NIRANJANLAL v. INCOME TAX OFFICER
[Citation -1985-LL-1031-10]

Citation 1985-LL-1031-10
Appellant Name NIRANJANLAL
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 31/10/1985
Assessment Year 1965-66
Judgment View Judgment
Keyword Tags fraudulently concealed • reasonable explanation • concealment of income • criminal proceedings • ignorance of law • share income • diwali year • mens rea
Bot Summary: Of the firms from which he enjoys share income, one maintained similar accounting year, but the other two had financial year as the accounting year. The firm of which the share income was not disclosed by the assessee was not the only one which was maintaining the financial year as the accounting year. A return of income was field on 8-11-1965 but this return did not disclose the share income from Changoiwala Co. Before the assessment was taken up, the assessee noticed of the ITO. It was explained that the above firm w a s maintaining its books of account with the financial year as its year of account whereas the assessee was maintaining his books with Diwali year as the year of account. The share income from Changoiwala and Co. for the financial year ended 31-3-1965 was recorded by the assessee in his books of account for the Diwali year relevant for the assessment year 1966-67. The reply of the assessee was that he was having Diwali year as his accounting year and the said firm, Changoiwala Co., had the previous year as the financial year and on account of the change in the previous year as the financial year and on account of the change in the previous years and overlapping of dates the share income from the said firm could not be known by the assessee on Diwali. The share income from Changoiwala Co. for the financial year ended 31-3-1965 was recorded by the assessee in his books of account but Diwali year was relevant to the assessment year 1965- 66. Having disclosed the share income for the assessment year 1966-67 the assessee could not be said to have wilfully and fraudulently concealed the disclosure of the share income for the assessment year 1965-66 except that it was due to a genuine mistake on account of the difference in the dates of the previous years.


penalty proceedings under section 271(1)(c), read with section 274(2), of Income-tax Act, 1961 ('the Act') concerning assessment year 1965-66 arose under following circumstances: Shri Niranjanlal, assessee, derives income from shares of three firms in which he is partner. He has, for his individual assessment, followed Diwali accounting year. Of firms from which he enjoys share income, one maintained similar accounting year, but other two had financial year as accounting year. 2. For assessment year 1965-66, assessee declared his income in which he mentioned share income from two firms and income from other sources. His share income from third firm came to Rs. 11,404 which was not disclosed at all. This in fact he mentioned during assessment year 1966-67. His plea was that this income had been appraised to him after close of financial year and his individual accounting year being that of Diwali, he was under misunderstanding that income of this firm was to be declared in subsequent year. This plea did not prevail with IAC who then imposed penalty of Rs. 3,000. It is as such that assessee has now come in appeal before us. 3. We have given our due consideration to all circumstances and are of opinion that this was clear case for levy of penalty. firm of which share income was not disclosed by assessee was not only one which was maintaining financial year as accounting year. Had it been so, some latitude could be allowed to assessee for misunderstanding in food faith. However, another firm in which assessee is partner had been similarly closing accounts with financial year. assessee duly disclosed his share income from this firm during assessment year 1965-66. Thus, he had no misunderstanding about this income. He, therefore, cannot be heard to say that he carried any misgiving that income from other firm need not be disclosed in this year and should be left over for next year. 4. As regards his plea that it was he who had disclosed this income in assessment year 1966-67, we are of opinion that this subsequent disclosure on his part cannot eliminate offence which he had already committed by withholding this income during assessment year 1965-66. Penalty can be levied in cases where gross negligence is found. Such gross negligence need not involve any mala fides. 