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TMI Blog1977 (7) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... Bharat Transporters may be treated as a branch of Messrs. Fairdeal Motors. In view of this letter the ITO included a sum of Rs. 62,536 representing the income from the business run in the name of Messrs. New Bharat Transporters in the income of the assessee and completed the assessment on a total income of Rs. 1,79,220. The ITO simultaneously instituted penalty proceedings against the assessee under s. 271(1)(c) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), for concealment by the assessee of the income from Messrs. New Bharat Transporters. As the penalty leviable against the assessee exceeded a sum of Rs. 1,000, the ITO referred the assessee's case to the IAC under s. 274(2) of the Act for the levy of penalty. In pursuance of this reference and after hearing the assessee, the IAC held that the assessee had concealed his income derived from M/s. New Bharat Transporters and levied, a penalty of Rs. 12,632 on the assessee. The assessee filed an appeal before the Tribunal, Amritsar Bench (hereinafter referred to as " the Tribunal"), against the order of the IAC but the Tribunal confirmed the order of the IAC and dismissed the appeal filed by the assessee. At the instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n below: "Inviting a kind reference to your letter No. DD1(9)/CR/67-68, dated 13th March, 1968, I hereby signify my assent to the proposals stated therein. As regards the conditions imposed in para. 2. of your letter aforesaid I accept them provided you will kindly appreciate that my acceptance of these proposals and conditions is actuated by considerations other than purely legal nor it ever be construed by our acceptance that I ever attempted to conceal any income or to introduce any benamidar in my business. But the main consideration has been that I wanted to buy peace of mind even at some cost and sacrifice on my part in view of the political vendetta which has been carried on in the past with regard to my affairs. ......... Further it should be clearly understood that the assessments that are made on the basis of the acceptance of these proposals as mutually agreed upon shall never be questioned again in my income-tax proceedings for any assessment year and the decision shall be irrevocable so far as the points covered in these proposals are concerned." It would appear from the assessment order of the ITO which is made annexure 'C' to the statement of the case that it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 271 (1)(c) in respect of the income from this source which was concealed at the time of filing the return of income. The fact that the assessee concealed its income from the branch business and also admitted such concealment later on before the department is clearly established from the records and, therefore, the question of including any deemed income towards the income of the assessee does not arise at all." It would, therefore, appear from the order of the Tribunal that the finding of the Tribunal that the assessee had concealed its income from New Bharat Transporters is again based only upon the letter of the assessee dated March 14, 1968, in reply to the letter of the CIT dated March 13, 1968. The question for consideration is whether the finding of the IAC as well as that of the Tribunal that the assessee had concealed its income and that a penalty under s. 271(1)(c) of the Act was leviable on the assessee for such concealment can be sustained on the basis of the material on the record. This fact is the first question that has been referred to us. Before proceeding to answer this question, I have to refer to the judgment of this court in Fairdeal Motors v. CIT [1975] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the Tribunal on this point. "The court then finally made the following observations : "Finally, it seems to us that the question whether the penalty was actually exigible or not would depend upon certain investigation of facts from which an inference of deliberate concealment or wilful negligence could be drawn. These facts had first to be pleaded and proved and could not be raised for the first time before the High Court, because the High Court was not competent to go into questions of fact. If the assessees would have pleaded and raised this question before the Income-tax Officer or the Inspecting Assistant Commissioner or even before the Tribunal at the time of hearing the appeal, something could be done. For these reasons, we are unable to allow the assessee to argue this point at this stage when his right to move this court has become barred by limitation as provided for in section 256(2) of the Act." It was under these circumstances that the assessee was not permitted by this court at the time of hearing of the earlier reference to raise the contention that the material on record did not justify the finding by the IAC or the Tribunal that the assessee had concealed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this point is CIT v. Anwar Ali [1970] 76 ITR 696 (SC). In that case, the assessee was called upon to explain the source of a cash deposit of Rs. 87,000 made by the assessee in the bank. The assessee explained that this amount represented the total of various amounts received by him from his relations and which was entrusted to him during the communal riots in Bihar in 1946. The explanation offered by the assessee was rejected by the ITO and the amount of Rs. 87,000 was included in the income of the assessee as income from undisclosed sources. The ITO also