Appeal No 78 of 1962
Appeal from the judgment and order dated April 131960 of the Bombay High Court in Income tax Reference No 40 of 1959
RJ Kolah JB Dadachanji OC Mathur and Ravinder Narain for the appellants
ND Karkhanis and RN 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 68501 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 section 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 section 224 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 750000 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 section 283 of the Act requiring the assessee to show cause why a penalty under s281c 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 Rs20000 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 125520 
The Income tax Officer thereupon commenced proceedings under section 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 section 283 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 68501
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 233 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 20000 has to be remitted in full
The levy of Rs 68501 is entirely different
With the definite knowledge that the Income tax Officer had obtained that the profit for the year was Rs 125520 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 judgement
That question it will be noticed referred only to the penalty of Rs 68501  imposed pursuant to the second notice under section 283 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 section 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 125520and it had not disclosed that profit originally nor produced the relevant books but permitted the Incometax Officer to proceed on an estimate of that profit at Rs 37500 
It was contended in the High Court that in respect of the same concealment there were thus two penalties involved namely one of Rs 20000 and the other of Rs 68501 
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 20000 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 vs Commissioner of Income tax Madras 
There it was argued that the original proceeding under section 233 and a proceeding under section 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 CJ 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 281 even though it relates 1 16 ITR 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 CJ 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 CJ 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 section 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 125520
Therefore it seems to us that the observation of Rajamannar CJ 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


Summary:
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 s34 or 35The 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 officerissued a notice to the assessee to produce the relevant accountsand books
The appellant excused itself by promising that in thefollowing 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 37500  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 20000 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 125520 
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 68501 
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 68501 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 20000 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 SCI64 36 562 iiIn 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
CV Govindarajulu Iyer vs Commissioner of Income tax Madras  distinguished