Commissioner of Income Tax vs Kandaswamy Cottage Industries

Thawkka Chalam, J.—In compliance with the directions of this Court in TCP No. 323 of 1975, dt. 9th March, 1977, the Tribunal referred

the following two questions for the opinion of this Court under s. 256(2) of the IT Act, 1961, hereinafter referred to as the ''Act'', for the asst. yr.

1964-65:

(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty of Rs. 50,000 levied under s. 271(1)

(c) of the IT Act, 1961?

(2) Whether the Tribunal''s finding that there was no concealment is based on relevant materials and is a reasonable view to take on the facts of the

case?

The assessee is a registered firm carrying on business of manufacture and sale of art silk ribbons and power room cloth. Under the Handicrafts

Export Promotion Scheme, it was given incentive import licences for the goods exported. The value of such licences for importing the goods is

stated to be Rs. 98,658. The authorities below estimated the profit on the sale of import licences at Rs. 1,52,990. Penalty notice was issued under

s. 271(1)(c) of the Act for concealment of income. The IAC levied a penalty of Rs. 50,000 for the concealment of income from other sources, as

well as income arising out of the sale of import licences, which were not recorded in the book. On appeal, the Tribunal deleted the penalty, holding

that the deduction of 50 per cent of the licences value towards the middle men''s profit is too small and the loss allowed in export is not adequate,

remittances had to be made by paying foreign exchange. On this basis, higher loss in export should have been given. On these reasonings, the

Tribunal held that penalty is not exigible under s. 271(1)(c) of the Act and the profit on sale of licence is based on estimate. The Tribunal further

held that the Expln. to s. 271(1)(c) of the Act is not attracted.

The learned- Standing Counsel appearing for the Department submitted that even if the face value of the import licences at Rs. 98,658 is taken

and the returned income at Rs. 9,920, the assessed income would be more than 80 per cent of the returned income. Therefore, in the asst. yr.

1964-65, Expln. to s. 271(1)(c) would be applicable to the facts of this case. If the Explanation is applicable, the initial burden is upon the

assessee to show that there is no concealment and if the assessee discharged the initial burden, then the ultimate burden is on the Department to

show that there is concealment in this case.

Admittedly the value of import licences is shown as Rs. 98,658. The assessee has not recorded the sale value of the import licences in its books.

Even if the face value of the import licence is taken into account, considering the income returned by the assessee (Rs. 9,920), the assessee''s

income would be more than 80 per cent of the returned income in which case the Expln. to s. 271(1)(c) in the asst. yr. 1964-65 could be

attracted. Therefore, the Tribunal was not correct in stating that the Expln. to s. 271(1)(c) of the Act is not attracted. The learned 98 counsel

appearing for the assessee submitted that no specific question was raised by the Department with regard to the applicability of the Expln. to s.

271(1)(c) of the Act. The learned standing counsel appearing for the Department submitted that the first question relates to the Tribunal''s order in

cancelling the penalty under s. 271(1)(c) of the Act. The provisions of s. 271(1)(c) of the Act would also include the Explanation under that section

in the asst. yr. 1964-65. Therefore, according to the learned Standing Counsel, no specific question need be raised on the applicability of the

Explanation. It was further submitted that the authorities below applied the Expln. to s. 271(1)(c) of the Act and it is only the Tribunal, which stated

that the Expln. to s. 271(1)(c) is not attracted. Under such circumstances, it was submitted that a separate question in the matter of applicability of

the Expln. to s. need not be raised.

271(1)(c) of the Act

We have heard the learned Standing Counsel appearing for the Department as well as the learned counsel appearing, for the assessee. The fact

remains that the value of the import licences even according to the assessee is stated to be Rs. 98,658. Even without adding the profit and

subtracting the expenditure claimed by the assessee, the face value would be Rs. 98,658. Admittedly, the income returned by the assessee was Rs.

9,920. If that is so, the assessed income would be more than 80 per cent of the returned income, in which case, in the asst. yr. 1964-65, the

Expln. to s. 271(1)(c) of the Act would be applicable. Hence the Tribunal was not correct in stating that Expln. to s. 271(1)(c) of the Act is not

attracted. The first question raised by the Department would cover even the non-application of Expln. to s. 271(1)(c) of the Act by the Tribunal.

Therefore, the order passed without considering the Expln. to s. 271(1)(c) of the Act, is not acceptable. Accordingly, we direct the Tribunal to

dispose of the penalty appeal after invoking the Expln. to s. 271(1)(c) of the Act and decide the appeal in accordance with law, after giving an

opportunity of being heard to the assessee. Accordingly the questions are returned unanswered. No costs.