1990 PLP 653 (PTD)

K.A. NAYAR, J.‑‑The original petition is for a direction to the Income‑tax Appellate Tribunal, Cochin Bench, to refer to this Court the following questions of law: "(i) Whether, on the facts and circumstances of the case, the Tribunal was right in upholding the imposition of penalty for concealment of income? (ii) Whether Explanation 2 to section 271(1)(c) of the Income‑tax Act applies to the facts of the case? and (iii) Whether the penalty proceeding is not barred by limitation?" The petitioner is a partnership firm. For the year 1983‑84, the petitioner submitted a return on April 28, 1984, disclosing a total income of Rs. 2,74,

510. The Income‑tax Officer wrote to the assessee pointing out certain cash credits and other credit balances not accounted for and, therefore, the assessee was asked to furnish evidence to prove the source of the said credits. The assessee then filed a return on December 22, 1984 which, according to the assessee, was to purchase peace. The assessment order was passed by the Income‑tax Officer, accepting the return, on December 28, 1984, on a total income of Rs. 5,24,510 which included Rs. 2,50,000, the enhanced income returned by the assessee. Subsequently, in the course of the assessment for the assessment year 1984‑85, the Income‑tax Officer found that the accounts of the partners were credited with a total sum of Rs. 2,50,000 in proportion to their profit‑sharing ratio alongwith a narration that these credits represented additional income offered for assessment in the assessment year 1983‑

84. The Income‑tax Officer, on December 31, 1985, initiated penalty proceedings in respect of the said income of Rs. 2,50,000 disclosed by the assessee and issued notice to the assessee. In the explanation dated February 13, 1986, the assessee explained that the said amount represented the income disclosed by the assessee for the earlier year 1983‑

81. Thereafter, on March 27, 1986, a penalty was imposed by the income‑tax Officer on the assessee under section 271(1)(c) of the Income‑tax Act. Aggrieved by the penalty order, the petitioner filed an appeal before the Commissioner of Income‑tax (Appeals) who, by his order dated September 5, 1986, confirmed the order of the Income tax Officer. The second appeal filed by the assessee before the Income‑tax Appellate Tribunal was dismissed on August 19, 1987. The assessee filed a reference application before the Appellate Tribunal praying for reference of the three questions as questions of law arising out of the order of the Tribunal. The Tribunal dismissed the reference application observing that whether there was my concealment of income in a given case is purely a question of fact and, therefore, no referable questions of law arose from the appellate order. Aggrieved by the said order, the assessee filed this original petition under section 256(2) of the Income‑tax Act, 1961, praying for reference of the questions as questions of law arising out of the Tribunal's order. We heard counsel on behalf of the assessee as well as on behalf of the Revenue. The main question canvassed on behalf of the assessee is that Explanation 2 to section 271(1)(c) will not apply to the facts of the case. It was submitted that there was no concealment of income as the assessee filed a revised return for 1983‑84 enhancing the income by Rs. 2,50,000 on December 22, 1984. The Income‑tax Officer accepted this return and passed an assessment order on December 28, 1984. Therefore, it is submitted that Explanation 2 to section 271(1)(c) has no application as there was no concealment of income. We do not agree. It will be seen from Exhibit P‑1 that in the course of assessment proceedings. certain cash credits and other credit balances in the assessee's accounts were found out which could not be satisfactorily explained by the assessee The Appellate Assistant Commissioner clearly found that the return filed by the assessee on December 22, 1984, was not a voluntary return and that it was filed only after the Income‑tax Officer had made enquiries and wanted the assessee to prove certain transactions and establish the nature and source of the credits which appeared in the books. When the assessee could not satisfactorily explain the cash credits in the books and also the transactions with the other parties, he filed a return on December 22, 1984, showing enhancement of income by Rs. 2,50,

