(1.) THIS petition under Section 256 (2) of the Income-tax Act, 1961 (hereinafter called "the Act"), by the Commissioner of Income-tax, Patiala, has been necessitated because of an order dated October 28, 1977, passed by the Income-tax Appellate Tribunal, Chandigarh Bench (hereinafter called "the Tribunal"), whereby an application under Section 256 (1) of the Act preferred by the Revenue before the Tribunal for referring certain questions of law arising out of the order of the Tribunal dated August 31, 1976, in ITA No. 71 of 1975 was rejected.
(2.) THE facts necessary for the determination of the application are as follows : M/s. Punjab Kesari Hosiery Factory, G. T. Road, Ludhiana (for short "the asses-see"), a registered firm, manufactures, sells and exports hosiery goods. For the accounting year ending on March 31, 1967, relevant to the assessment year 1967-68, the assessee filed a return declaring income of Rs. 3,15,450 on October 31, 1967. A revised return was filed by the assessee on March 28, 1972, declaring a total income of Rs. 3,17,641. The Income-tax Officer, however, framed assessment under Section 143 (3) of the Act on February 28, 1973, computing the assessable income of the assessee at Rs. 7,59,120. By a letter dated July 24, 1972, the assessee contended that according to Section 153 of the Act, the assessment should have been completed by March 31, 1. 972, and that the assessment having not been framed by that date, the same had become "time barred" and consequently according to the assessee, the assessment order dated February 28, 1973, was a nullity. The Income-tax Officer rejected the assessee's contention by holding that the case fell within the mischief of Section 271 (1) (c) of the Act and, therefore, under the provisions of Section 153 (1) (b) of the Act, the limit of 8 years from the end of the assessment year in which the income was first assessable applied to the case. In this context, the Income-tax Officer referred to his notices under Section 143 (3) of the Act dated November 6, 1971, and December 22, 1971, to point out that various defects and discrepancies had been noted in the said letters, which was the basis for bringing in the provisions of Section 271 (1) (c) read with Section 153 (1) (b) of the Act. The Income-tax Officer also stated that his predecessor had duly recorded his satisfaction that the assessee was guilty of concealment of income within the meaning of Section 271 (1) of the Act.
(3.) FEELING aggrieved, the assessee challenged the legality of the assessment along with its quantum dispute before the Appellate Assistant Commissioner of Income-tax who did not agree with the Income-tax Officer that the assessee's case was covered by the provisions of Section 153 (1) (b) of the Act as according to him there was no positive evidence on the record to prove that the assessee was guilty of concealment of income within the meaning of Section 271 (1) (c) of the Act, The Appellate Assistant Commissioner rejected the assessee's contention that the assessment was "time-barred" or void, or a nullity on the ground that the revised return was filed by the assessee on March 28, 1972, and as such by virtue of Section 153 (1) (c) of the Act, the order of assessment could be made within one year of that date. The assessee as also the Revenue were both aggrieved by the decision of the Appellate Assistant Commissioner. The assessee went up in appeal before the Tribunal while the Revenue objected to the Appellate Assistant Commissioner's decision in cross-objections. The Tribunal did not admit the cross-objections of the Revenue as these were found to have been filed beyond the period of limitation. The assessee's plea that the framing of the assessment on February 28, 1973, was illegal and void ab initio was also turned down by the Tribunal.
