G.K Padmaraju v. Commissioner Of Income-Tax, Hyderabad

Jaganmohan Reddy, J.:— In compliance with the directions of this court, the Income-Tax Appellate Tribunal at Bombay, Bench C, has sent a statement of ‘the case on the following questions:

“1. Whether on the facts and in the circumstances of the case, the estimates of Rs. 55,000 in respect of Visakhapatnam business and Rs. 70,000 in respect of Raipur branch were justified?

2. Whether on the facts and in the circumstances of the case, the penalty of Rs. 25,000 sustained by the Appellate Tribunal under section 28(1)(c) of the Act was justified in law?”

2. The assessee is a dealer in rice, pulses, chillies etc. at Visakhapatnam and had a branch during the relevant period in Madhya Pradesh. The year of assessment in question was 1943-44 for which the income of the previous year ending 31st March, 1943, was taken into consideration. The assessee first submitted a return on July 15, 1943, declaring a net income of Rs. 30,285 and when the Income-Tax Officer called for the books of account and during the course of the examination of accounts found several discrepancies, alterations and omissions, the assessee submitted a revised return under section 22(3) of the Act declaring a net income of Rs. 51,774 for both the branches.

3. The Income-Tax Officer, however, discarded the results arrived at by the books having regard to the several alterations and the incomplete data relating to the yield etc., and estimated the income at Rs. 80,000 from the Visakhapatnam branch and Rs. 70,000 from the Raipur branch. He had prior to the assessment also issued notices under section 28(1)(c) of the Act asking the assessee to show cause why penalty should not be levied on him. After hearing the assessee, a penalty of Rs. 50,000 was levied. The assessee unsuccessfully appealed both against the assessment and the levy of penalty. Thereafter, he preferred an appeal to the Appellate Tribunal at Madras which by its order dated September 6, 1952, held that Rs. 70,000 assessed by the Income-Tax Officer for the Raipur branch could not be disturbed, but having regard to the indication in the assessee's books as per the revised return, the income from the Visakhapatnam branch was about Rs. 15,000 less than the Raipur branch and consequently reduced the net income of the Visakhapatnam branch from Rs. 80,000 to Rs. 55,000. In so far as the penalty is concerned, the Appellate Tribunal held that the assessee had fudged the accounts, changed the figures and did not properly account for the income of both the Visakhapatnam and Raipur branches. While thus holding, it was of the view that the penalty of Rs. 50,000 was too high and that a sum of Rs. 25,000 would meet the ends of justice.

4. Learned advocate for the assessee contends that when the results derivable from the books of account were discarded and an estimate of the income was made, under section 23(3) of the Act it was incumbent upon the income-tax authorities not only to state the basis upon which that estimate was made, but they must also give an opportunity to the assessee to rebut that basis. In the circumstances he submits that there being no basis and the assessee not being given an opportunity to rebut that basis, the assessment was not proper and valid and must be set aside. With respect to the penalty proceedings, his case is that it is not sufficient to find the explanation offered by the assessee to be false, but it must be held proved that the assessee concealed the particulars of his income, for the levy of penalty under section 28(1)(c). This not having been done, the penalty cannot be said to be properly levied. We have no hesitation in rejecting both these contentions.

5. It is a well-established proposition of law that when an Income-Tax Officer proposes to make an assessment in disregard of the assessee's account books and the evidence produced by the assessee, he must not only state the basis upon which that estimate is made but also give him an opportunity to produce evidence in rebuttal of the material; and even where during the course of the discharge of his duties under the Act he receives good deal of information, if he intends to act upon it, it is fair and just that in order to test the accuracy or otherwise of that information, he must give an opportunity to the assessee to establish that that information is incorrect or that the Income-Tax Officer is misinformed. Vide Nagulakonda Venkata Subba Rao v. Commissioner of Income-Tax [1957] 31 I.T.R 781.. Their Lordships of the Supreme Court in Dhakeshwari Cotton Mills Ltd. v. Commissioner of Income-Tax [1954] 26 I.T.R 775., held that the Appellate Tribunal had not disclosed to the assessee what information had been supplied to it by the departmental representative, and did not give any opportunity to the company to rebut the material furnished to it by him and lastly it declined to take all the material that the assessee wanted to produce in support of its case and consequently the assessee had not a fair hearing. It is no doubt true that the Income-Tax Officer and the Appellate Tribunal while making an estimate of the income did not say on what basis they came to that conclusion, but the Appellate Tribunal unmistakably referred to the omission in the following words: “The departmental representative was unable to furnish any comparable cases. The Income-Tax Officer also has not given any basis for the estimate, except saying that the income was fixed after local enquiries. It may be that the local enquiries are necessary, but it is prudent and safer to connect the result of the enquiries with the probabilities of earning the income and the increase in the visual wealth of the assessee”. While thus recognising the defect in the assessment, they have themselves gone into the accounts and have determined the income of Rs. 70,000 from the Raipur branch and Rs. 55,000 from the Visakhapatnam branch on the evidence furnished by the assessee himself. It would have, however, been better if the order was more detailed, but that is not a ground for rejecting the assessments as having no basis. A perusal of the Income-Tax Officer's order would show that there were many cash credits amounting to Rs. 68,116 for which no satisfactory explanation was given with respect to both the branches and the assessee had not discharged the burden of proof resting on him. If this amount is added to the amount of Rs. 51,774 declared by the assessee himself, the income of the assessee could be computed at Rs. 1,19,890 which is roughly that assessed by the Tribunal for both the branches. The assessment could have been made on this basis, but that is not what appears to have been done. The Tribunal took the basis of the Raipur branch at Rs. 70,000 and on the revised return furnished by the assessee himself found that the Visakhapatnam income was less by about Rs. 15,000 and consequently computed the income of that branch at Rs. 55,000. The whole question is whether there is any basis for computing the income of the Raipur branch at Rs. 70,000, if so the Tribunal was perfectly justified in having recourse to the statements of the assessee himself in computing the income from the Visakhapatnam branch. From the Income-Tax Officer's order it is clear that the assessee's clerk had at the time of explaining the accounts to the Income-Tax Officer certain papers which the Officer took from him. These papers disclosed that a profit and loss account was prepared for the Raipur branch showing a net profit of Rs. 63,768. It is thus clear that there was certainly material on record on which the Tribunal could base its computation at Rs. 70,000 and we have no doubt whatever that the assessee has clearly manipulated his accounts and attempted to conceal his income. The assessee throughout the proceedings has not denied that the profit and loss account was taken from him by the Income-Tax Officer, nor has he in the petitions either under section 66(1) or under section 66(2) stated anything in this behalf. The first contention of the assessee is, therefore, rejected.

6. With respect to the second contention, the question whether for purposes of levy of penalty the assessee had concealed his income or deliberately furnished inaccurate particulars of such income, is a question of fact to be determined in the circumstances of the case. There is sufficient material on record to show that the assessee has furnished inaccurate and false statements of accounts. The very fact that he has manipulated his accounts, so as to arrive at an income of Rs. 51,774 for both the branches, while in fact he had in his possession a balance-sheet of only one branch showing income of nearly Rs. 64,000, is itself sufficient to justify the income-tax authorities in levying the penalty. The Tribunal further took into account the excessive nature of the amount of penalty and reduced it to half. It is not open for us to interfere in the quantum of the levy.

7. In the result, both the questions are answered in the affirmative. The assessee to pay the costs. Advocates' fee Rs. 250.

Questions answered in the affirmative.