- (1.) THIS is a reference application under s. 256(2) of the IT Act, 1961 (hereinafter referred to as "the Act"), for giving a direction to the Tribunal for stating the case and to refer the question of law arising out of its order dated April 14, 1976. The non-petitioner, Dr. A. K. Sharma (hereinafter referred to as "the assessee") is a medical practitioner in the employment of the Rajasthan Govt. The assessee filed a return for the asst. yr. 1966-67 on May 21, 1967, showing his total income of Rs. 21,745 which included rupees 18,000 as income from private practice. The assessing authority determined the income of the assessee from private practice at Rs. 25,000 on estimate basis. Subsequently the ITO came to know that the assessee had not disclosed his true income from private practice and as such the assessing authority initiated proceedings for the reassessment under s. 147(a) of the Act. In the course of the reassessment proceedings it was brought to the notice of the assessee that he had received Rs. 60,751 as consultation and injection charges from the employees of the Posts and Telegraphs Dept. which he had failed to mention in his IT returns. The assessee contended before the assessing authority that the aforesaid amount was excessive and he could not have received more than Rs. 40,000 by way of gross receipts from the employees of the Posts and Telegraphs Dept. during the relevant year of assessment. As regards the income from other Central Govt. employees his case was that he had received income to the extent of Rs. 2,000 to Rs. 3000 only. The ITO made an assessment estimating the income of the assessee from the employees of the Posts and Telegraphs Dept. and from the other Central Govt. employees at Rs. 65,571, out of which he allowed expenses to the extent of Rs. 6,000. On appeal, the AAC enhanced the amount of expenditure to Rs. 12,000 and also reduced the amount to Rs. 2,500 in place of Rs. 5,000 towards the income from the employees other than the Posts and Telegraphs Dept. The assessee as well as the Department, both filed appeals before the Tribunal. The Tribunal, Jaipur Bench, vide its order dated June 21, 1974, allowed the appeal filed by the Department in part and increased the amount of Rs. 2,500 to Rs. 5,000 on account of income from Departments other than the Posts and Telegraphs Dept. and dismissed the appeal filed by the assessee.
(2.) THE penalty proceedings under the provisions of s. 271 (1)(c) of the Act were initiated by the ITO against the assessee on the aforesaid facts and the IAC, Jaipur Range I, Jaipur, vide his order dated January 31, 1975, held that the assessee had concealed income of Rs. 25,071 and imposed a penalty of Rs. 25,071 as hundred per cent of the concealed income. In arriving at the above figure the IAC took the gross receipts from Posts and Telegraphs Dept. as Rs. 60,571. As regards gross receipts from persons other than Posts and Telegraphs employees he took the view that though the figure of Rs. 5,000 was a very fair estimate as upheld by the Tribunal yet for the current exercise of penalty proceedings he adopted the figure of Rs. 2,500, being the mean of the figures of Rs. 2,000 and Rs.3,000 reported by the assessee himself in his statement of February 4, 1971, and took this figure to be Rs. 2,500. From the above two sums he allowed a sum of Rs. 20,000 as representing expenditure claimed to have been incurred by the assessee, vide his letter dated February 10, 1971, and thus by reducing this amount of Rs. 20,000 from the above two amounts of Rs. 60,571 and Rs. 2,500 be arrived at a figure of Rs. 43,071. Deducting an amount of Rs. 18,000 declared by the assessee in his original return the IAC held that the assessee was guilty of concealing an income of Rs. 25.071. THE assessee filed an appeal before the Tribunal, Jaipur Bench, against the order of the IAC dated January 31, 1975, in the penalty proceedings. It was contended by the assessee before the Tribunal that the IAC did not confront him with the original bills on the basis of which the figures of Rs. 60,571 had been arrived at. It was also submitted that the bills having been weeded out were not available and in the absence of primary evidence of the bills it could not be said that the assessee had concealed the particulars of his income. It was contended on behalf of the Department that the question whether action under s. 147 of the Act was valid or not, stood in any case concluded by the order of the Tribunal in quantum proceedings, and that the same could not be allowed to be re-agitated in the penalty proceedings. It was also urged that the assessee had never requested the ITO or any other authority during the course of assessment proceedings or even in the penalty proceedings that the original bills and vouchers be shown to him on the basis of which the figure of Rs. 60,571 had been arrived at. On the other hand, when the assessee was confronted with the figure of Rs. 60,571 he merely stated that the aforesaid figures appear to be excessive to him and admitted that according to him he should not have received more than Rs. 40,000 from the Posts and Telegraphs Dept. In spite of the best efforts of the IAC for getting the original bills, the Postmaster-General informed that the bills in question had been weeded out as the time-limit for their retention had expired. THE Tribunal held that the assessee had not disclosed truly and fully all the material facts which were necessary for his assessment and action under s. 147 of the Act was, therefore, valid. THE Tribunal further held that turning to the merits of the case and