5. We, therefore, maintain levy of penalty but direct that same be reduced to minimum. Per Shri E.M. Narayanan Unni, Accountant Member-After having given very anxious consideration to order of my learned brother, I find myself unable to agree with his conclusions. Before discussing maintainability of penalty imposed by IAC I would briefly recount facts of case. 2. During year of account assessee derived income from interest n d also share income from three firms, namely, Ratan Industrial Corpn., Sadulpur, Radheyshyam Niranjanlal, Sadulpur and Changoiwala & Co., Calcutta. return of income was field on 8-11-1965 but this return did not disclose share income from Changoiwala & Co. Before assessment was taken up, assessee noticed of ITO. It was explained that above firm w s maintaining its books of account with financial year as its year of account whereas assessee was maintaining his books with Diwali year as year of account. share income from Changoiwala and Co. for financial year ended 31-3-1965 was recorded by assessee in his books of account for Diwali year relevant for assessment year 1966-67. This was under misapprehension that share income from firm also could be returned with reference to previous year adopted by assessee for his own business. However, when assessee came to know that this view is not correct, he voluntarily brought share income to notice of ITO and got himself assessed on that share income also. It was further pointed out by learned representative of assessee that assessee was minor till February 1964 and this is first year of his assessment after he attained majority. Until this year his income-tax affairs were being attended to by his guardian and this being first year when he had to look after his own affairs, this small mistake should not have been treated as deliberate act of concealment on part of assessee. 3. It is not in dispute that share income from Changoiwala & Co. was voluntarily disclosed by assessee to ITO before assessment. Nor is it in dispute that share income for financial year ended 31-3-1965 was recorded in books of account of assessee for Diwali year relevant for assessment year 1966-67. It is also not in dispute that assessee was minor even during part of relevant accounting year of assessee. With this background, it would indeed be difficult to attribute any mala fides or mens rea to assessee when he did not originally show share income from Changoiwala & Co. in return of income for 1965-66. On other hand, I would consider that there was total absence of mala fides on part of assessee as he himself, when he came to notice mistake, voluntarily informed ITO about mistake and got himself assessed on correct income including share income from Changoiwala & Co. 4. It is now well settled that penalty cannot be levied on person on suspicions, surmises and conjectures. It is also well settled that penalty proceedings under Act are in nature of criminal proceedings and unless there are very compelling circumstances to come to finding that assessee has concealed particulars of income or furnished inaccurate particulars thereof or that he is guilty of fraud or gross or wilful neglect, these provisions cannot be invoked and assessee cannot be visited with unmerited penalty. In instant case, assessee has given cogent and convincing reasons for mistake he had committed while filing return and these explanations are also borne out by books of account regularly maintained by assessee. In circumstances, I am unable to agree with my learned brother that this is fit case for levy of penalty. 5. I, accordingly, cancel order of penalty and allow appeal. THIRD MEMBER ORDER Per Shri Ch. G. Krishnamurthy, Senior Vice President-On difference of opinion between my learned brothers, President is pleased to nominate me as Third Member to resolve said difference of opinion, which is: "Whether, on facts and in circumstances of case, penalty on assessee could be levied under section 271(1)(c) of Income-tax Act, 1961?" 2. relevant facts are: assessment relates to assessment year 1965-66. assessee had share income from two firms, called Radheyshyam Niranjanlal and Ratan Industrial Corpn. He also had income from other sources. There was another firm called Changoiwala & Co., at Calcutta. assessee also became partner in this firm. share income from this firm was not disclosed. assessee was asked during course of assessment proceedings as to why share income from this firm was not disclosed. reply of assessee was that he was having Diwali year as his accounting year and said firm, Changoiwala & Co., had previous year as financial year and on account of change in previous year as financial year and on account of change in previous years and overlapping of dates share income from said firm could not be known by assessee on Diwali. However, IAC rejected his explanation to be unreasonable and unacceptable and on ground of assessee's concealing particulars of his income, levied penalty of Rs. 3,000. In coming to this conclusion, IAC mentioned as follows: "5. I have given my careful consideration to submissions, made by learned counsel. There is no denying fact that assessee was major during year under consideration and that assessee did neither show himself as partner in S. Changoiwala & Co., Calcutta, in section (1) of part III of return, nor did he show share income from said