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TMI Blog1985 (10) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Whether considering the fact that return of income was filed on July 9, 1968, the Tribunal was correct in holding that the penalty was to be imposed according to the law which was in force on April 1, 1966, and not in accordance with the amended provisions of section 271 (1)(c)(iii) which came into force from April 1, 1968 ? " The assessee is a lady doctor and was posted as 'Assistant Professor of Obstetrics and Gynaecology in Darbhanga Medical College at Darbhanga. In these references, we are concerned with assessment year 1966-67. The assessee did not file any return for the said assessment year. Notice under section 148 was issued. In response thereto, she filed her return disclosing an income of Rs. 23,172 which included the following: Rs. (i) Salary 8,388 (ii) Profession 13,500 (iii) Other sources (examination fee, etc.) 3,600 In the assessment, the Income-tax Officer added the following sums in the total income of the assessee; (i) Rs. 10,000 (ii) Rs. 20,000 (iii) Unexplained investment over construction of house Rs. 10,393 and (iv) Income from house standing in the name of Bibhuti Narain Arora, minor son of the assessee Rs. 4,826. The inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside the order of the Inspecting Assistant Commissioner observing that in regard to the unexplained investment of Rs. 10,393 and the income from that house of Rs. 4,826, no case of penalty had been made out. To that extent, the appeal was allowed. The assessee being aggrieved by the order rejecting the appeal so far as the two sums of Rs. 10,000 and Rs. 20,000 were concerned and the Revenue in so far as the sums of Rs. 10,393 and Rs. 4,826 were concerned got separate references made to this court. The questions referred to us have been set out earlier in paragraph I of this judgment. At the outset, it must be observed that on her own showing, the assessee had assessable income, but she did not file any return under section 139(1) of the Act. This factor would be relevant for appreciating the mental attitude of the assessee. The explanation in regard to the separate items must now be considered in order to answer the questions referred to us. The explanations in regard to the sums of Rs. 10,000 and Rs. 20,000 claimed to be gifts to the assessee's minor son were consistently rejected by all the Revenue authorities in the assessment proceedings as well as in the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of her return, but that also shows her frame of mind. She could not establish that any gift was made to her minor son. The finding that there was no such gift is binding on this court. The necessary inference therefrom is that the assessee knew that it was her income and yet she showed it in the column meant for exempted income in Part IV in the hope that she would get away with it. It was a clever device but unfortunately it did not click. The obvious conclusion is that she tried to conceal. In regard to the gift of Rs. 20,000 to the aforesaid minor son, the position of the assessee is not better. The finding of fact recorded by the Tribunal, quoted earlier, really concludes the matter. The matter was considered by the Department with all the care that it required. They found that Kuldip Kaur and Sheela Devi (Sita Devi?) were not in a position to make the gifts as alleged. The Income-tax Officer had clearly held that they were the real assets of the assessee herself routed to her minor son through her two female relations. The findings recorded by the Income-tax Officer in annexure A, the Inspecting Assistant Commissioner in annexure B and the Tribunal in annexure C at paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cta of the Full Bench, the assessee failed to show that the estimate was improbable or unreasonable. In that situation, there was no escape from the levy of penalty. An assessment may be according to the books of the assessee or it may be on an estimate to the best judgment of the Revenue. In either situation, the assessment cannot be assailed. For the purposes of imposition of penalty, an assessment by estimate is not different from an assessment on the basis of the books of the assessee. The wide proposition enunciated by counsel for the assessee and apparently being the basis of the order of the Tribunal cannot be accepted. Learned counsel for the assessee, in support of his submission, that penalty cannot be imposed where the assessment had been done on estimate placed reliance on CIT v. Lalit Mohan Deb [1977] 107 ITR 84 (Cal). In my view, the reliance placed is entirely misplaced. That was a case where the assessee had constructed a house. The assessee contended that it was constructed out of loans from three persons. The Income-tax Officer found that none of the creditors could have been in a position to advance the amounts. Proceedings under section 34 of the