Commissioner of Income Tax vs U.P. Tannery Co. (P.) Ltd.

R.L. Gulati, J.—This is a reference u/s 66(2) of the Indian income tax Act, 1922 (hereinafter referred to as "the Act").

The assessee is a private limited company carrying on business of tanning raw hides at Kanpur. The Income Tax Officer issued a notice u/s 18A(1) of the Act requiring the assessee to pay in installments advance tax amounting to Rs. 3,79,934 relevant for the assessment year 1952-53. The assessee paid the first installment on 16th September, 1951. On 15th December, 1951, it filed an estimate disclosing its total income at Rs. 7 lacs, at which tax payable worked out to Rs. 2,76,790. When the assessment for the year in question, namely, 1952-53, came to be made, the Income Tax Officer worked out a total income of Rs. 12,66,455 as against the estimated income of Rs. 7 lacs submitted by the assessee. The Income Tax Officer being of the opinion that the assessee had furnished the estimate of the tax payable by it which it knew or had reason to believe to be untrue served a notice upon the assessee u/s 28(1)(c) read with Section 18A(9) of the Act. The assessee contended that the additions made to its returned income consisted of two items of Rs. 4,96,868 and Rs. 1,10,088, which at the time of the filing of the estimate the assessee did not consider as its income. The Income Tax Officer did not accept this explanation and imposed a penalty of Rs. 30,970. On appeal, the Appellate Assistant Commissioner of Income Tax accepted the assessee''s explanation with regard to the item of Rs. 1,10,088 holding that the assessee could not be said to be guilty of filing a wrong estimate deliberately with regard to that item. He, however, did not accept the assessee''s contention with regard to the other item of Rs. 4,96,868. As a result, he reduced the penalty to Rs. 22,500. The assessee then went up in appeal before the Income Tax Appellate Tribunal. The main contention raised before the Tribunal was that a penalty levied upon it u/s 28(1)(c) for concealment of income had already been set aside and, as such, no ground was left for imposing penalty u/s 18A(9) of the Act. The Tribunal accepted this contention and set aside the order of penalty. The Commissioner is aggrieved and at his instance the Tribunal has referred the following question of law for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in deleting the penalty imposed u/s 18A(9) of the Indian Income Tax Act, 1922, against the assessee ?"

As stated above, the Tribunal mainly relied upon its order cancelling penalty for concealment u/s 28(1)(c) of the Act. It held that penalty u/s 18A(9) could not be upheld when penalty u/s 28(1)(c) had been set aside. There was, however, a reference [income tax Reference No. 717 of 1972, decided on 17th September, 1974-- Commissioner of Income Tax Vs. U.P. Tannery Company (P.) Ltd., at the instance of the department against the order of the Tribunal cancelling the penalty u/s 28(1)(c). The reference came up before a Division Bench of this court. It was reiterated before the Bench that the sum of Rs. 4,96,868 could not be included in the return because of the complicated system of accounting followed by the assessee. According to the assessee, the goods used to be sent on consignment basis to foreign countries for sale and provisional bills used to be made and the amounts of such bills used to be debited in the personal account of the customer with corresponding credit to the sales account. The sale proceeds as and when received used to be credited to the personal account of the customer and when all the goods were sold, the balance in such personal account used to be transferred to the profit and loss account. The Bench found that even on this basis, there was no justification for the assessee to omit this amount of Rs. 4,96,868 from its return because the entire sale proceeds had been received by the assessee in the year 1951 and yet it did not transfer the balance in the customers'' account to the profit and loss account. The Bench accordingly held that the finding of the Tribunal that the penalty was not called for u/s 28(1)(c) of the Act in regard to the item of Rs. 4,96,868 was not in accordance with the law. As a result of this opinion, the penalty order has been set aside. Thus, the main argument of the assessee based upon the order of the Income Tax Appellate Tribunal passed in appeal against the penalty order u/s 28(1)(c) has disappeared.

The learned counsel for the assessee contended that even though this Bench had upheld the penalty u/s 28(1)(c) in respect of the sum of Rs. 4,96,868, yet the language of Section 18A(9) was milder than the language used in Section 28(1)(c). This may or may not be true, but the learned counsel has not been able to show any extenuating circumstance. It is true that the payment of advance tax u/s 18A(2) is based upon an estimate of the income and the estimate may not always be correct, but, in the instant case, we find that so far as the sum of Rs. 4,96,868 is concerned, the assessee had received the last payment on 3rd October, 1951, while it filed the estimate two months later in December, 1951. There was thus no element of chance or estimate. He knew the exact figure long before he filed the estimate. He could have easily included this amount in its estimate. The failure of the assessee to do so was definitely deliberate, as has been held by the Division Bench in ITR No. 717 of 1972 Commissioner of Income Tax Vs. U.P. Tannery Company (P.) Ltd., referred to above.

The other plea of the assessee that it was not aware of the omission until it was pointed out by its auditor in the year 1956, has already been rejected by this court in the reference relating to the penalty matter. There is no other circumstance which can be said to be responsible for the wrong estimate. We are satisfied that the assessee had filed a wrong estimate deliberately with a view to concealing income and with a view to avoiding the payment of proper advance tax.

We, accordingly, answer the question in the negative, in favour of the department and against the assessee. The Commissioner of Income Tax is entitled to the costs which we assess at Rs. 200.