N.A. Malbari and Bros. Vs.
Commissioner of Income-Tax, Bombay [1963] INSC 228 (25 November 1963)
25/11/1963 SARKAR, A.K.
SARKAR, A.K.
HIDAYATULLAH, M.
SHAH, J.C.
CITATION: 1964 AIR 1807 1964 SCR (5) 560
CITATOR INFO:
E 1969 SC 835 (6) RF 1992 SC1139 (10)
ACT:
Income Tax-Penalties-One earlier, the second
on disclosure of full facts-Whether justifiable-Income-tax Act, 1922 (11 of
1922), s. 28.
HEADNOTE:
The appellant, a firm of Surat, had a branch
at Bangkok, to which it exported cloth, and the branch also made purchases
locally and sold them. During the war the business of the branch had been in
abeyance, but was re-started after the termination of the hostilities. in its
return for the assessment year 1949-50 the appellant did not include any profit
of the branch, but stated that the books of account of branch were not
available, and therefore its profits might now be assessed on an estimate basis
subject to 561 action under s.34 or 35.The assessment was made on the basis of
profit at 5 % on the export to the branch appearing in the Surat books. A
similar estimate was made for year 1950-
51. For the year 1951-52 also the business
profits of the branch were not shown but the Income-tax officer issued a notice
to the assessee to produce the relevant accounts and books. The-appellant
excused itself by promising that in the following year these accounts for the
year 1950 would be produced. Thereupon the Income-tax Officer made an estimate
of the sales of the branch and of the net profits at 5 % thereon, amounting to
Rs. 37,500/-, and the same day he issued a notice to show cause why a penalty
for concealment of the particulars of the income of 1951-52 should not be
levied. Subsequently, the Income-tax Officer imposed a penalty of Rs. 20,000/-
on it as its explanation was not acceptable. In the meantime assessment
proceedings for the year 1952-53 had commenced and the appellant adopted a
similar attitude. The Income-tax Officer was insistent and, therefore,
appellants had to produce the accounts and books of the branch, from which it
appeared that for the year 1951-52 the appellant had made a profit of Rs.
1,25,520/-.
The Income-tax Officer issued a further
notice to the appellant to show cause why penalty should not be levied for
deliberately concealing income for the year 1951-52.
Pursuant to this notice the Income-tax
Officer passed another order imposing a penalty of Rs. 68,501/-. The
appellant's appeal to the Appellate Assistant Commissioner against both the
orders of penalty was rejected. On appeal, the Tribunal cancelled the first
order of penalty but confirmed the second one. This hereafter, the appellant
obtained a reference to the High Court on the question:
"Whether the levy of Rs. 68,501/- as
penalty for concealment in the original return for the assessment year 1951-52
is legal?" The High Court answered the question in the affirmative. On the
appeal by special leave it was urged that the second order for penalty was
illegal because there was one concealment and in respect of that a penalty of
Rs.
20,000/- had earlier been imposed, that there
was no jurisdiction to make the second order of penalty while the first order
stood and for that reason the second order must be treated as a nullity; and
that the fact that the first order was subsequently cancelled by the Tribunal
would not set the second order on its feet for it was from the beginning a
nullity as having been made when the first order stood.
Held: (i) The contentions must be rejected.
The Income- tax Officer had full jurisdiction to make the second order and he
would not lose that jurisdiction because he had omitted to recall the earlier
order, though it may be that the two orders in respect of the same concealment
could not be enforced simultaneously or stand together. When the Income-tax Officer
ascertained the true facts and realised that a much higher penalty could have
been imposed, he was entitled to recall the earlier order and pass another
order imposing the higher penalty. If he had omitted to recall the earlier
order that would not make the second order invalid, 1 SCI/64-36 562 (ii)In the
present case the earlier order having been cancelled and no objection to the
cancellation having been taken, there is only one order, which is a legal
order.
C.V. Govindarajulu Iyer v. Commissioner of
Income-tax, Madras, 16 I.T.R. 391, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 78 of 1962.
Appeal from the judgment and order dated
April 13,1960, of the Bombay High Court in Income-tax Reference No 40 of 1959.
R.J. Kolah, J.B. Dadachanji, O.C. Mathur and
Ravinder Narain, for the appellants.
N.D. Karkhanis and R.N. Sachthey, for the
respondent.
November 25, 1963. The Judgment of the Court
was delivered by SARKAR J.-This is an appeal against a judgment of the High
Court at Bombay given on a case stated to it under the Income-tax Act and
answering in the affirmative the following question:
"Whether the levy of Rs. 68,501/- as
penalty for concealment in the original return for the assessment year 1951-52
is legal?" The question arose, in the assessment of the appellant, a firm,
for the year 1951-52 in respect of which the accounting year was the calendar
year 1950. The assessee carried on business at Surat it had a branch at Bangkok
to which it exported cloth from India. The branch also made purchases locally
and sold them. During the last world war the business at Bangkok had been in
abeyance but it was re- started after the termination of the hostilities.
