the judgment. It is noticed that the trend of orders by the Tribunal is to weigh the factual circumstances of the case with a measure of strictness even under the Explanation, and even fairly cogent cases for concealment relying on the Explanation are not being sustained by the Tribunal on the ground that the assessee could discharge initial onus, while the Department could not prove concealment with positive evidence. Thereafter, the reference application filed by the Department is also rejected on the ground that no question of law arise therefrom. It is expected that in cases involving identical circumstances as in the case of M/s Chandravilas Hotel, the Supreme Court judgment may be of help in persuading the Tribunal/High Court to accept reference applications. However, much will depend on the facts and circumstances of each case and on the questions of law so framed as to bring out the perversity in the conclusions of the Tribunal. The questions directed to be referred to the High Court by the Tribunal in the judgement of the Supreme Court may provide some guideline in framing the questions of law in the Departmental reference applications.