1981 PLP (Trib (PTD)

MUHAMMAD MAZHAR ALI (PRESIDENT).‑--These two appeals relate to the charge years 1974‑75 and 1975‑76, for which the relevant accounting periods ended on 30th June, 1974, and 30th June, 1975, respectively.

2. The assessee‑appellant is an individual. It filed returns declaring total income for 1974‑75 at Rs. 15,000, and for 1975‑76 at Rs. 14,

000. Later on, he filed a declaration of undisclosed income of Rs. 1,93,000, for the assessment years 1968‑69, 1969‑70, 1970‑71, 1971‑72, 1972‑73, 1974‑75 and 1975‑76, under section 3‑C of the Income‑tax Act. For the year 1973‑74 also he filed a declaration under section 3‑C but in a closed cover as an appeal relating to that assessment year was pending. The undisclosed income for the two years under appeal was shown at Rs. 20,000, each year. The Income‑tax Officer observed that the undisclosed income for these two years as declared by the appellant was too low as compared to the undisclosed income of the earlier years. He ignored the declaration of undisclosed income filed under section 3‑C of the Income‑tax Act, with the following observations in the assessment order for charge year 1974‑75: "However, looking to the facts of the case the income from other sources except income from two Ration Shops in the name of Akbar Trading Company and Kalay Khan are ignored treating that the declaration of undisclosed income at Rs. 20,000, covered the income from other sources, like income from Munawar Bros., as discussed above."

3. While framing the assessment for the charge year 1975‑76 the Income tax Officer again proceeded to determine the income on merits, by ignoring section 3‑C `declaration' in these words:‑- "Since the assessee's excess income declaration of Rs. 20,000, was considered to be inadquate by my predecessor for the preceding assess ment year, hence declaration of Rs. 20,000, during the year under consideration is also considered inadequate and accordingly the income for the two shops is determined as under":- The assessments for the two years were then completed as follows:‑

For 1974‑75 Rs. Rs. "

1. G. P. at 2 % on estimated sales of Ration Shop No. 265 Rs. 42,65,000 ... 1,06,625

2. G. P. at 5% on estimates sales of Ration Shop No. 209 Rs. 3,00,000 ... 15,000 Gross Profit 1,21,625 Less expenses claimed 22,000 95,625 1/3rd tel. expenses being personal 2,400 1/2 out of Entertainment expenses being personal 400 1/3rd out of Misc. expenses for proof 333 3,133 1,02,758 Add. Income declared under section 3‑C 20,000 Total Income: 1,22,000 Net profit as per computation 14,000 G. P. of sales of sugar in Ration Shop No. 265 94,664 G. P. on sales of sugar in Ration Shop No. 209 18,328 1,12,992 Less C. P. shown 36,000 76,992 Less expense as claimed 22,000 54,992 68,992 Add backs in admissibles:

1. Out of expenses claimed at 22,000 above on estimates basis ... 5,000 85,000 73,992 Add income from Atta as discussed above 29,495 1,03,487 Minus Rs. 20,000, as declared under section 30 considered to be inadequate . 20,000 Total Income: 83,487

4. Aggrieved by assessment thus made by the Income‑tax Officers, the assessee went in appeal before the learned Appellate Assistant Commissioner, Range, who by his impugned consolidated order dated 3rd October, 1979, has allowed the appeals for the two years in question, with these observation:-- After hearing the learned counsel and looking onto the record, I am of the opinion that his arguments are persuasive both in respect of section 3-C Declaration and on the matter of quantum. Therefore having regard to the facts and circumstances of the case, it would serve the ends of justice to set aside both the assessments with the direction to proceed for de novo assessments in accordance with law by keeping in view the scheme of section 3-C and the various directions of the Central Board of Revenue on the subject. Similarly the order contention of the appellant regarding non-providing of opportunity for rebuttal is also irresistible, as it is now well established rule of law that no body can be condemned unheard. Therefore on merits also these orders cannot be sustained in law as admittedly the information gathered at the back of the appellant and also utilised against him was never disclosed to him for his rebutal." The assessee has, therefore, brought these two second appeals on the following common ground :‑ "That in view of the declaration under section 3‑C and the Tribunal decision (1979) 39 Taxation 35 (Trib.) the learned Appellate Assistant Commissioner had to direct the Income‑tax Officer for acceptance of return and not mere set aside."