(4.) THE Income-tax Officer recorded his charge of concealment of income against the assessee while framing the assessment on February 28, 1973, in respect of the three following additions : Unaccounted for woollen yarn and stock Rs. (pledged with the bank2,45,60 i 0) Unaccounted for bank deposits in the Union Rs. (Bank of India, Bombay65,695 i i) Extra profit on woll- tops. Rs. (42,230i i i)
(5.) THE addition of Rs. 65,695 was deleted by the Commissioner of Income-tax by an order under Section 264 of the Act. The other addition of Rs. 42,230 was knocked out by the Tribunal's decision in the quantum appeal of the assessee in ITA No. 603 of 1973-74 decided on July 31, 1975. As regards the addition of Rs. 2,45,600, it may be mentioned that the Income-tax Officer had prepared a chart in respect of yarn for the period of three months, i. e. , from January to March, 1967, and worked out a shortage of 4,712 kg. of yarn, the cost of which calculated at Rs. 50 per kg. worked out to Rs. 2,35,600. To this amount, a sum of Rs. 10,000 was added as representing the cost of the goods pledged by the assessee with the bank as on December 31, 1966. The assessee's explanation was rejected and an addition of Rs. 2,45,600 representing unexplained shortage of yarn and the source of pledging the stocks worth Rs. 10,000 with the bank was made by the Income-tax Officer. In appeal, the Appellate Assistant Commissioner reduced this addition to Rs. 2,11,000. The Tribunal in the quantum appeal, after considering the assessee's calculations as reasonable, accepted the shortage of 1,191 kg. of yarn admitted by it. As regards the reduced difference of 3,521 kg. of yarn (about 3,500 kg. as per the Tribunal) on the assessee's explanation that in the light of the stock tally for the assessment year 1968-69, this stock was utilised in the next year, the Tribunal concluded that the stock of 3,500 kg. of yarn was erroneously not accounted for in the closing stock for the assessment year 1967-68. For this omission, the assessee in its letter dated January 13, 1975, had suggested that a plus or minus adjustment for Rs. 1,26,000 (3,500 kg. of yarn at the rare of Rs. 36 per kg.) may be made in the income for the assessment years 1967-68 and 1968-69, which suggestion was accepted by the Tribunal. The Tribunal did not consider it necessary to make a separate addition of Rs. 10,000 on the ground that the stocks of the aforesaid value as on December 31, 1966, were pledged with the bank but were not accounted for in the stock. In this manner, the addition of Rs. 2,11,000 sustained by the Appellate Assistant Commissioner was reduced by the Tribunal to Rs. 1,26,000.
(6.) WHILE framing the assessment on February 28, 1973, the Income-tax Officer also initiated penalty proceedings under Section 271 (1) (e) of the Act. The minimum penalty leviable being more than Rs. 25,000, he referred the same to the Inspecting Assistant Commissioner under Section 274 (2) of the Act. Since by that time the quantum appeal of the assessee had not been decided by the Tribunal, the Inspecting Assistant Commissioner, vide his order dated March 5, 1975, held that the assesses had concealed the particulars of its income qua Rs. 2,11,000 and was thus liable to penalty under Section 27l (1) (c) of the Act. For the reasons recorded in his order, the Inspecting Assistant Commissioner observed that it was not a case of levy of minimum penalty of 100% but considered it fit to impose penalty at the rate of 150% of the income concealed. With regard to the other two items of Rs. 65,695 and Rs. 42,230, 100% penalty was imposed. The total amount of penalty imposed by the Inspecting Assistant Com missioner thus worked out to Rs. 4,25,000 which was contested in appeal by the assessee before the Tribunal. It was the admitted position before the Tribunal that as a result of the Tribunal's order in the quantum appeal, the only addition in respect of which the penalty could be processed or retained was Rs. 1,26,000. The Tribunal, however, vide its order dated August 31, 1976, cancelled the entire penalty of Rs. 4,25,000 by allowing the appeal of the assessee.
(7.) IT is necessary to mention here in brief the reasons recorded by the Tribunal in its order dated August 31, 1976, which proceeds thus : Where the Revenue attempts to prove the charge under the main provision of Section 271 (1) (c), the Explanation to the said provision cannot be made to play any role unless the charge under the substantive provision is withdrawn or dropped ; otherwise the discretion of the authorities levying penalty between 100% and 200% would come in direct conflict with limitations of fictional concealment in which case such discretion simply must be non-existent. The Revenue charged the assessee with actual concealment and the Inspecting Assistant Commissioner's reference to the Explanation to Section 271 (1) (c) of the Act is entirely superfluous and wrong ; the main provision of Section 271 (1) (c) and the Explanation attached to the said provision work alternatively ; the Tribunal in the quantum appeal had found as a matter of fact that there was only an omission on the part of the assessee in not properly accounting for his closing stock to the extent of Rs. 1,26,000. The penalty provisions as provided in Section 271 (1) (c) read with its Explanation and further read with Section 276 of the Act make it abundantly clear that when the Inspecting Assistant Commissioner proceeded to levy penalty of 150% for a particular addition, he gave a go-by to the fictional concealment of income under the Explanation ; Section 271 (1) (c) has two limbs and there is an Explanation attached to it ; under one limb, the assessee can be proceeded against for actual concealment ; under the other, on the charge of filing of inaccurate particulars of income ; for invoking either of these limbs, the