C.S.P. Singh, J. - (1.) THE Income-tax Appellate Tribunal, Delhi Bench "C", has referred the following question for our opinion : " Whether, on the facts and in the circumstances of the case, the minimum penalty to be levied was to be determined by reference to the tax that would have been avoided if the first return submitted had been accepted or to the tax that would have been avoided if the second revised return submitted by the assessee had been accepted ? " THE assessee is a registered firm doing business in tobacco. For the assessment year 1962-63, the assessee submitted a return of income on August 17, 1962, declaring an income of Rs. 32,665. He filed a revised return showing an income of Rs. 55,000 on July 30, 1963. A second revised return was submitted on May 14, 1965, showing an income of Rs. 85,000.
(2.) AN assessment order was first passed on May 21, 1964, i.e., before the second revised return was filed and the total income computed by the Income-tax Officer was Rs. 1,62,257. On appeal, the order of the Income-tax Officer was confirmed, but the Tribunal set aside the assessment order and directed the Income-tax Officer to make a fresh assessment after giving the assessee an opportunity of producing necessary evidence to prove the contention regarding the genuineness of certain loans. In pursuance of this order, the Income-tax Officer made a fresh assessment on November 21, 1968, determining the total income at Rs. 1,17,779. This was reduced in appeal to Rs. 1,13,277 by the Appellate Assistant Commissioner. The income ultimately determined included an amount of Rs. 59,054 on account of unexplained portion of the investment in the Shanker Bidi Factory. The total investment by the assessee in this factory was determined at Rs. 2,76,763, but the income-tax authorities were ultimately satisfied about the investment to the extent of Rs. 2,17,709. The balance, i.e., Rs. 59,054, was treated as the assessee's income from undisclosed sources. Thereafter, proceedings under Section 271(1)(c) were taken and as, apparently, a sum of more than Rs. 1,000 was leviable as penalty, the matter was taken by the Inspecting Assistant Commissioner of Income-tax. He imposed a penalty of Rs. 15,000. The petitioner, thereafter, filed an appeal before the Tribunal. Before the Tribunal, it was contended that no penalty was leviable as the assessee had submitted the first revised return voluntarily without any initiative from the Income-tax Officer, and the second revised return was filed as a measure of compromise. The Tribunal held that the assessee was guilty of concealment, but considering the fact that it had co-operated in the assessment proceedings, it directed the levy of minimum penalty with respect to his first return. As regards the contention of the assessee that there was no concealment on his part as he had disclosed the correct income in the revised returns, it held that the revised returns were filed by the assessee when he was faced with the situation that he could not sustain the original return. In this connection, the Tribunal found that the Income-tax Officer, Rampur, had on January 8, 1963, written to the Income-tax Officer, Baroda, to make enquiries of the assets of the assessee, particularly the godown built at Savli. The Income-tax Officer, Baroda, wrote to the Income-tax Officer, Rampur, that enquiries in the matter had been conducted and the godown had been constructed by the assessee. It further transpires that in the original return the assessee had not shown certain assets owned by it, viz., a jeep purchased for Rs. 15,048 and a godown at Rampur constructed at a cost of Rs, 7,000. It also transpired that the assessee had not shown loans advanced to Shanker Bidi Factory in his books. These loans amounted to Rs. 2,76,763. The assessee claimed that certain amount had been taken by it from other parties for advancing the loan. These transactions were, however, not shown in the books of the assessee. In this reference, we are only concerned with the question as to whether the penalty has to be determined with reference to the first return filed by the assessee or with reference to the second revised return. Section 271(1)(c) relating to the provision for imposition of penalty runs : "271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner, 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 Clause (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." Clause (iii) which fixes the quantum of penalty was amended by the Finance Act, 1968, with effect from 1st April, 1968, but we are not concerned with the amendment in the present case as the penalty relates to an earlier year, and the Inspecting Assistant Commissioner has imposed penalty with reference to tax which would have been avoided if income as returned by the assessee had been accepted as correct. Counsel for the assessee contended that inasmuch as the assessee had filed a revised return before the assessment order came to be passed, it was that return alone which could have been considered by the Income-tax Officer, and the income-tax authorities fell into an error in considering the first return. The value to be attached to a revised return has been considered in a number of cases and we will now refer to them.
