Srinivasan, J.:— This reference raises a question relating to imposition of penalties under the Income-tax and Excess Profits Tax Acts. The relevant account year and the chargeable accounting period both ended on 31st March, 1943. The assessee is a firm carrying on business in paper and stationery on a large scale. For the assessment year in question, an income of Rs. 73,492 was returned, and after deducting the excess profits tax therefrom, the income taxable under the Indian Income-tax Act was Rs. 47,405. Some discrepancies in the accounts of the company were noticed after the completion of the original assessments. Action under section 34 of the Income-tax Act was started. In the course of those proceedings, the Income-tax Officer held that sales had not been brought to account and estimated the volume of such sales at Rs. 1,00,000. Though this amount was only the estimated omitted turnover, the Income-tax Officer added this amount as escaped income. This point is immaterial at this stage, for in all the proceedings relevant to the quantum appeals, it was taken that this sum of Rs. 1,00,000 was in fact added as escaped income. The addition of any amount as escaped income and the assessment thereon is not in dispute at this stage as it has become final. In the course of these reassessment proceedings, notices were issued under section 28(3) of the Income-tax Act and section 16 of the Excess Profits Tax Act. The assessee's replies to these notices were considered. The Income-tax Officer finally concluded that action was justified under section 28(1)(c) of the Act and the corresponding provision of the Excess Profits Tax Act. He, accordingly, imposed penalties of Rs. 25,000 under the former and Rs. 45,000 under the latter.
2. Against these orders imposing penalties, appeals were taken to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner thought that the levy of penalties of this volume was unjustified. Though the quantum added as escaped income had become final in so far as the assessment proceedings were concerned, the Appellate Assistant Commissioner yet thought that the extent of the concealment of the income was a matter which could and should be independently decided in the penalty proceedings. He found that as against a disclosed turnover of Rs. 2,80,000 the only amounts that could be regarded as income that had been excluded were a sum of Rs. 1,903 arising out of an understatement of the sales proceeds and the profits in respect of commission sales to the tune of Rs. 3,000. Even assuming that this entire sum of Rs. 3,000 represented concealed income, the Appellate Assistant Commissioner thought that the concealment in all amounted to only 12 per cent. of the total turnover. On that basis, the extent of the concealment could reasonably be estimated only at Rs. 32,000. If that should be the position, the imposition of penalty of Rs. 25,000 and Rs. 45,000 under the two provisions was manifestly improper. He accordingly reduced the income-tax penalty to Rs. 5,000 and the excess profits tax penalty to Rs. 15,000. The department carried an appeal against this order to the Appellate Tribunal. The Appellate Tribunal took the view that the Appellate Assistant Commissioner exceeded his jurisdiction in examining the extent of the concealment. It thought that since the disclosed turnover itself was suspect, to base the estimate of concealment on the basis of such suspect turnover was not the correct procedure to adopt. While the Tribunal conceded that it was open to the Appellate Assistant Commissioner to consider whether the assessee concealed the particulars of its income or whether it deliberately furnished inaccurate particulars and also to judge the quantum of penalty, it nevertheless held:
“It is not within his competence to sit in judgment on a matter that had already been concluded by an authority superior to him.”
3. The result was that the order of the Appellate Assistant Commissioner reducing the penalties was set aside and the order of the Income-tax Officer was restored.
4. The question comes before us on a reference directed under section 66(2) of the Income-tax Act, and it is:
“Whether, on the facts and in the circumstances of the case, the Tribunal erred in ultimately sustaining the penalties imposed by the Income-tax Officer?”
5. Mr. T.V Viswanatha Iyer, learned counsel for the assessee, does not dispute the proposition that in so far as the assessment to tax is concerned, he can no longer dispute the quantum added, as that matter has become final. But he insists, rightly in our opinion, that in so far as the imposition of a penalty for concealment of income was concerned, the decision with regard to the quantum added in the assessment proceedings is not conclusive and it is open to the Income-tax Officer to examine the matter afresh and to determine the liability of the assessee to any penalty under the relevant provision. Such liability being related to the quantum of tax; sought to be avoided, the estimated addition in the assessment proceedings could not by itself form the real basis for the determination of the quantum of the penalty. He argues that in so far as the Appellate Tribunal thought that the Appellate Assistant Commissioner's jurisdiction to deal with the matter was circumscribed in the manner indicated by the observations of the Tribunal, the Tribunal misdirected itself on the true legal position.