instituted penalty proceedings against the assessee under s. 28(1)(c) of the Indian I.T. Act, 1922, and levied a penalty of Rs. 66,000 on the assessee. After passing through the stages of the AAC the Tribunal and the High Court, the matter ultimately came up before the Supreme Court. The Supreme Court cancelled the penalty levied against the assessee and, in doing so, laid down the following principles : "The first point which falls for determination is whether the imposition of penalty is in the nature of a penal provision. The determination of the question of burden of proof will depend largely on the penalty proceedings be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars." The above principles laid down by the Supreme Court in Anwar Ali's case [1970] 76 ITR 696 (SC) were reiterated in a later case in CIT v. Khoday Eswarsa and Sons [1972] 83 ITR 369 (SC). In that case, the assessee which was a firm carrying on the business of manufacturing spirituous drugs and chemicals returned an income of Rs. 51,214. To the income returned by the assessee the ITO added a sum of Rs. 77,518 and also a sum of Rs. 9,900. These additions were made on the ground that some of the said bills produced by the assessee were found to be forged and some of the purchasers of tincture were also fictitious persons. There was no evidence, produced by the assessee to show that kolae powder which was essential for the manufacture of tincture had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon to prove the genuineness of the cash deposits amounting to Rs. 12,000 appearing in his books. The assessee stated that he was not in a position to prove the genuineness of these entries and made a statement surrendering the said cash deposits for being included in the assessee's income. The amount of Rs. 12,000 was accordingly included in the assessee's income and in the penalty proceedings which followed a penalty of Rs. 6,768 was levied on the assessee under s. 271(1)(c) of the Act. The penalty was confirmed by the Tribunal but at the instance of the assessee the Tribunal made a reference to the Punjab and Haryana High Court. Applying the principles laid down in Anwar Ali's case [1970] 76 ITR 696 (SC), the Punjab and Haryana High Court cancelled the penalty and, in doing so, made the following observations : "So far as the Tribunal is concerned it assumed that the amount of Rs. 12,000 represents the income of the assessee and proceeded on that basis. It will be apparent from the two orders already referred to that from the only circumstance that the amount of Rs. 12,000 was surrendered by the assessee, an inference has been drawn that the amount represents the income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, were in fact credits of genuine parties and it was only for the sake of avoiding botheration that the firm had surrendered those credits and agreed to be assessed on the basis of those credits to be taken as the income of the firm from undisclosed sources. The IAC refused to give an opportunity to the assessee-firm to prove their assertion and imposed a penalty of Rs. 18,291, in respect of the assessment year 1959-60 and a penalty of Rs. 22,729 for the assessment year 1960-61. The matter ultimately came up before the High Court of Punjab and Haryana. Applying the principles enunciated in Anwar Ali's case [1970] 76 ITR 696 (SC), the High Court cancelled the penalty with the following observations : "It is to be borne in mind that the penalty proceedings are distinct from the assessment proceedings and are in the nature of quasi-criminal proceedings. The onus was on the department to positively prove and produce for that purpose, certain other material besides the factum of surrender that the amounts in dispute were the undisclosed income of the assessee. We agree with Mr. Sharma, learned counsel for the assessee, that the mere fact of surrender could not necessarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee under s. 271(1)(c) of the Act by the IAC to whom the penalty proceedings had been referred. The assessee while denying that he had concealed any income, however, made the following statement before the IAC : " 'I concede to the minimum penalty.' " Acting on this concession made by the assessee, the IAC passed an order imposing a penalty of Rs. 2,800. The assessee, however, preferred an appeal before the Tribunal and contended that he had not admitted concealment of income and the levy of the penalty was not justified merely because the assessee had agreed to the levy of the penalty. The Tribunal rejected this contention with the following observations : " ' Having conceded in writing before the Inspecting Assistant Commissioner that a levy of penalty was called for, and having invited the levy of the minimum penalty, it is not open to the assessee to urge before us that the levy of penalty was not justified.' " The assessee then took the matter before the Mysore High Court in reference. The High Court noticed that the IAC who made the order of penalty had merely referred to the discussion in the order of the ITO and he had not adduced any additional grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concealment the Delhi High Court held that there was no further burden on the department to adduce evidence to establish deliberate concealment." Referring to the decision of the Punjab High Court in Mahavir Metal Works v. CIT [1973] 92 ITR 513, the High Court observed: "That was a case in which the assessee had filed a revised return in the course of assessment proceedings and owned the amount in question as his income. It was also established that he had