1986 PLP 680 (PTD)

11. After hearing the arguments on either side, we are satisfied that the Tribunal has erred in its approach to the questions of law.

12. Evasion of income‑tax was a feature closely noticed ever since the imposition of the same by the first ever I.‑T. Act in England, which came into force in 1799. (It was William Pitt, one of the youngest Prime Ministers of England, who held the office of Prime Minister for a fairly long period of time and who is described as "the embodiment and watch‑word of British determination." who introduced the measure (conceived then as a temporary measure) in Parliament in Dec. 1978, in the background of an apprehended French invasion. About the time at which the tax was so introduced it is recorded: "Never in the history of England was there a darker hour". The French writer Mallet du Pan who heard the oration in which Pitt boldly carried through" an income‑tax of minute and complicated graduation says: "It is not a speech spoken by the Minister; it is a complete course of public economy; a word, and one of the finest works, upon practical and theoretical finance that ever distinguished the pen of a philosopher and statesman. (See Pitt by Lord Rosebery McMillan & Co. 1921, pp. 135, 136 and 153, 136 and 153)

13. The Commissioner of Inland Revenue, in their report of 1870 said " ....We find the income‑tax returns largely deficient. And, moreover, this is not confined to any particular class, trade or profession . . . . . " It is not necessary for the purpose of this case to make a detailed reference to the attempts of the assessees to evade and avoid tax, and the Parliamentary exercises in making the patches, and the phenomenon of the patches on patches growing thicker. H.H. Monroe in his lecture referred to above observes that "cheating at tax is and always has been widespread" and that "within limits it has been made socially acceptable", as illustrated by the dialogue among the ghosts in W.S. Gilbers's book 'Ruddigari'. He noted that evasion and avoidance were tow words which frequently got confused. According to him: "Evasion is normally reserved for cheating, the dishonest and fraudulent avoidance of tax. Avoidance is a more subtle concept difficult to define". (see pages 66‑

67. The causes for both were similar. He further states: "The odious imposition becomes intolerable as rates increase. Truly, or in imagination and fancy, the load is so grievous that the adopting of almost any means to escape it becomes acceptable. Habits are infectious." Courts of law are not concerned with the social philosophy behind a heavy dose of taxation or about the social attitudes in the matter. The laws enacted by Parliament, including the penal provisions thereof, have to be interpreted on their plain terms and given effect to, regardless of other considerations. And what the Commissioners said in 1870 has relevance and significance even now and in the present context: "the exemption of one man means the extra taxation of another". If stringent measures (such as S. 271 of the Act) are enacted, neither the Courts, (nor the taxation authorities nor the Tribunal) can render them nugatory by adopting a fundamentally erroneous approach to the statutory scheme. 13‑A. The principles in relation to the question of concealment vis‑a‑vis a revised return by the assessee have been discussed in decisions spread over a half century by now. A Full Bench of the Madras High Court, although in the context of the I.‑T. Act, 1922, has analysed the relevant provisions and laid down the guiding principles in Arunachalam Chettyar v. Commissioner of Income‑tax, (1931) 6 ITC 58 (Mad.). An assessee who made a bona fide discovery about having made a previous incorrect return was entitled to make a revised return invoking the enabling provision of section 22(3) of the 1922, Act. Such a course, however, is not open when the return was dishonestly made. The Full Bench had no hesitation to reject outright a contention though 'seriously argued' that an assessee is enabled to put in a return correcting a former inaccurate one notwithstanding the fact that the previous return was a deliberately dishonest one. Such an exercise could not absolve him from liability to penalty. A different conclusion, according to the Court, was 'to put a premium on dishonesty'. It is not necessary to pursue this strand of logical reasoning over the years, for, the relevant and important decisions on this aspect have been, if we may say so with great respect, neatly and exhaustively analysed on Commissioner of Income‑tax, Madras v. J.K.A. Subramania Chettiar. 110 ITR 602 : 1978 Tax LR 380 (Mad.). The decisions considered by the Court in the aforesaid judgment include: Ayyaswami Nadar & Brothers v. Commissioner of Imcome‑tax, 30 ITR 565: AIR 1957 Mad. 74; Vadilal ichhachand v. Commissioner of Income‑tax, (1957) 32 ITR 569 (Bom.); Dayabhai Girdharbhai v. Commissioner of Income‑tax, (1957) 32 ITR 677: AIR 1958 Bom. 426; Sivagamiaatha Moopanar & Sons v. Commissioner of Income‑tax, (1964) 52 ITR 591 (Mad.); Commissioner of Income‑tax v. Ramdas Pharmacy, (1978) 77 ITR 276 (Mad.); Bakshi Mohd, Yusaf and Bakshi Mohd. Shafi v, Commissioner of Income‑tax, 93 ITR 38 1974 Tax LR 408 J & K, F.C. Agrawal v. Commrissioner of income‑tax, 102 ITR 408: 1976 Tax LR 235 (Gau ).