6. The effect of section 28 in so far as it applies to the present case may be briefly stated thus. Where an assesse has concealed particulars of his income or deliberately furnished inaccurate particulars of such income, and if, in the course of any proceedings under the Act, the Income-tax Officer is satisfied that he has done so after giving the assessee a reasonable opportunity of being heard, the Income-tax Officer may direct the assessee to pay by way of penalty “in addition to any tax payable by him a sum not exceeding one and a half times the amount of income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.” It is clear from the Wording that it is not in all cases where an addition is made to the returned income of the assessee owing to defects in his accounts or for other reasons that the penalty provision is attracted. The officer has to be satisfied that there has been a deliberate concealment or furnishing of inaccurate particulars and that was done with a view to avoid the levy of the proper quantum of tax. It is this finding that gives him the jurisdiction to impose the penalty, and the section says that the penalty shall be a certain multiple of the amount of income-tax or super-tax which would have been avoided. Normally, this section is invoked only on the finalisation of the assessment or reassessment proceedings. By that stage, the Income-tax Officer would already have made an order directing the addition of any amount to the returned income on the basis that such income so added represented the income of the assessee which had been concealed.
7. If the intention of the legislature was that when once an additional amount had been added in the manner in the course of the assessment or reassessment proceedings, that should be final for the purpose of determining the quantum of tax that would have been avoided within the meaning of section 28, the language employed in that section would have been totally different. It may be that in cases where an addition is made to the returned income, it is not the entirety of such addition that may represent deliberate concealment; part might be deliberate and part might be due to inadvertence or accidental omissions. What the section accordingly requires the Income-tax Officer to do is to take note of that part of the income (actual or estimated) that had been concealed deliberately, and it is that that would furnish the basis for ascertaining the quantum of the penalty to be imposed. Where it is shown that the assessee has deliberrately concealed particulars of his income and has pursued a policy of concealment, it may well be that the Income-tax Officer may not stop to consider whether any items omitted were explainable on the basis of inadvertent mistakes or the like, for the overall activity of the assessee may colour the entire transaction. We are only indicating the possibility that it is not always the estimated addition made to the income in the course of the assessment or reassessment that would indicate the extent of deliberate concealment; and if that should be so, the provision authorising the levy of penalty for deliberate concealment must necessarily confer the power of determining the quantum of such deliberate concealment. It is no doubt true that on a consideration of the facts, the Income-tax Officer may well reach the conclusion that even the amount as added in the assessment proceedings represented the amount of income deliberately concealed. But that is as a result of an examination of the position afresh in the proceedings under section 28. What we are endeavouring to emphasise is the determination of the income to be added in the assessment or reassessment proceedings is not final in so far as the imposition of the penalty under section 28 is concerned.
8. We find ample authority for the view that we have expressed above in several decisions. In Commissioner of Income-tax v. Gokuldas Harivallabh-das [1958] 34 I.T.R 98., the learned judges of the Bombay High Court pointed out the difference between assessment proceedings and penalty proceedings and held that a decision or a finding arrived at in the former is not binding on the authority dealing with the latter. The facts of that case are not important; this decision lays down a question of principle. The ratio of this decision is that while an addition made in the assessment proceedings to the returned income of the assessee, whether on the basis of an estimate or otherwise, is based on the omission as such, in order to justify a penalty proceeding, the omission per se is not sufficient. That omission should be deliberate or wilfully false. The learned judges observe that it is a species of offence that is being dealt with under section 28, and it is for the department to establish that the “offence” was established, and they clearly lay it down, relying upon a decision of the Allahabad High Court in Dwarkaprasad Sheokaran Das v. Commissioner of Income-tax [1953] 24 I.T.R 410. that though the findings in the assessment proceedings may be material on which the Income-tax Officer may act in any penalty proceedings, those findings do not constitute res judicata, and it is perfectly open to the Income-tax Officer in the penalty proceedings to consider his own finding, but he is not bound by that finding. It is even possible for him to come to a different conclusion in the light of any additional facts that may be presented to him. In Khemraj Chagganlal v. Commissioner of Income-tax [1960] 38 I.T.R 523., the Patna High Court took the view that the proceedings under section 28 are penal in character and that in such proceedings the onus lay on the department to show that the assessee was guilty of the offence mentioned in that section. They even observe that solely for the reason that the explanation offered by the assessee was unsatisfactory, it could not follow that the explanation was false or that the assessee was guilty of deliberate suppression of the particulars of his income. In a decision of this court, to which one of us was a party, P.K Kalasami Nadar v. Commissioner Of Income-Tax, Madras. [1962] 46 I.T.R 1056., it was again laid down that the finding against the assessee in the assessment proceedings did not conclude [the question whether the amounts constituted the income or not, and that it was open to the assessee to establish in the penalty proceedings that notwithstanding the inclusion of the amount in his income in the assessment proceedings, the sums did not represent his income. This decision also establishes that a finding recorded in the assessment proceedings is not conclusive against the assessee for the purpose of the penalty proceedings.
