Fairdeal Motors Vs Commissioner of Income Tax - Citation 898464 - Court Judgment

Judgment:

M.R.A. Ansari, C.J.

1. The assessee in this case is a registered firm of the name of Messrs. Fairdeal Motors, Srinagar, deriving income from the sale of trucks, scooters and motor spare parts. For the assessment year 1966-67, for which the relevant accounting year is the year ending December 31, 1965, the assessee filed his return declaring an income of Rs. 94,623. In this return, the assessee had not shown the income derived from the business of the transport of products of Messrs, Indian Oil Co. Ltd. from Pathankot to Srinagar and Sonamarg which was carried on in the name ofMessrs. New Bharat Transporters on the plea that the said business belonged to an association of persons and was not a branch of Messrs. Fair-deal Motors. In a letter dated March 14, 1968, addressed to the CIT the assessee agreed, inter alia; that the business carried on in the name of New Bharat Transporters may be treated as a branch of Messrs. Fairdeal Motors. In view of this letter the ITO included a sum of Rs. 62,536 representing the income from the business run in the name of Messrs. New Bharat Transporters in the income of the assessee and completed the assessment on a total income of Rs. 1,79,220. The ITO simultaneously instituted penalty proceedings against the assessee under Section 271(1)(c) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), for concealment by the assessee of the income from Messrs. New Bharat Transporters. As the penalty leviable against the assessee exceeded a sum of Rs. 1,000, the ITO referred the assessee's case to the IAC under Section 274(2) of the Act for the levy of penalty. In pursuance of this reference and after hearing the assessee, the IAC held that the assessee had concealed his income derived from M/s. New Bharat Transporters and levied a penalty of Rs. 12,632 on the assessee. The assessee filed an appeal before the Tribunal, Amritsar Bench (hereinafter referred to as 'the Tribunal'), against the order of the IAC but the Tribunal confirmed the order of the IAC and dismissed the appeal filed by the assessee. At the instance of the assessee, however, the Tribunal has referred the following three questions to this court under Section 256(1) of the Act:

'(1) Whether, on the facts and in the circumstances of the case, the assessee had concealed its income and penalty under Section 271(1)(c) is leviable on it ?

(2) Whether, on the facts and in the circumstances of the case, the letter of the CIT (Central), New Delhi, dated March 13, 1968, addressed to the assessee, amounts to an order under Section 271(4A) of the I.T. Act, 1961 ?

(3) If the answer to the above question is in the affirmative, whether penalty had to be calculated with reference to the tax attributable to only such 'income' included in the total income of the assessee as arose from the business carried an by M/s. New Bharat Transporters ?'

2. Before I proceed to answer the questions, a few more facts have to be stated. During the course of the assessment proceedings, the assessee made some representations to the CIT in respect of its assessment for the assessment year 1966-67. The assessee also appears to have written a letter dated December 23, 1967, to the ITO in this connection. The exact nature of the representations made by the assessee to the CIT cannot be gathered from the statement of the case as submitted or from the annexures thereto. The contents of the letter dated December 23, 1967, also do not form part of the record. But in response to these representations the Commissionerwrote a letter dated March 13, 1968, which is made as annexure 'A' tothe statement of the case, and from this letter it would appear that theassessee had made, inter alia, the following proposal to the Commissioner : 'The business in the name of New Bharat will be treated as a branchof Fairdeal Motors.'

3. After referring to this proposal made by the assessee the CIT in his letter(supra) proceeded to state, inter alia, as follows :

'I am prepared to agree to the above proposals if you accept thefollowing conditions: (i) A minimum penalty of 20% will be imposed under Section 271(1)(c) on M/s. Fairdeal Motors in respect of the income of New Bharat TPTSwhich is now agreed to be a branch of the former for the years 1963-64 to 1967-68.'

4. In reply to the above letter of the Commissioner, the assessee wrote a letter dated March 14, 1968, which is made as annexure 'B' to the statement of the case. The relevant portions of this letter are given below :

'Inviting a kind reference to your letter No. DD1(9)/CR/67-68, dated 13th March, 1968, I hereby signify my assent to the proposals stated therein. As regards the conditions imposed in para. 2 of your letter aforesaid I accept them provided you will kindly appreciate that my acceptance of these proposals and conditions is actuated by considerations other than purely legal nor it ever be construed by our acceptance that I ever attempted to conceal any income or to introduce any benamidar in my business. But the main consideration has been that I wanted to buy peace of mind even at some cost and sacrifice on my part in view of the political vendetta which has been carried on in the past with regard to my affairs.

.........Further it should be clearly understood that the assessments thatare made on the basis of the acceptance of these proposals as mutually agreed upon shall never be questioned again in my income-tax proceedings for any assessment year and the decision shall be irrevocable so far as the points covered in these proposals are concerned.'

