Commissioner of Income Tax vs India Sea Foods

M.M. Pareed Pillay, C.J.—The reference is at the instance of the Revenue, the assessment year being 1967-68. The assessee filed a return of its income on April 10, 1968, disclosing 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 would be amended on finalisation of the accounts. 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 Commissioner of Income Tax. In the petition he disclosed the wealth position of the partners and of the firms as on December 31, 1958, and December 31, 1967. Following discussions and correspondence between the parties, the assessee furnished a revised return on December 18, 1968, disclosing income of Rs. 3,07,428.04. Eventually an agreement was entered into on August 27, 1969. The settlement related to tax liabilities of all the three firms and their partners up to the year 1968-69. The assessee agreed for treating Rs. 7,00,000 as its income not disclosed in the returns of the years up to 1968-69 and wanted it to be apportioned between the years 1964-65 and 1968-69 on the basis of the turnover. Under Clause 6 of the agreement, the assessee agreed to the Department levying minimum penalty prescribed under the Act for the years 1964-65 to 1968-69 with regard to the added income of Rs. 7,00,000. On the basis of the said agreement revised assessments were completed, the addition for the assessment year 1967-68 being Rs. 1,64,687. The Inspecting Assistant Commissioner imposed a penalty of Rs. 1,64,687 u/s 271(1)(c) of the Income Tax Act, 1961.

At the instance of the Revenue and pursuant to the direction issued by this court in O. P. No. 2141 of 1979 u/s 256(2) of the Act the Tribunal referred four questions of law as arising out of the order dated April 18, 1978, of the Tribunal u/s 254(1) of the Act in ITA 404/Coch/71-72 of the assessment year 1967-68. The Tribunal was unable t''o find that the second return was furnished with the intention to conceal or that there was concealment of income.

Counsel for the Revenue contended that it was not open to the Tribunal to go behind the agreement between the parties. According to him, Clause 6 of the agreement would really show that the assessee had agreed that the Department can levy minimum penalty prescribed under the Act for the assessment years 1964-65 to 1968-69 in the case of India Sea Foods in whose hands the unaccounted income of Rs. 7,00,000 is proposed to be assessed. He contended that the Tribunal should not have set the agreement at naught with a finding of its own on the question of concealment. Also it is contended that the presumption under the Explanation to Section 271(1)(c) is available in favour of the Revenue as it stood then that there was concealment of particulars of income by the assessee inasmuch as the returned income was less than 80 per cent. of the assessed income and hence the burden to dislodge the presumption is squarely upon the assessee. In other words, it is contended that as the levy of penalty for the year 1968-69 was based on the admissions in the agreement no other view is possible.

Counsel for the assessee contended that there was no concealment of particulars at all by the assessee in view of the fact that 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. It is contended that there was no admission of any concealment implied in the agreement. The argument advanced by counsel is that the said agreement was with a view to purchase peace, and to avoid prolonged proceedings.

The contention of the assessee is that the Tribunal has entered into a finding that there was no concealment for the assessment years during the period and as it has given reasons to that effect and as it is a finding of fact the same question cannot be re-agitated before this court. Also it is contended that it would not be possible to hold that there was intentional concealment in view of Clause 6 of the agreement.

This is a case where on April 10, 1968, the assessee filed a return showing an income of Rs. 2,75,000. That return was filed on an estimate basis. The covering letter with the return mentions in express terms that the accounts of the firm were pending finalisation and hence the return declaring the estimated income of Rs. 2,75,000 was provisional and that the return would be amended on finalisation of the accounts. On June 29, 1968, the managing partner of the assessee-firm on behalf of all the firms presented a settlement petition to the Commissioner of Income Tax with details of the wealth position of the partners and of the firms in which they are partners as on December 31, 1958, and December 31, 1967, and requested the Commissioner to settle the Income Tax liabilities including the pending assessments of all the firms and partners so as to enable the assessee to revive its business. It was thereafter that on August 27, 1969, the agreement was reached.

The Tribunal examined the first return and found that it was only on the basis of estimate. In the covering letter itself it was stated that another revised return would be furnished. The Tribunal held that when the assessee himself has stated that it was only a provisional return and that a revised return would be furnished after finalisation of the accounts there cannot be any concealment. The Tribunal found that when the second return was filed it was made known to the Income Tax Officer that the returned figures of income need be accepted only after the settlement and so this is a case where there was no wilful concealment. The Tribunal also found that by offer and supply of materials the assessee had informed the Income Tax Officer of the need to scrutinise the return and, therefore, it cannot be said that there was any intention to conceal or hide anything from the gaze of the Income Tax Officer in the second return. As the assessee had supplied all the necessary materials to the Income Tax Officer, the Tribunal''s finding that there was no intentional concealment cannot be held to be bad. The Tribunal held that it was not able to find that the second return was furnished with the intention to conceal or that there was concealment in the income or furnishing of inaccurate particulars.

As the entire matter was considered thread bare by the Tribunal and it found that there was no concealment of the income it being essentially a finding of fact no question of law arises for reference to this court. In CIT v. Saraf Trading Corporation [1987] 167 ITR 909, a Division Bench of this court held (headnote) :

"Penalty proceedings are penal in nature. The elementary principles of criminal law will apply. It is a quasi-criminal proceeding. There should be conscious concealment. The provisions should be construed strictly."

It is also held in the above decision that even after the addition of the Explanation to Section 271(1)(c), conscious concealment is necessary and that the presumption under Explanation to Section 271(1)(c) can be displaced by the assessee proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect and the quantum of proof necessary would be that required in a civil case, namely, preponderance of probabilities. As the Tribunal held that there was no conscious concealment and as that being a finding of fact, this court cannot proble into the matter and come to a different factual finding. The above decision has been followed in Commissioner of Income Tax Vs. Shri Pawan Kumar Dalmia, . As the Tribunal has taken into account the cumulative effects of all the facts and circumstances of the case and held that there was no concealment, this being a question of fact, cannot be re-agitated in the reference before us.

It is open to the assessee to rebut the presumption under the Explanation to Section 271(1)(c) of the Act by proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. In view of the specific terms in Clause (6) of the agreement that the Department can levy the minimum penalty prescribed under the Act with regard to the unaccounted income of Rs. 7,00,000 it cannot be said that there was concealment of the income from the officer concerned. In Commissioner of Income Tax Vs. Shri Pawan Kumar Dalmia, this court held that whether there is concealment to make the penalty exigible is normally a question of fact and whether the burden of proof in a given case had been discharged on a set of facts is also a question of fact. It is also useful to refer to Sir Shadi Lal Sugar and General Mills Ltd. and Another Vs. Commissioner of Income Tax, Delhi, where the Supreme Court held that merely because the assessee has agreed to additions to his income, it does not follow that the amount agreed to be added is concealed income as there may be a hundred and one reasons for such admission. The Supreme Court further held that in a case where the assessee realises the true position and did not dispute certain disallowances it does not absolve the Revenue from proving the mens rea of quasi-criminal offence.

As there is no conscious concealment of the income and as this is not a case where the Revenue through its machinery unearthed the concealment and as also there is no finding that the tax returned showed 80 per cent. concealment as provided u/s 271(1)(c) and as the Tribunal on a consideration of the entire gamut of the matter found that there was no concealment as such by the assessee and as it cannot be said that the Tribunal''s finding is perverse or legally wrong there is no point for reference before us.

In the result we do not find that this is a case where reference is warranted. Hence, we decline to answer the reference.