(3.) IN Commissioner of INcome-tax v. Angara Satyam [1959] 37 ITR 230 (AP), a case arising under Section 28 of the old INcome-tax Act, the phraseology is more or less in pari materia with the provisions of the unamend-ed Section 271(1)(c) and the third clause thereof. It has been held that where an assessee deliberately omits or conceals full particulars of income and files a revised return under Section 23, or in response to a notice under Section 34, he becomes liable to the penalty. The view taken rested on the use of the words " income as returned " in the section, which according to their Lordships of the Andhra Pradesh High Court related to something which had already been done by the assessee. It was also held that, so far as a revised return is concerned, all that was permitted by Section 23(3) of the old Act was to allow the assessee to file a revised return where he makes a genuine default, omission or wrong statement, and does not apply to cases of deliberate concealment. IN Vadilal Ichhachand v. Commissioner of INcome-tax [1957] 32 ITR 569 (Bom), the assessee had filed a return showing a total income of Rs. 7,038. The INcome-tax Officer on examination of the books of the assessee discovered that the assessee had not disclosed an income of Rs. 17,548. The assessee filed on the same date a revised return declaring his total income to be Rs. 24,528 which included a sum of Rs. 17,548. The income-tax authorities came to the conclusion that the income had been deliberately concealed by the assessee in his return and imposed a penalty. On a reference, the Bombay High Court held that inasmuch as under Section 28(1)(c) of the INdian INcome-tax Act, 1922, penalty is payable on the income which would have been avoided had the return been accepted, it is the first return filed by the assessee which is relevant for the purpose of imposition of penalty. In the case of Sivagaminatha Moopanar and Sons v. Commissioner of Income-tax [1964] 52 ITR 591 (Mad) it was held that where the assessee had concealed his income, or deliberately gave false particulars in his return, the mere fact that he subsequently rectified it, would not avoid the applicability of Section 28{l)(c) of the Income-tax Act. This case reflects the position of law as obtained before the decision of the Supreme Court in Commissioner of Income-tax v. S. Raman Chettiar [1965] 55 ITR 630 (SC). After the decision of the Supreme Court in 5. Raman Chettiar [1965] 55 ITR 630 (SC) it began to be contended on behalf of the assessee that inasmuch as a revised return is also a return under Section 22 of the Act, in cases where a revised return has been filed giving correct particulars, no penalty was exigible under Section 28 of the old Income-tax Act. The Madras High Court considered this contention in the case of Commissioner of Income-tax v. Ramdas Pharmacy [1970] 77 ITR 276 (Mad). In this case a return was filed disclosing a net profit of Rs. 54,107. The Income-tax Officer found that the gross profit disclosed by the assessee was too low. He scrutinised the account books and discovered certain discrepancies between the assessee's books and the books of Messrs. Amrit Laboratories Ltd. from whom the assessee had purchased goods of the value of rupees four lakhs. He also, discovered huge deposits amounting to Rs. 2,79,112 in the bank accounts of some of the partners of the firm. The assessee was called upon to explain these discrepancies. An explanation was given for these discrepancies but was not accepted and he added an amount of Rs. 84,306 to the income of Rs. 54,107 originally returned by the firm. Proceedings under Section 28(1)(c) of the Income-tax Act were taken and orders of penalty were passed. Appeals were preferred against both these orders. In appeal, the addition made by the Income-tax Officer to the income was reduced. So far as the penalty appeal was concerned that was dismissed. The assessee filed appeals before the Income-tax Appellate Tribunal. The quantum appeal was dismissed. In the penalty appeal, the Tribunal held that the conduct of the assessee in filing revised return bringing in the entire excess sale proceeds divided between three partners without bringing it into the sales account should be taken into consideration, applying the provisions of Section 28(1)(c) of the Income-tax Act. It held that the Income-tax Officer was not justified in ignoring the revised return which disclosed the true income of the assessee. It held that it appeared that the sale proceeds out of which the additional income arose had been shared by three partners without the knowledge of the other two partners and without bringing them into account and this being so, there was no question of applying Section 28(1)(c) of the Income-tax Act, as there was no deliberate concealment or furnishing of inaccurate particulars. In this view of the matter, it deleted the penalties. After considering a large number of decisions including the decision of Commissioner of Income-tax v. S. Raman Chettiar [1965] 55 ITR 630 (SC) the Madras High Court observed--See [1970] 77 ITR 276, 289 (Mad) : " But the above observations were made by the Supreme Court in a different context and not with reference to the assessee's liability under Section 28(1)(c). We are not in a position to accept the view of the learned counsel for the assessee that the decision of the Supreme Court in Commissioner of Income-tax v. S. Raman Chettiar [1965] 55 ITR 630 (SC) had changed the entire legal position enunciated in the decisions set out above that the revised return should be voluntary to avoid penalty under Section 28(1)(c) and that the filing of a revised return under Section 22(3) will not expatiate the contumacious conduct, if any, on the part of the assessee in not having disclosed a true income in the original return. We are, at the same time, not willing to accept the contention put forward on behalf of the revenue that the filing of the second return is of no consequence at all, while considering the liability of the assessee under Section 28(1)(c) of the Act. As expressed by this court in Sivagaminatha Moopanar 6- Sons v. Commissioner of Income-tax [1964] 52 ITR 591 (Mad) it is not possible to construe the original return alone in isolation without reference to the assessee's conduct subsequent to the filing of the original return. We are of the view that all the facts and circumstances commencing with the filing of the original return and ending with the assessment may be taken as relevant for considering the assessee's liability for penalty under Section 28(1)(c). " ;