earlier filed a return concealing the said income by deliberately furnishing inadequate particulars of that income. That admission was proved by the department. In such a situation, the Punjab High Court held that the burden would shift to the assessee to establish that the admission made by him was wrongly or illegally made or was incorrect." . Lastly, referring to the decision of the Allahabad High Court in CIT v. Sir Shadi Lal Sugar General Mills Ltd. [1972] 86 ITR 776, the High Court observed as follows : "There also there was an admission by the assessee that there were false claims of payment to contractors and that those items represented its income. These are clear cases of admission of concealment by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT wrote to the assessee a letter dated March 13, 1968, stating that he was prepared to agree with the above proposals if the assessee accepted certain conditions, one of them being that a minimum penalty of 20% would be imposed under s. 271(1)(c) of the Act on M/s. Fairdeal Motors in respect of the income of M/s. New Bharat Transporters which was now agreed to be a branch of the firm for the years 1963-64 to 1967-68. In his letter dated March 14, 1968, the assessee while accepting the conditions proposed by the CIT stated as follows: "As regards the conditions imposed in para. 2 of your letter aforesaid I accept them provided you will kindly appreciate that my acceptance of these proposals and conditions is actuated by considerations other than purely legal nor it ever be construed by our acceptance that I ever attempted to conceal any income or to introduce any benamidar in my business. But the main consideration has been that I wanted to buy peace of mind even at some cost and sacrifice on my part in view of the political vendetta which has been carried on in the past with regard to my affairs ........" The assessee had thus only agreed that the business in the name of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I shall now proceed to consider the answer to the second question referred to by the Tribunal. I am very much aware of the fact that a similar question had been referred to this court in respect of the earlier assessment years and this court had expressed its opinion on this question to the effect that the letter of the CIT dated March 13, 1968, Amounted to an order under s. 271(4A) of the Act. While it would be my duty to attach the greatest importance to the reasons given by this court in support of its finding in respect of the earlier assessment years, it is still my duty to apply my own mind to this question and to give my own finding on it. It is well established that for the purpose of assessment each assessment year has to be treated independently and the findings in respect of one assessment year do not automatically apply to another assessment year. The principle of res judicata does not apply to income-tax proceedings. Section 271(4A) of the Act reads as follows: "Notwithstanding anything contained in clause (i) or clause (iii) of sub-section (1), the Commissioner may, in his discretion-- (i) reduce or waive the amount of minimum penalty imposable on a person unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in which any tests have been laid down for constituting an order under sub-s. (4A). I have, therefore, to decide this question from the language of sub-ss. (4A) and (4B). The language of these sub-sections, in my view, clearly contemplates an order being passed by the CIT. The order contemplated under sub-s. (4A) is not an order levying a penalty which is imposable under s. 271(1) of the Act, because the power to levy such a penalty is vested only in the ITO or in the AAC or in the IAC under s. 274(2) of the Act. The power given to the CIT under sub-s. (4A) is only to reduce or waive the amount of minimum penalty imposable under s. 271(1). Further, the power given to the Commissioner under sub-s. (4A) may be exercised only subject to the conditions laid down in that section. The proviso to sub-s. (4A) places certain restrictions on the power of the Commissioner to pass an order under sub-s. (4A). Finally, sub-s. (4B) gives a finality to an order passed by the Commissioner under sub-s. (4A). In the present case, apart from the letter of the Commissioner dated March 13, 1968, there was no order passed by him after the receipt of the letter of the assessee dated March 14, 1968. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted March 13, 1968. Whereas the Commissioner in the said letter proposed to levy a penalty only in respect of the income of M/s. New Bharat Transporters, the IAC had imposed a penalty at 20% of the tax sought to be evaded. This court in its judgment in the reference relating to the earlier assessment years has held that the penalty levied by the IAC was not in accordance with the letter of the Commissioner and I am in respectful agreement with this finding. The fact, therefore, that the IAC passed an independent order levying penalty which was imposable strictly in accordance with s. 271(1)(c)(iii) of the Act and not in terms of the letter of the Commissioner supports the view that the letter of the Commissioner did not amount to an order of the Commissioner under s. 271(4A). I, therefore, answer question No. 2, referred to by the Tribunal, in the negative. In view of my answer to question No. 2, it is not necessary to give any answer to question No. 3, referred to by the Tribunal. But if the answer to question No. 2 has to be given in the affirmative, i.e., if it is to be held that the letter of the CIT dated March 13, 1968, read along with the