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TMI Blog1965 (2) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... of attorney from the said Laxmichand of date 12th June, 1947, sold the aforesaid bags from its (assessee's) own godown during the S. Ys. 2003 to 2005, the corresponding assessment years being 1948-49, 1949-50 and 1950-51. The sale proceeds were credited to the account of Laxmichand. Out of these sale proceeds, the assessee paid the remaining balance of ₹ 90,000 to Bhivandiwala and Co. in due course of time. At the end of S.Y. 2005, the credit balance of the sale proceeds amounting to ₹ 53,785 was in the books of account of the assessee. The said balance was not repaid by the assessee to Laxmichand till the year 2010 and, even at that time, it is said that the said amount was paid in cash. In respect of these transactions, the assessee showed a profit of ₹ 10,000 for the entire lot of 2 lakhs of bags. The profits were shown as commission at ₹ 5 per 100 units. The said amount of profits, ₹ 10,000, was spread over the relevant three previous years for the assessment years 1948-49, 1949-50 and 1950-51. Now the books of account of Laxmichand did not disclose any transaction in respect of the sales of these gunny bags nor were there any entries relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We would, therefore, state the details of computation relating to which there is no dispute between the parties. Now, in the assessment the Income-tax Officer had disallowed certain expenses claimed by the assessee, adding them back to the returned income. The Income-tax Officer determined that figure at ₹ 48,423. Deducting ₹ 288 therefrom as depreciation, the figure arrived at was ₹ 48,135. To this figure were added ₹ 90,000 as income from undisclosed source and ₹ 24,000, concealed profits earned from sale of anti-gas water-proof bags, in all, totalling ₹ 1,62,135. In response to the penalty notice issued under section 28(1)(c) of the Act, the assessee appeared. The Income-tax Officer held that the tax sought to be avoided on the difference between the returned income of ₹ 45,904 and the assessed income of ₹ 1,62,135 amounted to ₹ 88,993 and one and a half times thereof would amount to ₹ 1,33,489. He, however, imposed a penalty of ₹ 62,000. The assessee appealed against the imposition of the penalty to the Appellate Assistant Commissioner. Before the Appellate Assistant Commissioner, it was urged that there was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as the Income-tax Officer that the assessee had concealed income to the extent of ₹ 24,000 for the assessment year 1948-49. As regards the maximum amount of penalty permissible under section 28(1)(c), the Tribunal observed: So long as concealment is thus established, either by one item or more, the quantum requires to be computed under section 28(1)(c) not on the basis of the tax on the items proved to have been concealed, but on the difference between the tax on his income as finally assessed and the tax that would have been avoided if the return had been accepted as true. In support of this view, the Tribunal placed reliance on the decision of the Andhra High Court in Kalidindi Subbaraju Gopalaraju Co. v. Commissioner of Income-tax1. In this view of the matter, the Tribunal set aside the order of the Appellate Assistant Commissioner and restored that of the Income-tax Officer observing that as counsel for the assessee did not argue about the quantum of the penalty, he was restoring the order of the Income-tax Officer. In the result, the penalty that has been imposed against the assessee for the assessment year 1948-49 amounts to ₹ 62,000. On an appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (4) provides that no prosecution for an offence under this Act shall be instituted in respect of the same facts on which a penalty has been imposed. Subsection (5) requires the higher authorities to send copies of their orders to the Tribunal. Sub-section (6) provides that the Income-tax Officer shall not impose any penalty under this (that) section without the previous approval of the Inspecting Assistant Commissioner. Mr. Kolah, learned counsel for the assessee, contends that on a true construction of the aforesaid material clause, the penalty that could be imposed is only one and a half times of the tax payable on the concealed income. Laying emphasis on the word avoided , Mr. Kolah argues that the maximum penalty has to be calculated only on the basis of tax avoided , i.e., tax which has been evaded by reason of concealment, and not tax that has escaped for any other reason. An assessee may take a mistaken view of fact or law. He may, bona fide believing, not include certain items of his income. The income-tax authorities may take a different view and they may add that income. These additions do not attract penalty. Concealment may be for a very small amount and y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has referred us to three decisions of the Rangoon High Court to which we would in due course advert, and the decision of the Andhra High Court on which reliance has been placed by the Tribunal. Now, the relevant part of section 28(1)(c) speaks of maximum penalty that could be imposed, and the limit is one and a half times the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income. The construction turns on the true import and meaning of the expression income as returned and income-tax and super-tax avoided in the event of acceptance of income as returned. Now, the expression income as returned is well understood in the Income-tax Act. It means income as shown by the assessee in his return and nothing else. The income as determined by the Income-tax Officer is termed as the income computed or assessed by the Income-tax Officer. It is not understood in the Income-tax Act as income returned. Section 28 has to be read in the context of the provisions of section 23. In fact, as will be seen on the language of section 28 itself, proceedings under section 28 arise when the income-tax authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment. Sub-section (4) relates to the procedure to be followed in making assessment on an estimate of income where the assessee has either not filed the return in response to the notice under sub-section (2) or has failed to comply with the notice issued by the Income-tax Officer to produce documents. Such an assessment is generally termed as the best judgment assessment . It is, therefore, clear that a distinction is made in the Act itself between the assessment on the basis of acceptance of income shown in his return by an assessee and the assessment made after recording evidence and holding an enquiry. There is thus a vital difference between income assessed and income returned. It is only when the income-tax authorities or the Tribunal discovers contumacious or fraudulent conduct on the part of the assessee that the provisions of section 28 relating to imposition of penalty come into play. The expression income as returned occurring in section 28(1)(c), in our opinion, therefore, means income disclosed by the assessee in his return and not income computed or assessed by the income-tax authorities minus the income added on the ground of concealment. Turning now to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent of concealment. In our opinion, the provisions of section 28(1)(c) are analogous to the provisions of any penal statute. A penal statute defines various kinds of offences and prescribes the maximum penalty for each kind of offence, leaving it to the authorities dealing with any individual cases to impose penalty within the maximum limit prescribed in accordance with the nature or the gravity of the particular criminal act. To illustrate, section 379 of the Indian Penal Code prescribes the maximum penalty for theft as imprisonment of either description for a term which may extend to three years or with fine or with both . A person may commit a theft of five rupees or five lakhs of rupees. The maximum penalty prescribed for both these offences is the same. In the case of a person guilty of theft of ₹ 5 the Magistrate dealing with the case would impose a very light penalty, but on a person guilty of theft of five lakhs of rupees, the Magistrate would impose a heavier penalty, the imposition of penalty being in the discretion of the Magistrate. Such appears to be the nature of the provisions contained in section 28(1)(c). Clauses ( a) to (c) of section 28(1) defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had sought to lead showing that his real income was less than ₹ 74,000 and the refusal of the Income-tax Officer to permit the assessee to lead evidence in the penalty proceedings, it was held that in an inquiry under section 28, evidence adduced by the assessee purporting to disclose the real income of the assessee is relevant and admissible in order to show either that no penalty ought to be imposed or that the amount of the penalty ought to be less than the maximum prescribed under section 28, though not for the purpose of varying or affecting the assessment of tax made, and the Income-tax Officer was not justified in refusing to admit such evidence. At page 286 of the report, the learned Chief Justice observed : In my opinion, the maximum penalty that can be imposed under section 28(1) is a sum representing the difference between the tax on the income declared by the assessee and the tax on the income ascertained under the Income-tax Act, in respect of which the assessment has been made. It follows from this decision that the extent of concealment has no relevance in the determination of the maximum limit within which the penalty could be imposed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1939. The changes effected by this amendment in brief are addition of (i) failure to file a return ; and (ii) failure to produce evidence and material in response to the notices as grounds for imposition of penalty. The measure of maximum penalty also has been increased from one time of income-tax avoided to one and a half times of the income-tax and super-tax avoided. Facts in this case were: The assessee had returned an income of ₹ 19,639. In the assessment proceedings, it was found that the account books maintained by the assessee were not true. There was other evidence to show that the assessee had concealed two items of income of ₹ 1,000 each received by him as sale proceeds of certain articles. They were not credited in the books of account. He, therefore, assessed the income of the assessee on estimate basis under section 23(3) and added an amount of ₹ 35,354 to the returned income of ₹ 19,639. In the penalty proceedings, it was contended on behalf of the assessee that the penalty was to be computed only on the basis of ₹ 2,000, the concealed income. The contention was not accepted. It was held that though there was evidence about concealment on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut as it happened, the decision in Maneklal Chunilal Sons Ltd.'s case (supra) had not been pointed out to us at that time. However, even assuming that we have once departed from the self-imposed rule mentioned in Maneklal Chunilal Sons Ltd. 's case (supra) , that would not be a , good reason for again departing from it specially in this case. Before parting with the case, it is necessary to mention that Mr. Kolah had stated before us that the following observations of the learned members of the Tribunal in paragraph 11 of its order do not correctly represent the position. The observations are: As Shri Kolah did not argue about the quantum in any of the three appeals, for the aforesaid reasons, we set aside the Appellate Assistant Commissioner's order for the assessment year 1948-49 and restore that of the Income-tax Officer for that year. According to Mr. Kolah, he had argued as to the quantum of penalty. In fact, the assessee had even appealed as against the imposition of penalty of ₹ 20,000. It would, therefore, not be proper to say that Mr. Kolah did not argue as to the quantum of penalty when it was proposed to restore the penalty of ₹ 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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