000. Therefore, the Appellate Assistant Commissioner found that the concealment of income and furnishing of inaccurate particulars had taken place in the return of income filed by the assessee. The Appellate Tribunal also found that the entire move of the assessee was to file a revised return disclosing a higher income so that if the Income‑tax Officer accepted the same, the additional amount could be brought in the books of the company without any penal liability for concealment. Therefore, the return filed, so as to include the concealed income, cannot be characterised as a revised return within the meaning of section 139(5) of the Income‑tax Act. It cannot be stated that the return was filed when the assessee discovered any omission or any Wrong statement in the original return. In short, a return filed so as to include concealed income cannot be treated as a revised return at all. The return, in fact, is an admission of concealed income masquerading as a revised return. The Tribunal also found that the so- called revised return was not filed voluntarily before the concealment was detected. As stated by the Tribunal, the entire move of the assessee was to file a revised return disclosing a higher income so that if the Income‑tax Officer accepted the same, an additional amount could be brought in the books of the company without any penal liability for concealment. It is well‑settled that the blameworthiness of the assessee with respect to the original return cannot be avoided by filing a fresh return after concealment was detected by the Income‑tax Officer. Therefore, we are of the opinion that the return filed by the assessee on December 22, 1984, offering enhancement of income by Rs. 2,50,000 will not absolve the assessee from the penal consequences. The Income‑tax Officer found that during the examination of the assessee's accounts for the assessment year 1984‑85, an amount of Rs. 2,50,000 was credited in the accounts of the seven partners in proportion to their profit‑sharing ratio. The explanation of the assessee was that the amount represented the income offered for assessment for the assessment year 1983‑

84. As the assessee claimed the source for investment made in a year as the income assessed for the earlier assessment year for which no penalty for concealment had been levied, it has fallen within Explanation 2 to section 271(1). By virtue of Explanation 2 to section 271(1), the sum of Rs. 2,50,000 assessed for the year 1983‑84 which is claimed by the assessee as the source for investment in the names of the partners during the subsequent assessment year became the income of the assessee the particulars of which have been concealed. In that view of the matter, the Income‑tax Officer clearly found that it is an income concealed. The Commissioner of Income‑tax (Appeals) also found that Explanation 2 to section 271(1)(c) of the Income‑tax Act squarely applies to the facts of the case as the assessee had credited the accounts of the partners with a sum of Rs. 2,50,000 in the subsequent year. The Commissioner of Income‑tax (Appeals) found that the sum represented the additional income of the appellant in the previous year relevant to the assessment year 1983‑84 which had not been disclosed in the return filed on April 28, 1984. The Appellate Tribunal also came to the same conclusion. The Tribunal found that an amount of Rs. 2,50,000 was found credited to the capital account of the partners and it further found that the amount represented income of the assessee for the assessment year 1983‑

84. The explanation of the assessee has not been accepted by any of the authorities and concealment of income, as a matter of fact, was found by all the three authorities. Counsel for the assessee drew our attention to the Wanchoo Committee Report forming the basis of the amendment to section 271 introduced byway of Explanation 2 to section 271 to show that the said Explanation can be relied upon only if there is any intangible addition. Where intangible additions made in the earlier years are cited by an assessee as the source of his funds in a subsequent year, the said funds would be deemed to represent the assessee's income, particulars in respect of which have been concealed within the meaning of clause (c) of subsection (1) of section 271 of the Income‑tax Act. In so far as there is no intangible addition in the case in question, according to the assessee, Explanation 2 is not attracted. As stated already, all the authorities, as a matter of fact, found that there had been intangible addition of Rs. 2,50,000 and, therefore, we do not find any substance in the said argument. Further, the statement prefacing the recommendation of the Wanchoo Committee also says that: "While we are of the view that penalties should not be draconian, we also strongly feel that those who are tempted to resort to concealment of income should not be allowed to get away with tenuous legal interpretations." That is exactly what the assessee's counsel is attempting to do in this case by relying upon the so‑called revised return. We hold that the order of the Appellate Tribunal is not defective in law or in fact. Lastly, it is submitted that the penalty proceedings are barred by limitation. It is also stated that penalty proceedings have not been commenced during the course of the assessment proceedings. But the Tribunal, dealing with this contention, found as follows: "It was the assessee's contention in the grounds of appeal that the penalty proceedings were initiated only on December 31, 1985, but the Commissioner of Income‑tax (Appeals) has stated that they were initiated at the time of passing the assessment order on December 28, 1984. This has not been denied by the assessee's representative." The Commissioner of Income‑tax (Appeals), in paragraph 5 of his order, stated thus: "On going through the assessment order, I find that the Income‑tax Officer has clearly mentioned that penalty proceedings are initiated:" This statement of the Commissioner of Income‑tax (Appeals) has not beep denied by the assessee's representative before the Tribunal also. Hence, there is no merit in this contention as well. We, therefore, hold that no referable questions of law arise out of the Tribunal's order. The original petition is dismissed. Z.S./747/T Petition dismissed.