14. Certain observations on Sivagaminatha Moopanar & Sons v. Commissioner of Income‑tax, (1964) 52 ITR 591 (Mad.) were liable to be misunderstood, if read torn out of the context, Such is for example, the observation therein which reads: "Where for example the original return is incorrect but the assessee voluntarily submits the correct return before the assessment, the Tribunal would be justified in coming to the conclusion that there was no concealment. This would be so even if the assessee put forward a false case after giving voluntarily the particulars." The decision in Sivagaminatha Moopanar's case,‑ (1964) 52 ITR 591 which was noted in Commissioner of Income‑tax, Madras v . J . K . A . Subramania Chettiar, 110 ITR 602 at p. 613: 1978 Tax LR 380 at pp. 386‑387 (Mad. ), had a mixing up of two things, namely, the act of filing of the subsequent return and the stage and the time at which the subsequent return was filed. It was pointed out that the second aspect would have no relevancy whatever to a case where there was concealment in the original return, for concealment necessarily implied a deliberate and intentional act on the part of the assessee. The following passage, according to us, correctly sums up the legal position (at pp. 386‑87): "After having originally concealed the income, if an assessee subsequently files a fresh return voluntarily before the income‑tax department has made any investigation or detected concealment of income, even then he cannot escape from the consequence of his having concealed the income and he will be liable to penalty. If, on the other hand, the defect in the original return was merely an inadvertent omission or unintended wrong statement, certainly the assessee had a right to have the same corrected and to file a revised return under section 22(3) of the 1922 Act or under section 139(5) of the Act and whether the assessee so files a revised return voluntarily or after the Income‑tax Officer has noticed the omission or wrong statement will be totally immaterial. " The above decision of the Madras High Court had commended itself for acceptance by a Bench of this Court consisting of Balakrishana Eradi, C.J. and Justice Bhaskaran in Commissioner of Income‑tax, Kerala‑II v. Haji P. Mohammad, 132 ITR 623: 1987 Tax LR 847 (Ker.). This Court, in the aforesaid decision, observed that the reasons stated by the Tribunal in that case for invalidating a penalty levied by the taxing officers were not valid or sound in law. That the assessee had maintained no books of account in respect of the fairly long previous period of assessments, that the assessments had been made on estimate basis, the fact that the assessee had, in the previous years, returned income arising under the particular head in respect of which concealment of income was alleged during the year in question, were held to be totally irrelevant and unsustainable reasons for the cancellation of penalty imposed to the Income‑tax Officer and the Appellate Assistant Commissioner. It was pointed out there that the assessee could not have been unaware of the fact of his having received a substantial income which was about 1/3rd of the aggregate income received by him during the relevant accounting period in respect of a Public Works Division in which he had executed works.

15. We do not underrate the difficulty in the preparation of a return under the' Act, a legislation which lacks charm, which has a poor name and a worse record', and which according to some, may be fairly castigated as unnecessarily complex and obscure" (as posed in the question by H. H. Munroe in his Namlyn Lectures, pages 1 and 40). It is quite likely that notwithstanding the best of diligence and care, omissions or wrong statements might occur in the return filed by an assessee. The 1870 Report of the Special Commissioners in England noted. "We are far from saying that in all the cases in which income‑tax returns are deficient there has been a wilful attempt to defraud the Revenue. In many instances no doubt the errors which are committed are unintentional". Whether this is the Indian situation, after more than a century of that Report is a different question. It may be particularly so when the transactions are numerous and complicated, where there are massive account books, loaded with details of many faceted activities and where co‑ordination of the accounts and the reconciliation and tally of details require much labour and time. A mere omission or wrong statement in such a case, may not amount to a concealment as contemplated under section 271(1)(c) of the Act, for, The necessary foul intention is absent in such a case. There is then no suppression of truth of a known fact by the assessee to the prejudice of the Department. The Income‑tax Act itself envisages such situations and relieves honest and bona fide assessee to mend matters and rectify the situation. Section 139(5) of the Act is property attracted to such cases of bona fide or honest mistakes on the part of the assessee. It can correctly be said that in such a case, the assessee discovers an omission or a wrong statement in the earlier return. A concept of discovery is, however, totally incompatible with the mental condition of an assessee who intentionally suppressed his income or the particulars thereof. In one sense, where the omission to return an income is accidental no result may ensue by reason of such an omission, as pointed out by the Bombay High Court in Dayabhai Girdharbhai v. Commissioner of Income‑tax, (1957) 32 ITR: 677: AIR 1958 Bom. 426.It. t. not the point of time of submission of a revised return that is crucial on the question. Revised return must be one which properly brings it under section 139(5) of the Act; and there must be a total absence of fraudulent intent on the part of the assessee at the time of the filing of the original return.

