Case: N.A. Malbari And Bros Vs. Commissioner Of Income-Tax, Bombay

1. 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 questionthe levy of Rs. 68,501/- as penalty for concealment in the original return for the assessment year 1951-52 is legalThe 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 restarted after the termination of the hostilities.3. 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 thereupon made on the basis of profit as 5 per cent on the export to Bangkok branch appearing in the Surat books.4. 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, Hatimbhia 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 per cent thereon, amounting to Rs. 37,500/-. 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.5. 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 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.6. 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 28(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 all excessive and accordingly confirmed." The revenue authorities never questioned the cancellation of the first order of penalty.7. Thereafter the assessee 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 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 rupees 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.

Court's reasoning:
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.11. 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 started 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 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 on this notice subsequently acquired knowledge would be irrelevant.