Case Note & Summary
The appeal arose from a reference made by the Income-tax Appellate Tribunal to the High Court of Bombay under the Income-tax Act, 1922. The appellant, a firm carrying on business at Surat with a branch at Bangkok, was assessed for the assessment year 1951-52 corresponding to the accounting year 1950. In its original return, the appellant did not disclose any profit from the Bangkok branch, claiming that the books of account were not available and requesting assessment on an estimate basis. The Income-tax Officer estimated the branch sales at Rs 7,50,000 and net profit at 5% amounting to Rs 37,500, completing the assessment on January 31, 1952. On the same day, a notice under Section 28(3) was issued for concealment of income. On January 22, 1954, the Income-tax Officer imposed a penalty of Rs 20,000. Subsequently, during assessment proceedings for the following year, the Income-tax Officer insisted on production of the Bangkok branch books, which were produced on August 17, 1953, revealing an actual profit of Rs 1,25,520 for the calendar year 1950. This led to reassessment proceedings under Section 34, and after the assessee filed a correct return, a second penalty of Rs 68,501 was imposed on February 28, 1957. The assessee appealed against both penalty orders. The Appellate Assistant Commissioner rejected the appeals. The Income-tax Appellate Tribunal cancelled the first penalty of Rs 20,000, observing that it had no basis as guilt had not been established at that stage, but confirmed the second penalty, holding that concealment was clearly proved. Revenue did not challenge the cancellation of the first penalty. The High Court answered the reference in favour of the Revenue, holding that the two penalties were not levied on identical facts because the first was based on an estimate and the second after full knowledge of concealed income. On appeal to the Supreme Court, the appellant contended that the second penalty order was illegal because one concealment could not justify two penalties; the second order was a nullity as it was made while the first order stood; and subsequent cancellation by the Tribunal could not validate it. The Supreme Court rejected these contentions, holding that the question was not one of jurisdiction. The Income-tax Officer had full jurisdiction to make the second order; omission to recall the earlier order did not invalidate it, although two orders could not be enforced simultaneously. When the true facts were ascertained and a higher penalty was justified, the officer was entitled to recall the earlier order and pass a higher one. Since the earlier order had been cancelled and no objection was taken, only one legal order remained. The Court distinguished C.V. Govindarajulu Iyer v. Commissioner of Income-tax, Madras. The appeal was dismissed and the second penalty order upheld.
Headnote
A) Income Tax - Penalty for Concealment of Income - Jurisdiction to impose second penalty despite earlier order - Income-tax Act, 1922, Sections 28(1)(c), 28(3) - The assessee concealed profit of Rs 1,25,520 from its Bangkok branch for assessment year 1951-52. Income-tax Officer first imposed penalty of Rs 20,000 based on estimated profit, then after discovering true profit through reassessment proceedings imposed second penalty of Rs 68,501 while first order still stood. Held that the Income-tax Officer had full jurisdiction to make the second order and omission to recall earlier order did not invalidate it; two orders could not be enforced simultaneously but once earlier order was cancelled by Tribunal, only the second legal order remained. (Paras not mentioned)
B) Income Tax - Penalty Proceedings - Distinct factual basis for penalties - Income-tax Act, 1922, Section 28 - High Court distinguished between penalties on estimate and penalties after full facts; Supreme Court agreed that penalty must be correlated to amount of tax evaded. The earlier penalty based on estimate did not bar later higher penalty after full facts came to light. Held that the second penalty order of Rs 68,501 for concealment was valid even after first penalty was cancelled; the two orders did not stand together. (Paras not mentioned)
Issue of Consideration
Whether the levy of Rs 68,501 as penalty for concealment in the original return for the assessment year 1951-52 is legal, particularly when an earlier penalty of Rs 20,000 for the same concealment had been imposed and was subsequently cancelled by the Tribunal.
Final Decision
Appeal dismissed; the second penalty order of Rs 68,501 was held legal. The Income-tax Officer had full jurisdiction to impose the second penalty, and since the earlier penalty order had been cancelled by the Tribunal, only one legal order remained.