16. Two other decisions, one of the Patna High Court and tire other of the Delhi High Court may also be noted in this connection. They are Badshah Prasad v. Commissioner of Income‑tax, Bihar, (1981) 127 IT ft 601 (Pat.) and Qammar‑ud‑Din & Sons v. Commissioner of Income‑tax, New Delhi, (1981) 129 ITR 703.

17. In the former, the Patna High Court set aside the imposition of penalty by the taxing authorities and the Tribunal. In that case the assessee, a contractor, who revised his return twice, the second revised return disclosing an income of Rs.48,850 as against Rs. 13,480, disclosed in the original return, did not maintain any books of account. It was contended by him that the return was based on payment certificates and that as and when he obtained additional payment certificates from certain Divisions in which he carried out the work, he submitted revised return of his income. The taxing authorities and the Tribunal took the view that the, assessee was fully aware of the total volume of the work done by him and the payment to which he was entitled to on that account and that there was an intention to conceal the income. The High Court, however, observed: "The only material, if at all that can be called a material, is a mere presumption that the assessee must be aware of the total volume of work done by him and of the payments that he was entitled to receive on that account. Presumption of fact cannot be equated to a finding of fact and more so when against the concrete assertion by the assessee the department has not been able to find any fact to contradict such assertion." It is not necessary for us to consider the correctness of the above conclusion. The decision quoted with approval the principles laid down by the Gauhati High Court in F.C. Agarwal v. Commissioner of Income‑tax, 102 ITR 408: 1976 Tax LR

235. Other decisions, particularly that of the Madras High Court in 110 ITR 602: 1978 Tax LR 380 referred to above, do not appear to have been considered in the aforesaid decision. The decision must be understood as confined to the fact of the case and not by any general application.

18. The Delhi High Court considered the case of a firm which filed a return on 20‑10‑1965 but without attaching its statement of account. A notice under section 143(2) of the Act was issued, on the first occasion on 29‑11‑65 and on the second occasion, more than a ear later, on 9‑12‑1966. The later notice fixed the date of hearing' on 22‑12‑1966. The assessee claimed to have filed, in the meanwhile, on an unknown date. a profit and loss account. The I.‑T.0 found the net profit of the firm to be Rs.83,790 as against Rs. 35,000 returned by the assessee and, therefore, called upon the assessee to file a revised return alongwith an explanation. Such a revised return showing an income of Rs.83,790 was filed on 24‑12‑1966. After making some adjustments the total income was computed at Rs. 89,

642. Penalty proceedings were thereafter initiated. Penalty was imposed by the Inspecting Assistant Commissioner and it was upheld by the Tribunal. 'In the High Court, counsel for the assessee referred to the decision in Commissioner of Income‑tax v. Ramdas Pharmacy (1970) 77 ITR 276 (Mad). The High Court was persuaded to take the view that penalty was not attrected to the case. Particular emphasis was made on the decision of the Madras High Court, in the judgment of Justice Ranganathan (see page 708). As regards that case, the High Court observed: "In the case decided by the Madras High Court of facts were much more adverse to the assessee but still the conclusion of the Tribunal that there had been no concealment because the assessee had filed a revised return was upheld by the High Court." It is seen that the decision of the Madras High Court, 110 ITR 602: 1978 Tax LR 380 which had considered (1970) 77 ITR 276 (supra) and explained it fairly exhaustively at page 615 had not been brought to the notice of the Delhi High Court, Khanna, J. who concurred with the judgment of Justice Ranganathan chose to rest his conclusion in the penultimate paragraph of his judgment, reading: "My learned brother has in this regard observed that the filing of the profit and loss account was a voluntary act of the assessment, and this negatived any intention on its part to conceal income, as it had substantially brought out the income The misfortune of the death of one of the partners before the filing of the return has also been taken note of. Considering these circumstances. I am inclined to concur with the final conclusion that the penalty be quashed." In the light of the discussion already made above, it is difficult to agree with the approach made by the Delhi High Court which, as stated earlier, does not appear to have considered other relevant decisions including the later one of the Madras High Court itself.