In its return for the assessment year 1949-50
the assessee did not include any profit of the Bangkok branch but stated that
the books of account of the Bangkok branch were not available and that
therefore its profit might now be assessed on an estimate basis subject to
action under S. 34 or 35 on production of statement of account. : The
assessment was there- 563 upon made on the basis of profit at 5 % on the export
to Bangkok branch appearing in the Surat books.
For the year 1950-51 again there was no
reference to the Bangkok branch in the return and a similar estimate was made
for this year also. For the year, 1951-52 also the Bangkok business profits
were not shown but on January 11, 1952, the Income-tax Officer issued a notice
to the assessee under s. 22(4) of the Act to produce the profits and loss
account and balance-sheet with the relevant books. The assessee excused itself
by alleging on January 29, 1952 that the books were at Bangkok and the profit
and loss account and the balance- sheet could not be drawn up unless its
partner, Hatimbhai A.
Malbary, went there personally and there was
no certainty as to when he would go there and promising that in the following
year these accounts for the calendar year 1950 would be produced. Thereupon the
Income-tax Officer made an estimate of the sales of the Bangkok branch at Rs.
7,50,000 and of the net profits at 5% thereon, amounting to Rs. 37, 5001-. This
assessment was made on January 31, 1952. On the same day he issued a notice
under s. 28(3) of the Act requiring the assessee to show cause why a penalty
under s.28(1)(c) for concealment of the particulars of the income of 1950
should not be levied. The assessee was heard on this notice and on January 22,
1954, the Income-tax Officer imposed a penalty of Rs.20,000 on it as its
explanation was not acceptable.
In the meantime assessment proceedings for
the year 1952-53 had commenced and this year also the assessee adopted a
similar attitude as in the previous years. The Income-tax Officer was however
insistent and, therefore, after various adjournments, the assessee had on
August 17, 1953 to produce the accounts and books of the Bangkok branch. It
appeared from these books that in the calendar year 1950 the assessee had made
a profit of Rs. 1,25,520/-. The Income-tax Officer thereupon commenced
proceedings under s. 34 of the Act against the assessee in respect of the
assessment year 1951- 52 and gave 564 notice to the assessee to submit a
return. The assessee then submitted a return stating therein correctly the
profits for the calendar year 1950. The Income-tax Officer completed that assessment
after directing the .issue of a further notice under s. 28(3) on April 8, 1954
requiring the assessee to show cause why penalty should not be levied for
deliberately concealing the particulars of his income of 1950. Pursuant to this
notice the Income-tax Officer passed another order on February 28, 1957
imposing a penalty of Rs. 68,501. So there were two orders of penalty.
The assessee appealed to the Appellate
Assistant Commissioner against both the aforesaid orders of penalty but the
appeals were rejected. There is no dispute as to the assessment of the income.
The assessee then appealed to the Income-tax Appellate Tribunal. The Tribunal
observed, "It is indeed difficult to understand the action' of the
Department in splitting up one offence into two proceedings.
So far as the levy on the basis of the 23(3)
assessment is concerned, it appears to have no basis as till that stage the
Department had not succeeded in establishing and bringing home any guilt. It
was still in the region of estimate........ The levy of Rs. 20,000 has to be
remitted in full. The levy of Rs. 68,501 is entirely different.
With the definite knowledge that the
Income-tax Officer had obtained that the profit for the year was Rs. 1,25,520
he has clearly proved the guilt of concealment against the assessee............
The penalty is not at all excessive and accordingly confirmed." The
revenue authorities never questioned the cancellation of the first order of
penalty.
Thereafter the asseseee obtained a reference
to the High Court of the question which we have set out at the beginning of
this judgment. That question, it will be noticed, referred only to the penalty
of Rs. 68,501 /- imposed pursuant to the second notice under s. 28(3) for
concealing the particulars of the income of 1950. It has to be observed that in
the return that was filed in the proceedings started under 565 s. 34, the
assessee furnished correct particulars and it also produced the books. So it
had not committed any default in connection therewith. The notice must
therefore be taken to have been in respect of the original concealment of the
income. The assessee knew-and this is what was found by the Tribunal% and that
is a finding of fact which is binding on a Court in a reference-that its
profits were Rs. 1,25,520/and it had not disclosed that profit originally nor
produced the relevant books but permitted the Income tax Officer to proceed on
an estimate of that profit at Rs. 37,500/-. It was contended in the High Court
that in respect of the same concealment there were thus two penalties involved,
namely, one of Rs. 20,000 and the other of Rs. 68,501/-. The High Court agreed
with the contention of the assessee that two penalties could not be levied in
respect of identical facts but it held that the penalties in this case had not
been levied on the same facts. It observed that the original assessment was
solely on the basis of an estimate and the second assessment was after
knowledge of the full facts of the concealed income.
