R.B. Shreeram Durgaprasad and Fatechand Narsinghdas (Export Firm) vs Commissioner of Income Tax

Bharucha, J.—At the instance of the assessee, we have to answer two questions in this reference u/s 256(1) of the Income Tax Act, 1961. The questions read thus :

"(1) whether, on the facts and in the circumstances of the case, the action initiated u/s 147(a) of the Income Tax Act, 1961, in March, 1965, for the assessment year 1948-49 was valid and legal ?

(2) If the answer to question No. (1) is in the affirmative, whether the penalty imposed u/s 271(1)(c) of the Income Tax Act, 1961, in relation to the return filed in the reassessment proceedings was valid and legal ?"

The assessment year we are concerned with is the assessment year 1948-49. The assessee is M/s. R. B. Shreeram Durgaprasad & Fatechand Narsinghdas (Export firm), Tumsar. There is another firm called R. B. Shreeram Durgaprasad (Mining Firm). Both these firms kept common accounts. Their accounting year was the Samvat year. The year in question began on October 25, 1946, and ended on November 12, 1947.

The assessment of the assessee (the Export Firm) for the assessment year 1948-49 was made on March 22, 1949, on an income of Rs. 71,617 based on its books of account. Thereafter, the assessee made a voluntary disclosure of a sum of Rs. 1,00,000. Its total income was thereupon assessed at the enhanced figure of Rs. 1,71,617 on July 30, 1952. In August and September, 1963, the customers and excise authorities searched the premises of the assessee and its partners and seized material revealed unaccounted transactions and gave indications of concealment of income. Included in such transactions were payments of an aggregate sum of Rs. 1,40,000 to the Maharajkumar of Vizianagaram for the acquisition of certain assets in December, 1947, and January, 1948, which were not accounted for in the assessee''s books. With the prior approval of the Central Board of Direct Taxes, the Income Tax Officer reopened the assessee''s assessment for the assessment year 1948-49 and issued a notice in this behalf to the assessee on March 26, 1965. Pursuant thereto, the assessee filed a return which too the Income Tax Officer found improper. He issued a notice to the assessee u/s 142(1) of the Income Tax Act, 1961, requiring the production of its books of account. On February 26, 1969, the Income Tax Officer made the reassessment order u/s 144 of the Income Tax Act, 1961. He held that the source of payments made to the Maharajkumar in the total amount of Rs. 1,40,000 had not been explained. The corresponding entries, being cash credits, had been entered in an account called the "Malewar Haste" account in the combined books of the assessee and the mining firm and appeared on February 21, 1948, February 24. 1948, and February 29, 1948. These incomes from undisclosed sources were includible in the assessment of the assessee for the assessment year in question. There was another account in the same books in which there were cash credit entries between February 21, 1948, and February 29, 1948, also aggregating to Rs. 1,40,000. The Income Tax Officer held that the source of these cash credits was not explained and included half the aggregate amount, that is, Rs. 70,000, in the assessment of the assessee. He also found a cash credit entry of Rs. 50,000 on November 27, 1947, in the account of one Biharilal Prahladrai in the combined books of the assessee and the mining firm. The source of this also not having been found to be explained in a satisfactory manner, an amount of Rs. 25,000 was included in the assessee''s assessment. In all, the Income Tax Officer made in the reassessment proceedings an addition of Rs. 1,35,000 to the assessee''s total income for the assessment year in question. He also initiated proceedings for the imposition of a penalty upon the assessee u/s 271(1)(c) of the Income Tax Act, 1961, and referred the matter to the Inspecting Assistant Commissioner for determination of the quantum thereof.

The assessee filed an appeal before the Appellate Assistant Commissioner against the reassessment. The Appellate Assistant Commissioner rejected the assessee''s contention and dismissed the appeal. A second appeal was thereupon filed by the assessee before the Income Tax Appellate Tribunal.

The Inspecting Assistant Commissioner imposed a penalty of Rs. 25,000 upon the assessee by his order dated July 29, 1970, u/s 271(1)(c) of the Income Tax Act, 1961. As against this order also, the assessee filed an appeal before the Tribunal.

Both the appeals were heard and disposed of together by the Tribunal by its judgment and order dated January 7, 1974. The two questions referred to us arise out of this judgment.