application of which is alternative as the conjunction used is "or", satisfaction must get recorded in the course of assessment ; in addition to changing the rules of evidence, the Explanation to Section 271 (1) (c) of the Act creates a fiction and under such fiction, there can be no place for the authorities empowered to levy penalty under Section 271 (1) (c) to use any discretion and go beyond the minimum penalty prescribed because of the discretion of levying penalty between 100% to 200% would necessarily involve consideration of the assessee's pattern of behaviour and analysis of the type of concealment effected ; when the authorities levying penalty exceed the minimum on the ground that the circumstances of the case do not justify minimum prescribed penalty, it means that element of discretion is exercised and once that happens, it must be assumed that the Revenue took upon itself to prove concealment ; even where the Explanation to Section 271 (1) (c) is applicable, the Revenue, as it has done in this case, may still like to proceed under the main provisions and levy a penalty of more than the minimum for which the assessee's conduct and the type of additions would play important roles ; since the Inspecting Assistant Commissioner levied a penalty of more than 100%, he was clearly processing the case under the main provisions of Section 271 (1) (c) of the Act where discretion of levying penalty between 100% to 200% operates ; if the Inspecting Assistant Commissioner was processing the case under the main provisions, then it has to be seen whether the Revenue had proved any charge against the assessee ; there is absolutely no evidence on record that the Revenue did anything which could prove the assessee of being guilty of any concealment; the Inspecting Assistant Commissioner's conclusion that the assessee's offer for assessment in respect of closing stock of Rs. 1,26,000 amounted to the assessee's having accepted concealment to that extent also stands neutralised and vanishes into the air in view of the Tribunal's decision in the quantum appeal that there was only an omission on the part of the assessee ; even if by any stretch of imagination it can be held that the Inspecting Assistant Commissioner was acting or could act under the Explanation to Section 271 (1) (c), the onus of proving the difference of over 20% between the returned and the assessed income did not arise from any fraud or gross or wilful neglect on the assessee's part must be held to have been discharged on the facts on record ; the Income-tax Officer's order admittedly was the result of confusion on his part and if the assessee also participated in such confusion, it has substantially suffered but there can hardly be any justification for any penalty much less penalty of 150% on the retained addition ; the Tribunal's decision in the quantum appeal has the effect of absolving the assessee even if it could be a case in which the Explanation to Section 271 (1) (c) of the Act was rightly brought into play by the Inspecting Assistant Commissioner.
(8.) THE learned counsel for the Revenue has contended that as against the returned income of Rs. 3,17,641, the assessed income after the decision of quantum appeal by the Tribunal stood at Rs. 4,43,641 because addition to the tune of Rs. 1,26,000 had been sustained by the Tribunal. That being so, the returned income of the assessee was less than 80% of the assessed income (it in fact being 71. 60%). Thus, the Explanation to Section 271 (1) (c) of the Act at once applied and in penalty proceedings, the initial onus was on the assessee to prove that the concealment or the inaccurate particulars of income in the return were not the result of any fraud or wilful neglect on its part. He also contended that the Tribunal went wrong in its reasons that the principal provision of Section 271 (1) (c) and the Explanation thereto could operate alternatively, or that when the Revenue chose to proceed under the principal provision of Section 271 (1) (c), it could not take resort to the Explanation to the said provision. The learned counsel thus contended that the orderof the Tribunal dated August 31, 1976, did give rise to different questions of law. The learned counsel for the assessee on the other hand asserted that the Tribunal had reached a conclusive finding of fact that there was no fraud or gross or wilful neglect on
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the assessee's part and that non-accounting for the closing stock of Rs. 1,26,000 was only an omission and on the basis of this conclusion, the Tribunal had deleted the penalty. He contends that this is a pure finding of fact. (9.) IT cannot be lost sight of that the ultimate conclusion of the Tribunal is the culmination of a chain of reasons recorded by it in its order dated August 31, 1976, which does gives rise to the following questions of law : " (1) Whether, on a proper intepretation of Section 271 (1) (c) of the Income-tax Act, 1961, the Appellate Tribunal is right in law in holding that where a case falls under the Explanation to Section 271 (1) (c), only the minimum penalty is leviable under Section 271 (1) (iii) ? (2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the main provision of Section 271 (1) (c) of the Act and the provisions of the Explanation thereto are mutually exclusive so that they cannot operate in the same field ? (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in deleting the penalty levied under Section 271 (1) (c) of the Act in respect of the addition of Rs. 1,26,000, the admitted value of the stock which Was not accounted for ?" (10.) THIS petition is, therefore, allowed and the Appellate Tribunal is directed to state the case and to refer the above question of law to this court for its opinion. There shall be no order as to costs. S. P. Goyal, J. (11.) I agree.