as per the admission of the assessee himself, he had a gross earning of not less than Rs. 40,000 from the Posts and Telegraphs Dept. Besides he had admitted further income of Rs. 2,000 to Rs. 3,000 from other Central Govt. employees, the gross income from private practice had a thus been admitted by him at Rs. 43,000 approximately. THE maximum expenses which he claimed at any stage as having been incurred by him were Rs. 20,000. THE said amount is deducted from the admitted income of the assessee, even then, the net income as per the own figures of the assessee would be Rs. 23,000 as against the sum of Rs. 18,000 returned by the assessee in his original return. Thus, there was a difference of Rs. 5,000 and the assessee was thus liable to the extent of Rs. 5,000 of concealing his income and the imposition of penalty for concealment of income was clearly warranted on the facts and circumstances of the case. Coming to the question as to what penalty should be imposed on the assessee, the Tribunal took the view that the law as obtained on the date of the assessment order would govern the computation of penalty. THE Tribunal placed reliance for this point on the decision of the Supreme Court in the case of Jain Brothers vs. Union of India (1970) 77 ITR 107 (SC), and also on a decision of the Rajasthan High Court in the case of CIT vs. Mukand Das Vishnukumar (1976) 102 ITR 613 (Raj) . It was further observed by the Tribunal that the assessee had not accepted the figure of Rs. 60,571 as having been received by him from the Posts and Telegraphs Dept. and in the case of penalty proceedings, he wanted that the figures adding up to the aforesaid amount should be shown to him so that he could rebut them. As the said figures could not be made available to him by the IAC for the reason that the original bills which added up to the amount of Rs. 60,571 had been weeded out, a benefit of doubt with regard to the correctness or otherwise of the sum of Rs. 60,571 was given to the assessee. Thus, taking in view the facts of the case and conduct of the assessee, the Tribunal was of the opinion that the quantum of penalty be reduced from Rs. 25,071 to Rs. 7,500 to meet the ends of justice as the law as it stood on March 17, 1971, the minimum penalty would be Rs. 5,000 and the maximum Rs. 10,000, while according to the law as it stood on May 21, 1966, i.e., the date of the filing of the return, the penalty at the minimum would be Rs. 3,000 and the maximum, Rs. 22,500. The CIT, Rajasthan-I, Jaipur Circle, Jaipur, submitted an application under s. 256(1) of the Act asking the Tribunal to state the following case and to refer the same for being decided by the Honourable High Court. "Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself by ignoring material evidence on record in computing the amount of concealed income at rupees 5,000 as against Rs. 25,071 computed by the IAC and thus in reducing the penalty imposed under s. 271(1)(c) of the IT Act, 1961, to a sum of Rs. 7,500 only ?" The Tribunal, vide its order dated August 22, 1977, held that no question of law arose for stating a case and for referring the same for being decided by the hon'ble High Court, dismissed the reference application. Under the above facts and circumstances, the CIT has filed the present application under s. 256(2) of the Act. Mr. Mehta, learned counsel for the Revenue, has argued that the Tribunal has committed an error of law in not relying upon the finding of the Tribunal in quantum proceedings which is a relevant consideration in penalty proceedings. It was clear from the records of the Posts and Telegraphs Dept. that the assessee had concealed gross receipts in his income from private practice to the extent of Rs. 65,571. The Tribunal had placed reliance on the record of the Posts and Telegraphs Dept. in quantum proceedings and had held : "Looking to the entire facts and material on record and the conduct of the assessee, we are of the opinion that the ITO was able to accept that the income of the assessee from private practice from the Posts and Telegraphs Department could not be less than Rs. 60,571." In the penalty proceedings the assessee had not placed any further material to show that he was not guilty of concealing his income and as such the order of the Tribunal dated August 22, 1977, holding that the assessee was guilty of concealing his income of Rs. 5,000 only is based on surmises and conjectures. The original bills had been weeded out by the Posts and Telegraphs Dept. and as such it was not possible for the Department to produce those bills. But on this account the Tribunal was wrong to give any benefit of doubt in favour of the assessee. It is clear from the conduct of the assessee that he was guilty of concealing the income as he himself had admitted that the income from the Posts and Telegraphs Dept. was not more than Rs. 40,000. The assessee in the quantum proceedings had taken the stand that, according to him, he should not have received more than Rs. 40,000 from the Posts and Telegraphs Dept. This means that the assessee bad not made a categorical denial that he had not received Rs. 60,571 from the Posts and Telegraphs Dept. and when there was positive evidence for the said figure from the information conveyed by the Postmaster-General, there was no basis to hold that the assessee was liable to the penalty of Rs. 7,500 only of his concealed income of Rs.5,000. It is also argued that an Expln. to s. 271 of the Act was inserted by the Finance Act, 1964, w.e.f. 1st April, 1964, which reads as under: "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."