Indian Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "If the construction was completed on September 30, 1969, the building should have been only incomplete on August 14, 1969, and, therefore, there was no question of valuing the building which was incomplete as on August 14, 1969, and allowing depreciation in respect thereof for period of five years. It is this aspect of the matter which has been overlooked by the Inspecting Assistant Commissioner when he imposed the penalty. In respect of any incomplete construction, normally there cannot be any market value as on successive valuation dates on the basis of the progress in the construction work and the only manner in which the value of such incomplete construction, as on different valuation dates, could be arrived at was by finding out the actual amount spent on the construction as on the different valuation dates. As the Tribunal pointed out, the Department had not placed any material to show that the amount incurred by the assessees on the respective valuation dates and as entered in the constriction account was incorrect. Again assuming that the Department was right in rejecting the construction account maintained by the assessees and estimating the total cost of construction, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l neglect on his part, it will be deemed that he has concealed the particulars of his income. " The same question was raised before the Madras High Court in A. K. Bashu Sahib v. CIT [1977] 108 ITR 736, in which V. Ramaswami and V. Sethuraman JJ. observed as follows (at p. 743) : " We are also unable to agree with the argument that in all cases where the taxing authorities estimated the income at a higher figure than what was estimated by an assessee, no penalty was leviable. Where the estimate of the assessee amounts to deliberate under-estimate, an inference of concealment of income could certainly be drawn. " On the basis of the authorities mentioned above, I have not the least doubt that it is not a correct proposition of law that whenever assessment is done by estimate, penalty cannot be levied. Such a view would encourage assessees not to produce any accounts before the Department or producing irregular/bogus accounts so that the Department may have to take recourse to the best judgment assessment, thus forestalling the Department from levying penalty. The assessments by estimate also fall within the ambit of the Explanation to section 271(1)(c) of the Income-tax Act. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mental attitude coupled with the act of the assessee which calls for penalty. But if the difference in the figures given by the assessee and the figures estimated by the Department leave scope for doubt, the assessee will have made out a reasonable and probable case for deleting the penalty, but where there is an unexplained yawning gap between the return and assessment, penalty cannot be deleted. Learned counsel for the assessee brought to our notice a decision of this court in CIT v. Patna Timber Works [1977] 106 ITR 452 to impress upon us that assessment by estimate cannot attract penalty. I regret, that is not the ratio of that decision. It is true, assessment had been done on an estimate and the penalty was knocked down by this court. On the facts of that case, their Lordships held that the reasons for enhancing the same as set out in the order of the Inspecting Assistant Commissioner were non est. Therefore, that decision is clearly a decision on the facts of that case. As. I have said above, a marginal variation in estimate may not attract penalty but this also cannot be raised to the point of a dictum. It will depend upon the facts and circumstances of each case. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he approach of the Tribunal in regard to the entry in Part IV of the return was rather contradictory. It is difficult to support the deletion of this amount of Rs. 4,826 for the purposes of imposition of penalty. This question, therefore, also must be answered in favour of the Revenue and against the assessee. The last question referred to us at the instance of the Revenue was whether the Tribunal was correct in holding that the penalty was to be imposed according to law which was in force on April 1, 1966, and not in accordance with the amended provisions of section 271 (1)(c)(iii) which came into force from April 1, 1968. Although the return was for the year 1966-67 (A.Y.), it was filed only on July 9, 1968. The return having been filed after April 1, 1968, it is obvious that penalty would be imposed in accordance with the law applicable on the date of filing of the return, i.e., July 9, 1968. This point has been set at rest by the Supreme Court in Brij Mohan v. CIT [1979] 120 ITR 1. Mr. K. N. Jain, learned counsel for the assessee, was candid in conceding that the Tribunal was not correct in the view that it took of the matter. Mr. K. N. Jain was justified in making this conce ..... 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