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TMI Blog1976 (1) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... he officer started by his letter to the assessee sent in the course of the assessment proceedings for 1969-70. On 31st march, 1970 he wrote to the assessee asking for details of packing expenses, travelling expenses, some credit balances, call deposit accounts etc. The assessee took several adjustments and on 18th July, 1970 he wrote a letter stating that while going through their accounts by their auditors, certain discrepancies were noted for the asst. yrs. 1962-63 and 1963-64. They were also advised to file fresh returns for 1964-65 and 1965-66. The assessee mad a request to supply return forms to enable them to do so. In the meanwhile certain books of accounts were produced for the asst. yrs. 1967-68 and 1868-69 and on 21st July, 1970 these books were impounded by the ITO on noticing several points of discrepancy. He had also taken up independent investigation regarding the bank accounts of the assessee's partners etc. and on 16th Jan., 1971 an inspection was carried out in the premises of the assessee under s. 133A. Certain ledgers and registers showing postage expenses were found which were at variance with what had been claimed earlier. 3. At this stage the assessee made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, we thought the best way to arrive at a true and correct assessment of the quantum of the escaped income would be to prepare a statement of wealth, as at the end of each accounting period, which should embrace within its fold all the assets of the partners of the firm and also their close relatives. sons, sister, minor children, wives of the partners etc. Such statement is bound to show and reflect the growth of the assets from year to year in relation to the assets as per the accounts and also those tangible assets outside the accounts such as bank deposits, buildings, shares and other movable assets. The difference between the net assets as disclosed by the Wealth statements of each year and the assets already disclosed as per the Balance sheets based on the books of accounts would clearly being out the income that has escaped assessment for each year. The wealth statement an the relative charts prepared meticulously with due regard to all the relevant details are appended hereto. Based on those figures, the escaped income are as shown below :— Assessment year Amount 1962-63 Rs. 32,757.34 1963-64 25,192.91 1964-65 48,755.95 1965-66 51,595.79 1966-67 86,265.29 1967 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Next he submitted that the actual amount of income which was concealed was less than Rs. 25,000 for each of the years and so after the amendment of s. 274 in 1970 the jurisdiction to levy penalty vested with the ITO and not with the IAC. The actual amount of income concealed cannot include additions in the assessment based on differences in the estimated cost of construction, addition based on different method of accounting of packing materials, consumable stores etc. If such additions are not treated as concealed income and are ignored the rest of the additions would be less than Rs. 25,000 for the asst. yrs. 1962-63 to 1965-66 and the ITO gets jurisdiction to levy penalty. 8. With regard to the merits of the case, he contended that the escaped income had been computed with reference to the investments made by the partners of the assessee firm and the available sources of funds as disclosed in the books. If the investment for each year was uncovered by the sources of fund shown the excess was agreed to be concealed income. This, he submitted, is not concealment at all. Merely because certain investments made by the assessee were not properly explained, no penalty could be l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year to which the penalty proceedings relate. In all these years the original returns were furnished before 1st April, 1971. The concealment is in respect of the Income shown therein. Before 1st April, 1971 the law was that penalty proceedings should be completed within two years from the date of the assessment order. It is to be noted that the amendment to s. 275 with effect from 1st April, 1971 whereby the time limit of the two years was extended was not expressly retrospective. So the assessee's case is that the two years time limit should apply. 12. The proposition as explained by the assessee with regard to the law that governs the penalty proceedings might, as an abstract proposition, be quite sound. Even if the two years rule is the substantive law then perhaps it may not apply to penalty proceedings unless amendment is made expressly retrospective. But, in our view, the two years' rule is only a procedural law. The assessee's argument is under stood to say that the two year's rule is not exactly a rule of limitation to be called a procedural law but is really a rule with regard to jurisdiction and hence a substantive law. The assessee argues that a law of limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not affect the substantive right and, as such, it will apply to all pending proceedings. But on examination of the text of the judgment in 79 ITR 28 we find that the Allahabad High court in that case has not liable down any such principle that the amendment will apply to all pending proceedings. The Court only decided the constitutional validity of the amendment and left open all other questions about its applicability to proceedings. 