19. The principles emerging from the decisions alluded to above have, however, been not applied by the Tribunal in relation to the facts of the case. The Tribunal oversimplified the issue and enunciated the legal principles incorrectly when it observed: "If the assessee had filed the return by himself voluntarily and he disclosed the income from contracts which were omitted in the original return, we think, there cannot be any case for penalty."

20. The submission of the revised return may, in given cases, be voluntary, but such a voluntary filing by itself does not lead to conclusion that there was no intention on the part of the assessee to conceal his income when he filed the original return. That naturally depends upon the facts and circumstances which throw light on the mental process of the assessee at the time of the submission of his original return. A subsequent conduct may be one of the facts which could be duly taken note of in the process of that difficult decision. We have, however, no hesitation to hold that a mere filing of a revised return by the assessee at any time prior to the Department concerning the assessee in relation to a particular head of concealed income, would not be sufficient to exonerate the assessee from the penal consequences. A mere fact that investigation by the Department is afoot, though: nothing had come in the possession of the Department at any particular point of time, may induce a dishonest assessee to submit a revise, return. Such an exercise will not absolve him of the consequences following from an act which on his part had already been completed, concealment of income or the particulars thereof namely, the to Conversely, it may so happen that an assessee realises the error orb omission in his original return, when the assessment proceedings including investigation by the officials of the Department, had progressed to a considerable stage; if the omission or error ir, the submission of the first return is honest and bona fide, the fact that the submission of the revised return is belated and after investigation had advanced much, by itself, will not visit him with penal consequences. The facts of this case have to be carefully analysed and examined in the light of the above principles and guidelines.

21. The assessee had a definite case before the authorities as explanation in relation to the charge of concealment of income. Both the Income‑tax Officer and the Appellate Assistant Commissioner had considered those contentions but rejected them. The Tribunal, however, did not examine the cause so pleaded by the assessee but allowed itself to be swayed by other and irrelevant considerations, such as the details of the enquiry in relation to the assessee by the Department in relation to the, previous years, and the proximity to which the Department had come to in relation to its other and undisclosed source of income.

22. We are of the view that the Tribunal has erred in its assumption that the filing of a revised return voluntarily would exonerate the assessee from the liability for penalty under section 271(1)(c) of the Act. We would, therefore, answer the first question in the negative, that is, in favour of the Department and against the assessee.

23. Having regard to the frame of the questions referred for our decision, we find that the proper course to be adopted in this case is to answer those questions and direct the Tribunal to consider the appeals and dispose them of a‑fresh in the light of the answer given by us and in the light of the discussion contained hereinabove. We have, in view of the course so adopted, refrained from expressing ourselves on the culpability or otherwise of the assessee in a more categoric or conclusive manner.

24. In the light of our answer to question No.l, it may not be necessary to enter a specific answer to question No.2, particularly having regard to the way in which the latter limb of the question couched. The question is: "Whether the finding of the Income‑tax Appellate Tribunal that he (assessee) had disclosed the income for the assessment year 1966‑67 is perverse and unreasonable". If it relates to the sustainability of the finding relating to a disclosure of the true income of the assessee, we would answer that the Tribunal's finding is not reasonable inasmuch as it has applied incorrect principles of law. As indicated earlier, the matter will have to be approached afresh in the light of the decision and discussion

25. We are also satisfied that the Tribunal is in error in the computation of penalty imposable on it‑it, assessee for the year 1967‑

68. The order of the Tribunal does not indicate how it arrived at the concealed income in the sum of Rs.6,000 even after noting that it was "quite possible to argue that the minimum penalty should be Rs.14,242, that being the income which was assessed". Penalty under section 271(1) (c) of the Act is geared to the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished. The correct income of the assessee, after the assessments have become final cannot be a matter of conjecture. There was a total omission in the original return relating to the share or income from Kallatra Constructions. The correct income in relation to that source has now been fixed at Rs.14,

242. We are of the view that the correct income for the purpose of computation of penalty should be reckoned as Rs.14,242, in the event of its being held that penalty is leviable.

26. The answer to question No.3 in relation to the assessment year 1967‑68, in the light of the above discussion, is in the negative, that is against the assessee and in favour of the Department.

27. The references are answered in the manner indicated above. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal as required by subsection (1) of section 260 of the Act. P. SUBRAMONIAN POTI, C.J..‑‑ I agree with the approach and the conclusion reached by my learned brother Sukumaran, J. M. B. A. Reference answered.