COMMISSIONER OF INCOME TAX vs INDIA SEA FOODS.

T. L. VISWANATHA IYER, J. :

This reference is at the instance of the Revenue. The assessment year concerned is 1967-68. The assessee-respondent filed a return of its income on 10th April, 1968 disclosing an income of Rs. 2,75,000 but stating that its accounts were pending finalisation and that the return was only provisional. It was stated that the return will be amended on the finalisation of the accounts. Thereafter, the managing partner of the assessee, who was also the managing partner of two other sister firms, sought settlement of the matters relating to Income Tax by filing a petition before the CIT in which he disclosed the wealth position of the partners and of the firms as on 31st Dec., 1958 and 31st Dec., 1967. Discussions as well as correspondence went on between the parties and on 18th Dec., 1968 the assessee furnished a revised return showing the income of Rs. 3,07,428.04. The processing of the settlement proposal continued and eventually an agreement was entered into on 27th August, 1969 which is extracted in the order of the Tribunal. The settlement related to the tax liabilities of all the three firms and their partners upto the year 1968-69. The assessee agreed that a further sum of Rs. 7,00,000 may be treated as its income not disclosed in the returns for the years upto 1968-69. This was to be apportioned between the years 1964-65 and 1968-69 on the basis of the turnover of the assessee. Under cl. 6 of the agreement the assessee agreed that the Department may levy the minimum penalty prescribed under the Act for the years 1964-65 to 1968-69 relating to the added income of Rs. 7,00,000. Revised assessments were completed for all the years based on this agreement, the addition for the asst. yr. 1967-68 being Rs. 1,64,687. Based on this addition the IAC imposed a penalty of Rs. 1,64,687 under s. 271(1)(c) of the IT Act, 1961.

Dispute arose between the parties as to what was the rate at which the penalty envisaged by cl. 6 should be levied for the asst. yr. 1967-68. This was because of a change which was effected in s. 271, which came into force on 1st April, 1968. Till then the levy of penalty was related to the amount of tax while it was related to the income escaping assessment after 1st April, 1968. While the Department took the view that since the return in this case had been filed after 1st April, 1968 penalty has to be related to the income concealed, the assessee contended for the position that the penalty has to be geared to the tax payable on the alleged concealed income. The Tribunal held in favour of the assessee by its order dt. 9th April, 1973, a copy of which is Annexure C. This matter was taken up in reference to this Court and dealt with as IT Ref. Nos. 34 and 35 of 1975. But soon after the Tribunal passed its order Annexure C, the assessee filed a miscellaneous petition before the Tribunal stating that their agreement for the levy of minimum penalty will stand only if the penalty was leviable a per the 1st April, 1968 law and that if penalty was leviable as related to the income as under the post 1st April, 1968 dispensation, their contention that there was no concealment of income liable to be visited with penalty has to be considered. The Tribunal passed the order Annexure D accepting the petition and directing that the assessee will be heard at the time of passing order under s. 260(1) on the question whether there was concealment and whether penalty was impossible. This Court answered the reference IT Ref. Nos. 34 and 35 of 1975 against the assessee holding that since the return was filed after 1st April, 1968, the amount of penalty has to be related to the income concealed. In view of this decision, and having regard to the order Annexure D, the Tribunal passed fresh orders under s. 260(1) of the IT Act in which it went into the question whether there was any concealment of income on the part of the assessee and whether any penalty was impossible on it. After a detailed consideration of the facts, a Full Bench of the Tribunal held that there was no concealment of income by the assessee and that no penalty was liable to be imposed on it.

In the meanwhile penalty had been imposed on the assessee for the year 1968-69. The matter up to this Court under s. 256(2) when this Court declined to direct reference, in the view that the decision of the Tribunal was based on facts and no referable question of law arose therefrom.