firm in his return. plea of ignorance of law cannot also come to his rescue. He is old assessee and advised by counsels of standings. I have, therefore, failed to appreciate arguments advanced by learned counsel. After considering totality of facts and circumstances of case, I hold that assessee is guilty of having concealed particulars of his income. Penal provisions of section 271(1)(c) are, therefore, clearly attracted. minimum penalty and maximum penalty leviable in this case comes to Rs. 1,208 and Rs. 9,866, respectively. In facts and circumstances of case, I hold that penalty of Rs. 3,000 would be reasonable and I, accordingly hereby impose same." 3. Against this order of IAC appeal was field before Tribunal and same contentions were repeated. learned Judicial Member was of opinion that assessee had no reasonable explanation and assessee was guilty of concealment of income. reason that prevailed with learned Judicial Member to hold against assessee was contained in paragraph No. 3, which is reproduced below: "We have given our due consideration to all circumstances and are of opinion that this was clear case for levy of penalty. firm of which share income was not disclosed by assessee was not only one which was maintaining financial year as accounting year. Had it been so, some latitude could be allowed to assessee for misunderstanding in good faith. However, another firm in which financial year. assessee duly disclosed his share income from this firm during assessment year 1965-66. Thus, he had no misunderstanding about this income. He, therefore, cannot be heard to say that he carried any misgiving that income from other firm need not be disclosed in this year and should be left over for next year." learned Accountant Member was of totally different opinion. He pointed our after recounting facts right from time return was field till assessment came to be closed, that disclosure of share income from firm Changoiwala & Co, was voluntary and that in those circumstances no mala fides could be attributed to assessee and assessee could not have even contemplated to conceal particulars of his income but for genuine fact that there was confusion regarding year of account brought about by change in previous years. He cancelled penalty. Hence, difference of opinion. 4. After carefully considering facts and circumstances of case, I am of opinion that view expressed by learned Accountant Member is proper and justified and should be upheld. reason is that assessment year involved is 1965-66. return was field on 8-11-1965 in which he did not show share income from firm of Changoiwala & Co. Before assessment was taken up it is on record that assessee noticed omission and voluntarily brought omission to notice of ITO. firm of Changoiwala & Co. was maintaining its books of account with financial year as its previous year as year of account. share income from Changoiwala & Co. for financial year ended 31-3-1965 was recorded by assessee in his books of account but Diwali year was relevant to assessment year 1965- 66. Thus, share income got disclosed for assessment year 1966-67 though according to law, it related to assessment year 1965-66 and should have been disclosed for that assessment year. Having disclosed share income for assessment year 1966-67 assessee could not be said to have wilfully and fraudulently concealed disclosure of share income for assessment year 1965-66 except that it was due to genuine mistake on account of difference in dates of previous years. That assessee was under misapprehension is borne out, in my opinion, from this fact that assessee accounted for share income in books relevant for assessment year 1966-67. 5. Another factor which is noteworthy is that assessee was minor in February 1964 and this was first year of assessment after he attained majority. Till he attained majority his affairs were looked after by his guardian. Even though he attained majority it is possible to conceive of situation where intricacies of law relating to previous year had not been properly gauged by assessee. In this background it is very difficult to attribute mala fides to assessee. Now under these circumstances could it be possible to hold that assessee was guilty of fraud or gross or wilful neglect. assessee who has shown his share income for assessment year 1966-67 could not be said to be fraudulent or gross or wilfully negligent. explanation given by assessee, conduct when entries made in account books all point to conclusion that assessee was not guilty of concealment of income and, therefore, I am of opinion that view taken by learned Accountant Member is more appropriate and justified. I am in agreement with view expressed by learned Accountant Member. 6. matter will go back before regular Bench for disposal of appeal in accordance with majority of opinion. *** NIRANJANLAL v. INCOME TAX OFFICER
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