14. But we find that the Kerala High Court in 81 ITR 422 (Ker) Haji K. Assainar vs. CIT dealing with the applicability of the procedural law as contained in the Explanation to s. 271(1)(c) of the IT Act, 1961, inserted by Finance Act, 1964, with effect from 1st April, 1964, to penalty proceedings in respect of assessment years prior to asst. yr. 1964-65 and where returns were filed before 1st April, 1964 which proceedings were pendings as on 1st April, 1964, observed as follows at page 428 :— "It is not doubt true that if a statute deals merely with the matters of procedure and does not affect the rights of parties the new procedure will, prima facie, apply to all pending as well as further actions." Of course in this case the Court, for certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment years prior to 1964-65 because those returns were filed after 1st April, 1964 at a time when the Explanation which is of a procedural nature was in force. These two decisions therefore, are only authorities for the limited proposition that the law applicable to pending proceedings is the law as on the date of furnishing of the return. That is the only point decided in these two cases. But the observations which are only in the nature of obiter may be of assistance to the assessee in support of his submission that subsequent procedural amendments will not apply to income-tax penalty proceedings though they were pending at the time when the amendments to procedural law came into force. The argument of the assessee based on these observations is that if Explanation to s. 271(1)(c) is procedural in nature, it should apply to all pending proceedings irrespective of the assessment years or the date of furnishing of the returns as observed by the Kerala High Court in 81 ITR 422 cited above and need not have been limited to returns filed after 1st April, 1964. The instance the assessee argued that if the proposition stated in 81 ITR 422 is correct then the amendment which brought in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat case the Kerala High Court excluded the applicability of the Explanation not on the reasoning that procedural amendment will not apply to pending proceedings but on the reasoning that certain other amendments brought on the same day were inextricably linked with the Explanation to s. 271(1)(c) and it effected substantial rights. So in the unreported case it was this principle extracted above that the applicability of the Explanation to pending proceedings was excluded. Therefore, the unreported decision is not contrary to the obiter contained in 81 ITR 422. It may not be possible for the assessee to argue that the Taxation Laws Act, 1970 which brought about the change in the rule of prescription the rights and procedures are dealt with together and that, therefore, the principles, expounded in 81 ITR 422 to exclude the applicability of the amendment should apply. In the full bench decision of Kerala High Court where the two cases where quoted with approval they were only over-ruling the principles contained in another unreported case in ITR 38 of 1968 decided on 26th May, 1972 wherein they held that the amendment will not apply to any proceedings relating to the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the facts of the case. We have seen evidence to show that there had been inflation in the expenses under postal and travelling accounts. We have also seen letters of the assessee wherein they had admitted that there was discrepancies. We have also seen letters of the assessee wherein they had admitted that there were discrepancies. We have quoted in extensor the letter of the assessee dt. 10th Sept., 1971 wherein they had expressly admitted that there were lapses and omission had occurred in disclosing the true and correct income for the asst. yrs. 1961-62 to 1969-70. There is also a clear admission by the assessee that the income which had been concealed by the assessee from the authorities had surfaced later on in the shape of investments in banks, house properties etc. in the name of the partners and their relations. In view of these facts merely it is to say that certain investments were not explained would be to ignore all the important aspects of this case. What the learned counsel for the assessee was doing was to show that it was merely a matter of investments not properly explained. It is not so. That would be a wrong end of the picture. That the investment are introd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmed the penalties the extent of the concealed income was immaterial for the quantification of penalty. Even if Rs. 1 is found to have been concealed the minimum penalty has to be imposed. But for 1969-70 each rupee alleged to be concealed has to be proved to be so. We do not find any evidence that there was a cash balance of Rs. 33,000 and it could be taken as part of the unaccounted investment. So this amount had to be deducted from the concealed income. That leaves Rs. 1,309 only. 21. Our of the amount of Rs. 78,191 which had been treated as an investment of this year there was an investment in a firm Bandra Tea Mart repayment of loan Rs. 20,000. The assessee stated that this was not an investment but merely repayment of what had been received earlier. The books of accounts have also been shown before us. The books show receipt from Bandra Tea Mart and certain drawings on subsequent dates by the partners. These drawings are said to have been utilised for repayment. It was argued that it should not be taken as concealed income. The Departmental Representative submitted that the drawings made by the partners which allegedly was used in the repayment to Bandra Tea Mart had al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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