9. Mr. Balasubrahmanyan, learned counsel for the department, has referred to Kalidindi Subbaraju Gopalaraju v. Commissioner of Income-tax [1955] 28 I.T.R 162.. In that case, it appears to have been contended before the learned judges of the Andhra High Court that the penalty imposed under section 28(1)(c) should be computed only on the basis of proved suppression. In that case, the income of the assessee was determined by estimation at twenty per cent. of the receipts. The rejection of his accounts showing a lower income was based on omissions to disclose sale receipts to the tune of Rs. 1,000 in two cases, and the assessee contended that the penalty should be related to what was added by estimation. The learned judges rejected this contention. They observe in the concluding portions of the judgment that when once an assessment under section 23(3) has become final, the basis of the levy of penalty is finally settled. Mr. Balasubrahmanyan argues that this decision is an authority for the position that the penalty can be raised to the quantum added in the assessment proceedings without anything more. But, looking into the earlier passages in this judgment, the learned judges say:
“The finding necessary, in our opinion, for the liability to penalty in a case like this is concealment of particulars of income, or deliberate furnishing of inaccurate particulars of such income. Once that finding is recorded, it seems to us that it was open to the appropriate authority to levy byway of penalty a sum not exceeding one and a half times the difference between the amount of the income-tax and super-tax, if any, actually imposed and the amount of such tax as would have been payable if the original return had been accepted as correct. When the Income-tax Officer finds that particulars of income are concealed or that inaccurate particulars of income have been deliberately furnished, he acts under section 23(3) of the Act in making the assessment … He is not compelled to limit the estimate of the assessee's income to the amount which may have been deliberately suppressed. On other material, the suppression of which can reasonably be suspected, he can make an addition to the income returned. Just as the estimate under section 23(3) is not limited to the amount actually proved to have been concealed, the penalty leviable under section 28(1)(c) is to relate to the actual tax assessed on the income as finally estimated which, as shown above, need not be confined to the income shown to have been concealed.”
10. The underlying implication of this passage is that even though the Income-tax Officer in the penalty proceedings may rely upon the estimate of the income that was made in the proceedings under section 23(3), it is nevertheless incumbent upon him to record a finding that that sum represented income which had been concealed or particulars of which had been deliberately inaccurately furnished: The distinction between the two proceedings really underlies the passage which we have quoted above.
11. Turning now to the order of the Appellate Tribunal, the Tribunal appears to be in two minds about the jurisdiction of the Appellate Assistant Commissioner to canvass the question of the quantum of suppression. While it observes in one part of its appellate order that it is open to the Appellate Assistant Commissioner to consider whether the assessee concealed particulars of its income or whether it deliberately furnished inaccurate particulars and also to judge the quantum of penalty, it goes on to say that it is not within the competence of the Appellate Assistant Commissioner to sit in judgment in a matter that had already been concluded. That this view is erroneous is quite clear, for what was concluded on the earlier occasion was only the quantum of income to be added. There had been no finding recorded in the earlier proceedings that the omission was deliberate within the meaning of section 28(1)(c) of the Act. We have already pointed out that in adding the sum of Rs. 1,00,000 as income, there was undoubtedly a grave error, for what was determined in the earlier proceeding was only that this sum of Rs. 1,00,000 represented concealed turnover. Quite obviously, the entire sales turnover could not become income. Whatever that may be, Rs. 1,00,000 was added finally as income that had escaped tax. It was, therefore, in the circumstances necessary for, the authority, acting under section 28, to determine what was the income that was deliberately suppressed, and we cannot conceive in the circumstances of a better method than that adopted by the Appellate Assistant Commissioner in adjudicating upon this question. The Tribunal erred in law in thinking that there was any lack of jurisdiction in the Appellate Assistant Commissioner to deal with the matter in the manner that he did. We are accordingly of the opinion that the question has to be answered in favour of the assessee. That would mean that the Appellate Assistant Commissioner's order would be the operative order in the case. The assessee will be entitled to his costs.
12. Question answered in favour of the assessee.