5. We have heard the parties' representatives at length they have also carefully persued the Tribunal's order referred to above in the grounds of appeal. The counsel for the appellant re‑iterated the same contentions before us which were made before the first appellate authority, i.e. by virtue of para. 19 of C. B. R.'s Circular No. 63(iii) I. T. IV/76 dated 14‑7‑1976 (hereinafter referred to as the said Circular) the Income‑tax Officer was under a legal obligation to accept the returned incomes of the said two charge years and finalize the assessments by adding thereto only such sums, if any, out of the expenditure, claimed in the trading and profit and loss account as were found to be in admissible under the law. The Declaration of undisclosed income made under section 3‑C of the Income‑tax Act, were to be simply filed if the tax on the undisclosed income been law fully paid. Relying upon the above‑quoted decision of toe Tribunal viz. (1979) 39 Taxa tion 35 (Trib.) the counsel vehemently urged that the learned Appellate Assistant Commissioner was wrong in not directing the Income‑tax Officer to accept the trading results and to make only such add‑backs out of profit & loss account expenses as were found to be inadmissible. The learned Departmental Representative, in his turn, sternly pleaded that in the instant case the Income tax Officer was possessed of the relevant information, which clearly indicated that the undisclosed income as declared by the appellant for the two charge years in question, were inadequate hence he was justified in framing the assessments in the manner he has done. His main emphasis was upon the fact that if after accepting the declaration of undisclosed income and finalizing the assessment, by accepting the declared incomes and the undis closed incomes, the Assessing Officer would not have been legally competent to reopen the assessments under section 34 of the Income‑tax Act. In that case, the learned Departmental Representative so contended, the moment the Income‑tax Officer would have attempted to re‑open the proceedings under section 34, the assessee would have immediately challenged his jurisdiction on the plea that all the relevant facts and circumstances of the case were within his knowledge at the time of framing the assessments and as such he was debarred from re‑opening the case under section 34; notwithstanding the under assessment of the income. In reply, the learned counsel for the appellant contended that processing of the Declaration of undisclosed income was never envisaged and that the assessments of both the years were to be made in terms of paragraph 18 of the said circular, which lays down that where declaration has been properly made and the tax due has been fully paid, the Income‑tax Officer will file the declaration and there shall be no further processing of declaration as such.

6. The issue involved in these appeals, as rightly pleaded by the learned counsel for the appellant, has already been adjudicated upon by the Appellate Tribunal vide its order in Income‑tax Appeal No. 282/K B & 29‑7/ K B of 1977‑78, dated 10‑9‑1978 [(1979) 39 Taxation 35 (Trib.)]. The conten tion of the learned Departmental Representative with regard to the re‑opening of the assessment is wholly misconceived and untenable at law inasmuch as, save to the extent of exception made in rule 8 of the Fifth Schedule, the Income‑tax Officer was legally bound to complete the assessment for the years, which were covered by the declaration of undisclosed income made under section 3‑C of the Income‑tax Act, on the basis of the respective returns. The Income‑tax Officer was manifestly under a legal obligation to accept the Declaration if it was made properly and the tax due on the undisclosed income had been fully paid. It is clearly provided by rule 5 that, any person who fails to declare undisclosed income, or has not declared his undisclosed income fully and truly, shall on conviction by a Special Judge under section 54‑A be punishable to the imprisonment for a term which may extend to 5 years and also with fine which shall be equal to the income, profits and gains not disclosed. The Legislature by inserting the said provision of law, has clearly debared the tax authorities from re‑opening the assessment made for any of the assessment years, which were covered by section 3‑C Declarations. It is pertinent to note that the Legislature has, in specific terms, laid down that whatever income is suppressed by the assessee and is not truly disclosed in the declaration of undisclosed income, it shall be liable to be paid, entirely to the Government as and by way of fine upon conviction by the Special Judge. It is also pertinent to note that no discretion has been left with the Special Judge in the matter of imposition of fine. It has to be equal to income. Profits and gains not disclosed. There was thus no question of the alleged under assessed or escaped income being assessed by invoking the provisions of section 34 of the Income‑tax Act, and subjected to tax at the rates prescribed in the Schedule to this Act. The fate of these appeals, we are a clearly of the opinion, should be governed by the above‑noted reported decision of the Tribunal.

7. We would, therefore, allow the appeal ands modify the order of the Appellate Assistant Commissioner so as to direct the Income‑tax Officer to frame the assessments of both the years on the basis of the respective returns subject, of course, to the inadmissible items already added back out of P & L account expenses, and which are not contested in these appeals.

8. For the reasons mentioned above, we allow these appeals in the manner indicated above. Appeal allowed.