letter of the assessee dated M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of his answer to the second question, this question does not arise. While I have great respect and regard for the views expressed by his Lordship, I regret, I cannot concur with the same. The reasons may be found in the lines that follow. The present reference relates to the assessment for the year 1966-67. The letter of the Commissioner dated March 13, 1968, covers the assessment years 1963-64 to 1967-68, and not only the assessment year 1966-67. Earlier, in the course of assessment for the assessment years, 1964-65 and 1965-66, a dispute arose between the revenue and the assessee-firm as regards the scope and the legal quality of the aforesaid letter, in consequence whereof the same two questions, as are now questions Nos. 2 and 3, were referred by the Tribunal for the opinion of this court. To be more accurate, the questions referred then were stated thus: "(1) Whether, on the facts and circumstances of the case, the letter of the Commissioner of Income-tax dated March 13, 1968, amounts to an order under section 271(4A) ? (2) If answer to the above question is in the affirmative, whether the Commissioner had reduced or waived the penalty below the minimum provided for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it were assumed that it is not so, the decision will still operate as a binding judicial precedent not only on the parties to it but also on the court itself unless it is overset by Bench of higher strength of that court or by the Supreme Court. In this connection, I may refer to the judgment of the Supreme Court in Amalgamated Coalfields Ltd. v. Janapada Sabha, Chhindwara, AIR 1964 SC 1013. In that case, the question for determination was stated thus: "Where the liability of an assessee for a particular year is considered and decided, does the decision for that particular year operate as res judicata in respect of the liability for the subsequent year ?" In dealing with this question, their Lordships noticed various English decisions and observed : In considering this question, it may be necessary to distinguish between decision on questions of law which directly and substantially arise in any dispute about the liability for a particular year, and questions of law which arise incidentally or in a collateral manner, as Lord Radcliffe himself has observed in the case of The Society of Medical Officers of Health, [1960] AC 551 (HL), that the effect of legal decisions est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in that judgment. In that view, my answer to question No. 2 would be in the affirmative and I would hold that the letter dated March 13, 1968, of the Commissioner amounts to an order under section 271(4A) of the Act, and, as regards question No. 3, I would say that the penalty is to be calculated with reference to the tax attributable to only such income included in the total income of the assessee as arose from the business carried on by him in the name of M/s. New Bharat Transporters. Then remains question No. 1. In dealing with this question it may be stated that, at the hearing of the earlier reference, a contention was raised on behalf of the assessee-firm that no penalty could be imposed on it unless there was a clear finding that it was guilty of wilful non-disclosure or of any negligent act in deliberately concealing its income. This court refused to go into this point on the ground that the assessee-firm had neither raised it before the IAC nor in the appeal filed by it before the Tribunal and that Ultimately, even when it asked the Tribunal to make a reference on this point and the Tribunal refused to do so, it did not pursue the matter by moving this court under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d thousand rupees, no order reducing or waiving the penalty shall be made by the Commissioner unless the previous approval of the Board has been obtained." Clearly, the power of the Commissioner to make an order under this sub-section is dependent, inter alia, on the fact that penalty is imposable on a person under cl. (i) or cl. (iii) of sub-s (1). This is a jurisdictional fact which, like any other fact, must be found by the Commissioner on the material placed before him, before he can make an order under this sub-section reducing or waiving the penalty. In dealing with this matter, it will not be necessary that the penalty should have been imposed on the assessee, because there is a clear distinction between the words "reduce or waive the amount of minimum penalty imposable on a person" used in this sub-section and the words "reduce or waive the amount of minimum penalty imposed on a person". As was held by this court in Fairdeal Motors v. CIT [1975] 101 ITR 687 (J K), the words "reduce or waive the amount of minimum penalty imposable" clearly connote the penalty which is liable to be imposed on the assessee and not the penalty which has been imposed on the assessee. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o as "the assessee is a registered firm conducting its business in the sale of trucks, scooters and motor spare parts. The assessee filed its return for the assessment year 1966-67 (accounting year ending 31st of December, 1965). It declared its income of Rs. 94,623. No income derived from the business of the transport of products of M/s. Indian Oil Co. Ltd., which was carried on in the name of M/s. New Bharat Transporters, was shown in the company's said returns as, according to the assessee, the said business was not a branch of M/s. Fairdeal Motors (the assessee). However, later on, the assessee agreed that the business carried on in the name of the New Bharat Transporters be treated as a branch of the said business concern of the assessee. This agreement by the assessee was conveyed to the CIT by letter dated March 14, 1968. Following this, the ITO included a sum of Rs. 62,536 representing the income from the business run in the name of M/s. New Bharat Transporters in the income of assessee. Assessment was completed on a total income of Rs. 1,79,220. Penalty proceedings were initiated against the assessee under s. 271(1)(c) of the I.T. Act of 1961, as according to the ITO the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answer to this question in view of the answer given on question No. 2. His Lordship, however, proceeded to observe that if answer to question No. 3 was necessary to be given then it has to be given and it is to be held that the penalty had to be calculated with reference to the tax attributable to only such income included in the total income of the assessee as arose from the business carried on by M/s. New Bharat Transporters and that could not be calculated with reference to the difference between the tax on the total income as finally assessed and the tax on the income shown in the assessee's return. Farooqi J. gave a dissenting judgment. According to the learned judge answers to questions Nos. 2 and 3 had already been given by a Division Bench of this court in an earlier income-tax reference between the same parties. According to the earlier judgment, the court had held that the letter of the CIT dated March 13, 1968, amounted to an order under s. 271(4A). The judgment given by the Division Bench on question No. 2, operated as res judicata and this question could not be reopened either by the department or by the assessee. According to the learned judge, these questions hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the second question, the court held that the penalty would be restricted only to 20% of the tax attributable to the income of New Bharat Transporters. It is important to mention here that question No. 1 now referred by the Tribunal relates to the fact of concealment of income and the justification of the revenue to impose penalty on the assessee because of this concealment of income. This question was not at all referred by the Tribunal in the earlier reference. Before the Division Bench which heard the earlier reference a contention was advanced on behalf of the assessee that he had not concealed the income derived from M/s. New Bharat Transporters and that no enquiry had been held by the revenue on that aspect of the matter. The assessee sought the consideration of this matter by the High Court. The High Court, however, declined to accede to the contention of the assessee to consider this question as in the opinion of the High Court this question had not been referred to it by the Tribunal for opinion. That indeed is not the position in the present reference. Herein a specific question of concealment of income which is the subject-matter of question No. 1 has been referred for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erits of this question cannot be legally countenanced. Having expressed my opinion on the question of res judicata, I shall now proceed to discuss the merits of question No. 1. A bare perusal of the penalty order passed by the IAC would show that it is the letter of the assessee dated March 14, 1968, on which is founded the penalty order. There is no material apart from the letter of the assessee which the IAC took into consideration for holding that the assessee had concealed his income accruing from New Bharat Transporters. As the document, the letter dated March 14, 1968, is the corner stone of the case of the revenue, it is, therefore, pertinent to reproduce the said letter as also the letter of, the Commissioner. The letter of the CIT is as under: "With reference to the representation made by you and your counsel before me and your letter dated 23rd December, 1967, to the Income-tax Officer, Central Circle VIII, Delhi, I write to place on record the proposals made by you before me, viz: (a) The firm of Fairdeal Motors shall be allowed to be treated as a registered firm. (b) Shri Gulam Qadir will be treated as the benamidar of Shri Bashir Ahmed and the latter's shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly understood that the assessments that are made on the basis of the acceptance of these proposals as mutually agreed upon shall never be questioned again in my income-tax proceedings for any assessment year and the decision shall be irrevocable so far as the points covered in these proposals are concerned. I again express my sense of deep gratitude to you for the nice treatment you have given to us through the proceedings. Thanking you." The important question that falls for consideration is whether the letter of the assessee could be construed to mean that the assessee had admitted the concealment of income derived from M/s. New Bharat Transporters. As is obvious, the assessee never admitted the concealment of income but on the other hand it categorically took the position that the acceptance of the proposals and conditions by the assessee was actuated by considerations other than purely legal nor it ever be construed by its acceptance that the assessee ever attempted to conceal any income or to introduce any benamidar in the company. The main consideration by accepting the proposal was to buy peace of mind even at some cost and sacrifice in view of the political vend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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