Commissioner of Income Tax vs T. Srinivasan

Thanikkachalam, J.—In compliance with the direction given by this Court in TCP Nos. 32 to 35 of 1980, the Tribunal referred the following

common question of law, for the opinion of this Court, under s. 256(2) of the IT Act, 1961 :

Whether, on the facts and in the circumstances of the case, was the Tribunal correct in law in holding that the assessee had not

concealed/furnished inaccurate particulars of his income and in deleting the penalties imposed under s. 271(1)(c) of the IT Act, 1961, for the asst.

yrs. 1964-65, 1965-66, 1966-67 and 1967-68 accordingly ?

The assessee was a permanent way inspector of Southern Railway, Salem. During the accounting year, relevant to the asst. yr. 1964-65 under

appeal, he was being assessed to Income Tax only in respect of the salary income. There was a search in his residence on 10th February, 1967 on

the ground that he was in possession of assets valued at about Rs. 1,25,000, which was disproportionate to his income. He was prosecuted and

convicted by the special judge, Madras, under s. 5(2) r/w s. 5(1)(a) of the Prevention of Corruption Act. The IT authorities reopened the

assessment of the assessee for the reason that the investments representing the income assessable under s. 69A of the IT Act, 1961, had escaped

assessment. The assessee filed returns admitting income from salary and also the interest from deposits in banks. However, in Part III of the return,

the assessee showed the value of the investments, but claimed exemption on the ground that he had the resources with him even prior to 1st April,

1963. The details of the investments made by the assessee for the accounting years ended on 31st March, 1964, 31st March, 1965, 31st March,

1966 and 31st March, 1967 were furnished by the ITO in the Income Tax assessment made under s. 143(3) r/w s. 147(a). According to the

assessee, he had got from his mother about 1000 and add sovereigns and out of the sale proceeds thereof, the investments both in this own and in

the name of his wife were made. The ITO held that the assessee had not satisfactorily accounted for the investments made, and therefore, the

amounts were assessable under s. 69A of the IT Act, 1961. Accordingly, the income of the assessee was computed by adding the value of the

investments shown as on 31st March, 1964 of Rs. 83,410 under s. 69A. The ITO initiated penalty proceedings for concealment of income. The

matter was referred to the IAC under s. 274(2) of the Act. The assessee filed a written submission, dt. 19th February, 1977. In the written

submission, it was contended that the assessee had disclosed the investments in Part III of his return. Alternatively it was contended that penalty

should be calculated based upon the tax avoided. The IAC was of the view that the investments were made from sources kept outside the

knowledge of the IT Department, and, therefore, the assessee was guilty of concealment of income as well as furnishing of inaccurate particulars of

such income. Observing that there was concealment, even in the revised return, the IAC held that levy of penalty under s. 271(1)(c) of the Act is

warranted. Aggrieved, the assessee failed appeal before the Tribunal. On considering the provisions of s. 69A, the Tribunal held that for the

purpose of s. 271(1)(c) of the Act, it is necessary for the Revenue to show that the assessee concealed the particulars of his income earned during

the accounting year, relevant to the assessment year under consideration. The Tribunal held that the charge of concealment under s. 271(1)(c) of

the Act is not made out. In as much as the Tribunal came to the conclusion that there is no concealment or furnishing of inaccurate particulars, the

levy of penalty under s. 271(1)(c) of the Act is not warranted.

Before us, the learned Standing counsel appearing for the Department submitted that the assessee has not disclosed the investments made and

the interest received therefrom. The assessee has furnished inaccurate particulars and therefore penalty under s. 271(1)(c) of the Act is exigible.

We have heard the learned standing counsel appearing for the Department and perused the records carefully.

Under s. 271(1)(c) of the IT Act, 1961, penalty proceedings were initiated. According to the Department, the assessee failed to disclose and

concealed the particulars with regard to investments made and the interest derived therefrom. Therefore, according to the Department, there is

concealment and furnishing of inaccurate particulars by the assessee, warranting penalty under s. 271(1)(c) of the Act. According to the assessee,

in Part III of the return, the assessee has furnished the investments made by him and the interest derived therefrom. The assessee claimed

exemption of these amounts. Further, according to the assessee, the penalty should be calculated based upon the tax avoided, as the concealment

was, if at all in the return of income filed on 2nd September, 1964 and not after 1st April, 1968. The fact that the assessee had disclosed the

investments in Part III of the return was not disputed by the Department. When the entire particulars with regard to the investments were disclosed

in the original return, it cannot be said that the assessee had concealed the income or furnished inaccurate particulars, warranting penalty under s.

271(1)(c) of the Act. Further, in the present case, the penalty is leviable, based upon the tax avoided, if there is any concealment as alleged by the

Department. That should be based upon the return of income filed on 2nd September, 1964 and not after 1st April, 1968, when the revised

returns was filed. Inasmuch as the investments were disclosed in Part III of the return itself, it cannot be said that there is any concealment of

income by the assessee or furnishing of any inaccurate particulars. Therefore, the Tribunal was correct in cancelling the penalty levied under s.

271(1)(c) of the Act. Accordingly, we answer the question referred to us in the affirmative and against the Department. No costs.