In this Court Mr. Kolah has urged that the
second order for penalty was illegal because there was one concealment and in
respect of that an order for penalty of Rs. 20,000/- had earlier been made. He
contended that there was no jurisdiction to make the second order of penalty
while the first order stood and for that reason the second order must be
treated as a nullity. He further stated that the fact that the first order was
subsequently cancelled by the Tribunal would not set the second order on its
feet for it was from the beginning a nullity as having been made when the first
order stood.
We are unable to accept this argument. It may
be that in respect of the same concealment two orders of penalty would not
stand but it is not a question of jurisdiction. The penalty under the section
has to be correlated to the amount of the tax which would have been evaded if
the assessee had got away with the concealment. In this case having assessed
566 the income by an estimate, the Income-tax Officer levied a penalty on the
basis of that estimate. Later when he ascertained the true facts and realised
that a much higher penalty could have been imposed, he was entitled to recall
the earlier order and pass another order imposing the higher penalty. If he had
omitted to recall the earlier order that would not make the second order
invalid. He had full jurisdiction to make the second order and he would not
lose that jurisdiction because he had omitted to recall the earlier order,
though it may be that the two orders could not be enforced simultaneously or stand
together. However, in the present case the earlier order having been cancelled
and no objection to the cancellation having been taken, we have only one order
and that for the reasons earlier stated is, in our view, a legal order.
It was also said that when the first order of
penalty was passed the Income-tax Officer was in possession of the full facts
which would have justified the imposition of the higher penalty. It was pointed
out that the first order of penalty was passed on January 22 1954 while the
books disclosing the real state of affairs had been produced before the
Income-tax Officer on August 17, 1963. It was contended that in inspite of this
he passed the order imposing a lower penalty, he had no right later to change
that order In support of this contention reference was made to C. V.
Govinderajulu Iyer v. Commissioner of Income tax, Madras"'. There it was
argued that the original proceeding under s. 23(3) and a proceeding under s. 34
in respect of the same period were different and in the latter proceeding a
penalty could not be imposed for a concealment in respect of the original
proceeding. Rajamannar C.J.
rejected this contention and held, "that
so long as the proceedings under Section 34 relate to the assessment for the
same period as the original assessment, the Income-tax Officer will be
competent to levy a penalty on any ground open to him under Section 28(1), even
though it relates (1) [16] I.T.R. 391 567 to the prior proceeding". He
however proceeded to observe, "There may be one possible qualification of
his power, and that is when the default or the act which is the basis of the
imposition of the penalty was within the knowledge of the officer who passed
the final order in the prior proceeding and if that, officer had failed to exercise
his power under Section 28 during the course of the proceeding before him.
Possibly in that case he would have no power." Learned counsel for the
appellant relied on this latter ob- servation in support of his contention. We
do not think that Rajamannar C.J. wished to state this qualification on the
power of the Income-tax Officer as a proposition of law.
It was not certainly necessary for the
purposes of the case before him. We do not wish to be understood as subscribing
to it as at present advised.
But assume that this statement of the law is
correct. It has no application to the present case. What is said is that if the
default which entails the penalty was within the knowledge of the authority
when it passed the final order in the prior proceeding no penalty could be
later imposed. Now Rajamannar C.J. was not dealing with a case in which two
penalties had been imposed. The case before him was one in which no return had
been filed pursuant to a general notice but subsequently s. 34 proceedings had been
stated and resulted in an assessment and an order imposing a penalty was
thereupon passed. The final order in the prior proceedings referred to by the
learned Chief Justice must, therefore, be final assessment order in the prior
proceedings. Now in the present case the final order in the prior assessment
proceedings was made on January 31, 1952 and on that date the Income-tax
Officer had no knowledge of the concealment of income of Rs. 1,25,520.
Therefore it seems to us that the observation of Rajamannar C.J. does not
assist Mr. Kolah. We may also observe that the first order of penalty passed on
January 22, 1954, was pursuant to a notice issued on January 31, 1952 in
respect of which the assessee had offered 568 his explanation on March 11,
1952. That notice 'was not concerned with any concealment that came to light
from the production of the books on August 17, 1953 and, therefore, on this
concealment the assessee had never been heard. In assessing a penalty If on
this notice subsequently acquired knowledge would be irrelevant.
The result is that the appeal fails and it is
dismissed with costs.
Appeal dismissed.
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