M.C.PATHAK, J. -
(1.) THE following two questions of law as arising out of the consolidated order of the Tribunal in
respect of the asst. yrs. 1963 -64, 1964 -65 and 1965 -66 have been referred by the Tribunal under
s. 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act"):
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that penalties under S. 271(1)(c) of the IT Act r/w Explanation to that section were justified in respect of the asst. yrs. 1963 -64, 1964 -65 and 1965 - 66 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that for the purpose of calculation of penalty the difference between the tax on the incomes shown in the first return and the tax on the incomes assessed shall be taken as the amounts of tax that would have been avoided ?"
The relevant assessment years are 1963 -64, 1964 -65 and 1965 -66. In the relevant years the assessee, F. C. Agarwal, was carrying on business in his individual capacity. In respect of these
three years the assessee filed returns which were later revised as follows:
Asst. year 1963 -64:
Original return showing total income of Rs. 30,750 was filed on May 22, 1964. Revised return
showing total income as Rs. 2,74,189 was filed on March 20, 1968.
Asst. year 1964 -65:
Original return showing total income as Rs. 36,315 was filed on May 22, 1964. Revised return
showing total income as Rs. 3,35,181 was filed on March 20, 1968.
Asst. year 1965 -66:
Original return showing Nil income was filed on September 13, 1965. Revised return showing a
total income as Rs. 81,030 was filed on March 20, 1968.
(2.) BEFORE the ITO the assessee stated that he had not maintained any regular books of account and, therefore, the returns had been filed on estimate of certain net profits on sales. The ITO
completed the assessments by estimating the sales at slightly higher figures and by adopting the
rate of net profit as shown by the assessee in the revised returns. The ITO was of the view that
while filing the returns the assessee had concealed his income and had not deliberately disclosed
his correct income. The ITO, therefore, initiated penalty proceedings under S. 271(1)(c) of the IT
Act and referred the matter to the IAC under S. 274 of the Act. After considering the facts and
circumstances of the case the IAC came to the conclusion that the assessee had concealed his
income and had not been able to discharge the onus of showing that the difference between the
income shown in the original returns and the income assessed had not arisen as a result of any
fraud or gross or wilful neglect on the part of the assessee. The IAC held that for the asst. yr.
1963 -64, the original return had been filed after April 1, 1964, and, therefore, the provisions of the Explanation to S. 271(1)(c) applied to the case. In respect of the other two years the provisions of
the Explanation were ipso facto attracted. The IAC also noticed the very wide difference between
the income shown in the original returns and the income which had been admitted in the revised
returns. No explanation has been given before the IAC regarding the basis on which the original
returns had been filed. The IAC held that the penalty under S. 271(1)(c) was leviable in all the
three years and accordingly he levied penalties of Rs. 90,000, Rs. 80,000 and Rs. 20,000 for the
asst. yrs. 1963 -64, 1964 -65 and 1965 -66, respectively.
The assessee preferred three appeals before the Tribunal in respect of the three assessment orders
and by a common order the Tribunal allowed the appeals partly.
In its judgment the Tribunal came to the conclusion that the original returns had definitely shown income which was much below the correct income of the assessee. It was further held that
the assessee had not been able to point out even one item of income in order to explain the
inadvertent nature of the mistake. It was admitted before the Tribunal that the original returns did
not show correct incomes and there was no dispute regarding the finally assessed income. The
Tribunal further held that if an assessee conceals income while filing the original returns, the filing
of a revised return cannot absolve him from the default already committed. The Tribunal further
observed that on a specific query being made, the counsel for the assessee could not explain the
basis on which the original returns had been prepared and submitted. The Tribunal rejected the
submission of the assessee to the effect that when he filed the original returns showing a much
lower income he was not aware of the correct income which has been shown in the revised returns
and that the assessee was acting under a bona fide belief. The Tribunal also did not accept the
argument made on behalf of the assessee that the quantum of penalty should be calculated only on
the basis of the difference between the tax on the income shown in the revised return and the tax
on the assessed income. The Tribunal held that the concealment having taken place in the original
return the tax that would have been avoided had that return been accepted would be the correct
figure to be taken into consideration while calculating the penalty under S. 271(1)(c) of the Act.
The Tribunal also held that the totality of circumstances clearly pointed out that at best it was a
case of gross and wilful neglect on the part of the assessee. The Tribunal, therefore, upheld the
order of the IAC for levying penalty in respect of the concealment in the original returns. The
Tribunal, however, reduced the penalty to 20per cent of the tax sought to be avoided. On these
facts the above -mentioned two questions of law have been referred.
The original returns are found to have been furnished under S. 139(1) of the Act and the revised
returns were filed under S. 139(5) of the Act on March 20, 1968, before the assessments were
made on March 23, 1968.
(3.) IT is very conspicuous to notice that in the original return for 1963 -64, the total income was shown as Rs. 30,750 but in the revised return for the same year the total income was shown as Rs.
2,74,189, for the year 1964 -65 the total income in the original return was Rs. 36,315 whereas in the revised return for the same year it has been shown as Rs. 3,35,181 and for the asst. year 1965 -
66, the total income in the orginal return was shown as "Nil income" whereas in the revised return for the same year it has been shown as Rs. 81,030.
Section 271(1)(c) reads as follows:
"271. Failure to furnish returns, comply with notics, conclmen of income, etc. -(1) If the ITO or the AAC, in the course of any proceedings under this Act, is satisfied that any person......... (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, -...... (iii) in the cases referred to in cl. (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished. Explanation. -Where the total income returned by any person is less than eighty per cent of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under s. 143 or S. 144 or S. 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of cl. (c) of this sub -section." ;