(3.) THIS Explanation was in force at the date when the default which attracted penalty was committed. It was an admitted case that the total income returned by the assessee was less than 80per cent of the total income as assessed and thus the burden lay upon the assessee to prove that failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. The Tribunal committed an error of law in not applying the above Explanation in the case and wrongly gave a benefit of doubt to the assessee. Reliance is placed on the following observations of their Lordships of the Supreme Court in Addl. CIT vs. Swastic Mineral Corn. (1977) CTR (SC) 330 : (1979) 118 ITR 583 (SC) at p. 584: "The Tribunal has set aside the penalty of Rs. 7,500 levied on the assessee by the ITO and confirmed by the IAC, following a judgment of this Court in CIT vs. Anwar Ali (1970) 76 ITR 696 (SC). We see the plausibility of Mr. Ahuja's submission on behalf of the appellant that the Tribunal appears to have overlooked the amendment made by Act 5 of 1964 to s. 271 of the IT Act, 1961. The word `deliberately', which occurred in the unamended section, was omitted by the amendment and an Explanation was added to that section which was previously not there. These amendments, undoubtedly, ought to have been considered by the Tribunal, but taking an overall view of the matter we are unable to agree that this is a fit case for asking the Tribunal to make a reference to the High Court. We would only like to add that the circumstance that we are dismissing this appeal shall not be construed as our approval of the Tribunal's judgment." Mr. Ranka, learned counsel for the assessee, has contended that the income of the assessee in the quantum proceedings was based on mere estimate and thus any finding in the quantum proceedings cannot be taken as a basis in the penalty proceedings to hold that the assessee had concealed the particulars of his income. The IAC did not confront the assessee with the original bills on the basis of which the figure of Rs. 60,571 was arrived at. In the absence of such bills it cannot be definitely said that the assessee had received Rs. 60,571 from the employees of the Posts and Telegraphs Dept. during the relevant assessment year. The assessee had made an admission that he had not received more than Rs. 40,000 from the employees of the Posts and Telegraphs Dept. and as such the Tribunal was right in taking this figure in the penalty proceedings. It was also contended that the quantum of penalty should have been calculated on the basis of the law as obtained on the date when the original return was filed by the assessee because if a default or concealment had at all taken place, it was in respect of the said return. According to cl. (i) to s. 271 of the Act at the relevant time, in the cases referred to in cl. (a), in addition to the amount of the tax, if any, payable by him, a sum equal to 2per cent of the assessed tax for every month during which the default continued, but not exceeding in the aggregate 50per cent of the assessed tax, could be levied. It is further argued that the Department nowhere in the penalty proceedings placed reliance on the Expn. to s. 271 of the Act and as such reliance cannot be placed by the Department on the Explanation in the reference proceedings. In the alternative, it is submitted that in case this Court is inclined to call for any reference, in that case the assessee is also entitled to pray to call for reference the following questions of law : "1. Whether the learned Tribunal was correct in law in holding that the penalty should be imposed on the assessee by computing on the basis of the law as obtained on the date of the assessment order and not on the basis of the law as obtained on the date of furnishing of return, i.e., May 21, 1966 ? 2. Whether the learned Tribunal was correct in law in holding that the reassessment proceedings were validly initiated under s. 147 of the Act and the learned ITO had jurisdiction to frame the assessment order dated March 6, 1971 ?" Reliance in this connection is placed on the following observations in Educational & Civil List Reserve Fund No. 1 vs. CIT (1964) 51 ITR 112 (Raj): "But before we deal with this question, we would like to dispose of the point whether, in an application for reference made by the assessee, it is open to the Department also, on such an application, to ask for a reference on a question of law, which, according to it, arises from the order of the Tribunal. This question came up before a Bench of the Bombay High Court in Girdhardas & Co. Ltd. vs. CIT (1957) 31 ITR 82 (Bom). It was there held, relying on an earlier decision of the same Court, that, no matter, whoever may be a party who asks for a reference, once it is decided to be made by the Tribunal, all questions of law which arise out of the order of the Tribunal, can be referred to the High Court for its determination, and that such questions may be suggested not only by the party which wants a reference but by the party which is content with the decision of the Tribunal. It was further held that once the decision of the Tribunal is assailed and is required to be brought before the High Court, there is no reason why the party that loses should be given the sole or exclusive right of suggesting questions of law that arise from the order of the Tribunal, but it should be equally open to the winning party to point out to the Tribunal that certain other questions of law also arise from its order and that these may well be considered by the High Court." ;