Mr. Thakkar, learned counsel for the assessee, submitted in regard to the first question that the assessment of the assessee for the assessment year 1948-49 had been reopened u/s 147(a) of the Income Tax Act, 1961, on the strength of the provision contained in section 297(2)(d)(ii) of the said Act. This provision entitled the taxing authorities, notwithstanding the repeal of the Indian Income Tax Act, 1922, to issue a notice u/s 148 of the said Act where, in regard to any assessment year after the year ending March 31, 1940, any income chargeable to tax had escaped assessment within the meaning of that expression u/s 147 and no proceedings u/s 34 of the repealed 1922 Act in respect of such income were pending at the commencement of the 1961 Act. Mr. Thakkar submitted that section 68 of the 1961 Act was, therefore, applicable to the assessee''s case and, having regard to the provisions thereof, the cash credit entries in February 1948, were not subject to tax during the assessment year 1948-49 with which we are concerned.

We find that this was not the basis upon which the first question was sought by the assessee to be referred to the court. The statement of case, in paragraph 28, states that the Tribunal accepted that the point raised in the first question was a point of law which arose from its order because Shri Salve, on behalf of the assessee, indicated that its case was covered by the ratio of the decision of the Supreme Court in J. P. J.P. Jani, Income Tax Officer, Circle IV, Ward G, Ahmedabad and Another Vs. Induprasad Devshanker Bhatt, . While the point had not been argued before the Tribunal, it said, the relevant ground of appeal had not been given up before it. Accordingly, the first question was referred.

The judgment of the Supreme Court in J.P. Jani, Income Tax Officer, Circle IV, Ward G, Ahmedabad and Another Vs. Induprasad Devshanker Bhatt, is on a point altogether different from that sought to be argued by Mr. Thakkar. It says that an Income Tax Officer cannot issue a notice u/s 148 of the 1961 Act in order to reopen the assessment of an assessee in a case where the right to reopen the assessment was barred under the 1922 Act at the date when the 1961 Act came into force.

The point that Mr. Thakkar has sought to argue before us is, in fact, the subject-matter of the second question that the assessee had sought a reference of and which the Tribunal, for the reasons stated in paragraph 29 of the statement of the case, declined to refer. In respect of this refusal, the assessee filed no application u/s 256(2) of the 1961 Act.

It is, therefore, not open to the assessee on both counts to raise the only argument that Mr. Thakkar sought to raise on its behalf in regard to the first question that we have to answer. It must, accordingly, be answered in the affirmative and in favour of the Revenue.

In regard to the second question that we have to answer, Mr. Thakkar submitted that there was no case of concealment and that, therefore, the penalty was unjustified. Reliance was placed by Mr. Thakkar upon the judgment of the Supreme Court in Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, The Supreme Court there held that before a penalty could be imposed, the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.

This is a case in which toe Tribunal found that when a specific opportunity was given by the Income Tax Officer to the assessee to explain the situation, it did not come forward with a satisfactory explanation. It was for the assessee to show to the departmental authorities the movement of the actual cash balance if its submission was that the cash balance had been accounted for in the sum of Rs. 1,40,000; this had not been done. If this sum was to be linked up to unexplained income, it was for the assessee to so show; this too the assessee had not done. The Tribunal referred to the "ingenious manipulations made by the assessee which came to light because of the seizure of certain documents at a later stage". It referred to "the mischief played" by the assessee. This is, therefore, a case which is covered not by Anwar Ali''s judgment Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, , upon which Mr. Thakkar laid stress but by the judgment of the Supreme Court in D.M. Manasvi Vs. Commissioner of Income Tax, Gujarat, II Ahmedabad, . It is a case where the inference that the assessee had consciously concealed the particulars of his income was not based merely upon the falsity of the explanation given by him. It is made amply clear by the order of the Tribunal that there is positive material to indicate that the whole scheme was to disguise the profits of the assessee. It is a case wherein there are definite findings of concealment of income.

In the result, we answer the first question in the affirmative and in favour of the Revenue. We answer the second question also in the affirmative and in favour of the Revenue.

The assessee shall pay to the Revenue the costs of the reference.