At the instance of the Revenue and consequent on the direction issued by this Court in O.P. No. 2141 of 1979 under s. 256(2) of the IT Act, 1961, the Tribunal has referred four questions of law as arising out of the order Annexure E passed by it. The questions cover various aspects as to whether the Tribunal could go behind the terms of the agreement and cancel the penalty agreed upon by the assessee, whether the Tribunal was justified in holding that there was no intention to conceal any income and the like.

Standing Counsel for the Revenue contended that it was not open to the Tribunal to go behind the agreement between the parties. Since, the assessee had agreed to the levy of minimum penalty which should mean the minimum penalty leviable in law, it was not open to the Tribunal to set this agreement at naught with a finding of its own on the question of concealment. It was also his case that there is a presumption under the Explanation to s. 271(1)(c) a it stood then that there was concealment of particulars of income by the assessee inasmuch as the returned income was less than 80% of the assessed income. The burden was on the assessee to dislodge this presumption. In view of the admissions contained in cls. 1 and 6 of the agreement, this presumption stands unrebutted and it has to be held that the assessee was exposed to penalty under s. 271(1)(c) of the Act. Standing Counsel relied on the decisions in Durga Timber Works Vs. Commissioner of Income Tax, , Chuharmal Vs. Commissioner of Income Tax, M.P., ; Commissioner of Income Tax Vs. C.M. Mathen, , Western Automobiles (India) Vs. Commissioner of Income Tax, Bombay City-I, Bombay, , Commissioner of Income Tax Vs. P.B. Shah and Co. (Pvt.) Ltd., amongs others. He also pleaded that since the levy of penalty for the year 1968-69 based on the admissions in the agreement had been confirmed by this Court as mentioned earlier, the same view has to be taken on the construction of the agreement and on its implications. The decision of this Court relating to the year 1968-69 is reported as India Sea Foods Vs. Commissioner of Income Tax, Kerala, .

On the other hand, counsel for the assessee pointed out that there was no concealment of particulars at all by the assessee. The assessee had agreed to the addition of Rs. 7,00,000 for all the five years together as a scheme of settlement with the Department of the disputes not merely of the assessee with the Department but also of the other two firms and of the partners. There was no admission of any concealment implied in the agreement. On the other hand, it was entered into only to purchase peace and to avoid prolonged proceedings. It was inter alia mentioned that the revised return was filed when the settlement application was being processed. The agreement to have the tax liabilities of all the firms and all the partners brought to assessment in the assessees hands does not imply any concealment of income by the assessee in its return and, therefore, there was no scope for any penalty being imposed under s. 271(1)(c). He placed reliance on the decision of this Court in Commissioner of Income Tax Vs. M. George and Brothers, where in similar circumstances of an agreement with the Department this Court held that the fiction created by the explanation could be displaced by material to show that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on the part of the assessee. He also referred to two other decisions of this Court in CIT vs. Saraf Trading Corporation (1987) 167 ITR 909, which was followed in Commissioner of Income Tax Vs. Shri Pawan Kumar Dalmia, . Reference was also made to numerous other decisions of other High Courts namely, Allahabad, Mysore, Madras and Madhya Pradesh as also to the decision of the Supreme Court in Sir Shadi Lal Sugar and General Mills Ltd. and Another Vs. Commissioner of Income Tax, Delhi, . In this last case the Supreme Court pointed out that from the fact of the assessee agreeing to additions to his income it does not follow that the amount agreed to be added was concealed income. This admission does not absolve the Revenue from proving the mens rea of a quasi criminal offence. It was, therefore, the submission of the assessee that the admission by itself is not conclusive of the matter and that when once the assessee has given reasons to substantiate its case that there was no concealment it was for the Department to establish that there was concealment.

The points raised in this reference to which we have already adverted, are important questions on which it will be advantageous to have a conclusive adjudication in the light of the various decisions on the subject by the Supreme Court and the various High Courts and also this Court. We feel that it will be proper to have the matter adjudged by a Full Bench of this Court.

Accordingly, we refer this case for decision by a Full Bench.

The papers should be placed before the Honble the Chief Justice for direction for posting.