Commissioner of Income Tax vs Jugalkishore Hargopal Das

Arijit Pasayat, C.J.—Pursuant to a direction given by this court in O. P. No. 17983 of 1993, the following question has been referred u/s 256(2) of the Income Tax Act, 1961 (in short "the Act"), by the Income Tax Appellate Tribunal, Cochin Bench (in short "the Tribunal"), for opinion of this court :

"Whether the Tribunal was right in law and fact in cancelling the penalty u/s 271(1)(c) of the Income Tax Act ?"

The factual position as indicated in the statement of case is as follows : Originally, the assessee had filed a return of income for the concerned assessment year, i.e., 1981-82, declaring a total income of Rs. 23,560 on October 10, 1981, and the assessment was completed u/s 143(1) on January 25, 1984. On January 28, 1986, there was a search in the premises of the assessee u/s 132 of the Act. On December 8, 1987, the assessee filed a return showing a sum of Rs. 1,00,000 as income under the head "Other sources", in addition to the income already assessed. As there was no scope for filing a revised return after completion of the assessment, the Assessing Officer ignored the return but nevertheless issued a notice u/s 148 of the Act. A return was filed in response to it. In the reassessment there was an addition to the extent of Rs. 1,03,250 as against Rs. 1,00,000 returned by the assessee as "income from other sources". The Assessing Officer initiated penalty proceedings u/s 271(1)(c) of the Act. The assessee submitted his explanation stating that since prior to the service of notice u/s 148, a revised return had been filed admitting an additional income of Rs. 1,00,000 and he had agreed to the addition of Rs. 1,03,250, there was no scope for initiation of penalty proceedings. The Assessing Officer did not accept the explanation and levied penalty. On appeal, the Commissioner of Income Tax (Appeals), Calicut (in short "the CIT (Appeals)"), affirmed the conclusions of the Assessing Officer. He held that the return which was filed offering additional income was not voluntary and the assessee was forced to admit the additional income in view of the detection of the deposits by the Assessing Officer in the course of the assessment proceedings for the assessment year 1982-83, and even if the return was filed voluntarily, as claimed, that did not absolve the assessee of the liability to penalty.

In second appeal, the Tribunal held that the return was filed before detection of any concealment and that since there was an agreed addition, the question of the assessee being required to explain the sources of investments or credits did not arise. Therefore, penalty levied was cancelled. Reliance was placed on a decision of the apex court in Sir Shadi Lal Sugar and General Mills Ltd. and Another Vs. Commissioner of Income Tax, Delhi, .

Since the application u/s 256(1) of the Act was not entertained by the Tribunal, prayer for reference was made in the original petition, and as aforesaid the direction was given.

Senior standing counsel for the Revenue submitted that the approach of the Tribunal is erroneous and the factual aspects have not been appreciated in the proper perspective. Learned counsel for the assessee, on the other hand, submitted that on analysing the factual position, the Tribunal has arrived at its conclusion and, therefore, no question of law arises.

The Tribunal seems to have proceeded on the footing that whenever there is an agreed addition, there can be no levy of penalty as the assessee is not expected to explain sources of investments or credits. On a bare reading of the decision of the apex court in Sir Shadi Lal Sugar and General Mills Ltd. and Another Vs. Commissioner of Income Tax, Delhi, on which the Tribunal has relied, this proposition is not culled out. There is no general principle laid down in the said case that whenever addition is made of an amount offered by the assessee to be added there cannot be any levy of penalty, or that the assessee is not required to explain sources. The actual position in law is that merely because the assessee had agreed to the assessment, that cannot automatically bring in levy of penalty. If the assessee offers an explanation, the Revenue authorities have to consider the acceptability of the explanation and pass necessary orders. If the explanation is found acceptable, notwithstanding the addition made by treating the amount offered by the assessee as income from undisclosed sources, penalty may not be levied. But if the explanation is found to be vague or fanciful and without any foundation or basis, it is certainly open to the Revenue authorities to impose penalty. It would all depend upon the acceptability of the explanation offered by the assessee in the background of the statutory provisions as prevailing at the relevant time. The Tribunal does not appear to have kept the correct position in law in mind, while deciding the case. It did not record any finding on factual aspects and acceptability of the explanation. Therefore, as suggested by learned counsel for the parties, we remit the matter back to the Tribunal for reconsideration. It shall be open to the parties to place materials in support of their respective stands. Though ref erence jurisdiction is limited in its operation, in view of the fact that the Tribunal has not dealt with the matter in its proper perspective, and has not dealt with relevant factual aspects, we have accepted the suggestion of learned counsel for the parties to remit the matter back to the Tribunal. The reference is disposed of accordingly.