Law Points
- Penalty under Section 28 must be correlated to tax evaded
- Income-tax Officer has jurisdiction to impose revised penalty upon discovering concealed income
- omission to recall earlier penalty order does not invalidate second order
- two penalty orders cannot be enforced simultaneously
- cancellation of earlier penalty leaves second order legal
- penalty for concealment can be levied even if original assessment based on estimate
Case Details
Civil Appeal No. 78 of 1962
A.K. Sarkar, M. Hidayatullah, J.C. Shah
1964 AIR 1807, 1964 SCR (5) 560
R.J. Kolah, J.B. Dadachanji, O.C. Mathur, Ravinder Narain, N.D. Karkhanis, R.N. Sachthey
Commissioner of Income-tax, Bombay
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Nature of Litigation
Appeal by special leave against a High Court judgment affirming the levy of penalty under Section 28 of the Income-tax Act, 1922 for concealment of income in the original return.
Remedy Sought
Appellant sought to set aside the second penalty order of Rs 68,501 as illegal and without jurisdiction, contending that the first penalty order of Rs 20,000 for the same concealment barred the second order.
Filing Reason
The Income-tax Officer imposed a second penalty of Rs 68,501 after discovering concealed profit of Rs 1,25,520 for assessment year 1951-52; the first penalty of Rs 20,000 was later cancelled by the Tribunal; appellant challenged legality of the second penalty in reference.
Previous Decisions
Income-tax Officer imposed penalty of Rs 20,000 on January 22, 1954 and a second penalty of Rs 68,501 on February 28, 1957. Appellate Assistant Commissioner rejected appeals. Income-tax Appellate Tribunal cancelled the first penalty and confirmed the second. High Court answered reference in favour of Revenue.
Issues
Whether the Income-tax Officer had jurisdiction to pass a second penalty order under Section 28 of the Income-tax Act, 1922 for the same concealment after an earlier penalty order had been imposed and was still subsisting.
Whether the second penalty order became invalid because it was passed while the first penalty order stood, even if the first order was later cancelled by the Tribunal.
Whether two penalties could be levied in respect of identical facts of concealment.
Whether the Income-tax Officer, after having full knowledge of true facts at the time of passing the first penalty, could later change or replace that order with a higher penalty.
Submissions/Arguments
Appellant contended that the second penalty order was illegal because there was one concealment and an earlier penalty of Rs 20,000 had already been imposed; the Income-tax Officer had no jurisdiction to make the second order while the first stood.
Appellant argued that the second order was a nullity from the beginning and the subsequent cancellation of the first order by the Tribunal could not set it on its feet.
Appellant further submitted that when the first penalty order was passed, the Income-tax Officer was already in possession of the full facts and could have imposed the higher penalty; he had no right later to change that order, relying on C.V. Govindarajulu Iyer v. Commissioner of Income-tax, Madras.
Revenue contended that the two penalties were not levied on the same facts: the first penalty was based on an estimate of income, while the second was imposed after the true concealed income was discovered through reassessment.
Ratio Decidendi
The Income-tax Officer has full jurisdiction to make a second penalty order under Section 28 of the Income-tax Act, 1922 when later ascertaining true facts and realising that a higher penalty could have been imposed. Omission to recall the earlier penalty order does not invalidate the second order, although two orders cannot be enforced simultaneously. Once the earlier order is cancelled, the second order remains legal. Penalty under Section 28 must be correlated to the amount of tax evaded.
Judgment Excerpts
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.
When the Income-tax Officer ascertained the true facts and realized 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.
Procedural History
For assessment year 1951-52, Income-tax Officer completed assessment on estimate of Rs 37,500 profit on January 31, 1952 and issued penalty notice under Section 28(3) the same day. On January 22, 1954, penalty of Rs 20,000 was imposed. On August 17, 1953, assessee produced Bangkok branch books showing profit of Rs 1,25,520. Income-tax Officer initiated reassessment under Section 34 and issued further penalty notice on April 8, 1954. On February 28, 1957, second penalty of Rs 68,501 imposed. Appeals to Appellate Assistant Commissioner rejected. Income-tax Appellate Tribunal cancelled first penalty and confirmed second. High Court answered reference in favour of Revenue. Appeal by special leave to Supreme Court dismissed.
Acts & Sections
- Income-tax Act, 1922: Section 28, Section 22(4), Section 34, Section 28(1)(c), Section 28(3)