5. It would appear from the assessment order of the ITO which is made annexure 'C' to the statement of the case that it was on the basis of this letter of the assessee dated March 14, 1968, that the ITO included the income derived from New Bharat Transporters in the income of the assessee. No independent investigation appears to have been made by the ITO and there was no reference in the assessment order to any material other than the letter dated March 14, 1968, on the basis of which the ITO had made this addition.

6. From a perusal of the penalty order passed by the IAC, it is obviousthat the IAC had based his order on the same letter of the assessee datedMarch 14, 1968, and that his finding that the assessee had concealed hisincome from the New Bharat Transporters was not based upon any other material. This is what the IAC has observed in his order :

'the assessee accepted the position vide his letter dated 14-3-1968, addressed to the CIT(C), New Delhi.

In response to notice under Section 274(2)/271, Bakshi Bashir Ahmad appeared and stated that no penalty could be levied because it had not been accepted that any income had been concealed. The attention of the assessee was drawn to the letter dated 13-3-68, of the CIT(C) in which it had been specifically stated that penalty of 20% will be imposed on Fairdeal Motors for income of New Bharat Transporters.

There is no doubt that the assessee had concealed its income or has furnished inaccurate particulars thereof.'

7. It was contended before the Tribunal that: 'There was no specific finding by the authorities below that the assessee had concealed its income, and, therefore, no penalty is at all leviable in this case. It was also submitted that in settlement with the CIT only deemed income had been included towards the total income of the assessee and that does not involve any concealment of income.' Repelling this contention the Tribunal observed as follows:

'From the letter dated 13-3-68, addressed by the Commr. of Income-tax to the assessee and the assessee's reply dated 14-3-68, it is obvious that the assessee did not disclose the income in respect of the business carried on in the name of M/s. New Bharat Transporters at the time of filing the return of income on 20-9-67. The assessee, later on, entered into a settlement with the department and agreed to the inclusion of the income in respect of the branch business in the name of M/s. New Bharat Transporters and also agreed to the imposition of minimum penalty under Section 271(1)(c) in respect of the income from this source which was concealed at the time of filing the return of income. The fact that the assessee concealed its income from the branch business and also admitted such concealment later on before the department is clearly established from the records and, therefore, the question of including any deemed income towards the income of the assessee does not arise at all.'

8. It would, therefore, appear from the order of the Tribunal that the finding of the Tribunal that the assessee had concealed its income from New Bharat Transporters is again based only upon the letter of the assessee dated March 14, 1968, in reply to the letter of the CIT dated March 13, 1968. The question for consideration is whether the finding of the IAC as well as that of the Tribunal that the assessee had concealed its income and that a penalty under Section 271(1)(c) of the Act was leviable On the assessee for such concealment can be sustained on the basis of the material on the record. This fact is the first question that has been referred to us.

9. Before proceeding to answer this question, I have to refer to the judgment of this court in Fairdeal Motors v. CIT , relating to the assessment years 1964-65 and 1965-66. Those references also relate to the levy of penalty on the assessees for concealment of income from M/s. New Bharat Transporters. The relevant questions which had been referred to this court in respect of the earlier assessment years were only two, namely, (1) whether, on the facts and circumstances of the case, the letter of the CIT dated March 13, 1968, amounts to an order under Section 271(4A); and (2) if the answer to the above question is in the affirmative whether the Commissioner had reduced or waived the penalty below the minimum provided for under the statute and restricted to 20% of the tax attributable to the income from New Bharat Transporters During the hearing of both the references, a contention had been raised on behalf of the assessees that 'no penalty could be imposed on the assessees unless there was a clear finding that they were guilty of wilful non-disclosure or of any negligent act in deliberately concealing their income. It was contended that during the penalty proceedings no inquiry was made into this aspect of the matter...' The reply on behalf of the revenue to this contention was that 'as this point raised by the assessees had not been referred by the Tribunal to this court and could not by any stretch of imagination be said to be contained or included in the questions of law formulated by the Tribunal, this court cannot go into this point'. Upholding this objection of the revenue, the court made the following observations (p. 693) :

'A bare perusal of the points referred to us by the Tribunal would convince anybody that this question cannot at all be held to be included in the questions framed by the Tribunal. This point does not appear to have been taken either before the Inspecting Assistant Commissioner or even before the Tribunal when the assessees filed their appeal. Indeed, this question was raised for the first time when the Tribunal was moved by the assessees for making a reference to this court, and the Tribunal has expressly refused to make a reference to this court on this point...'

10. This court proceeded to observe as follows (p. 693):

'In these circumstances since the Tribunal did not refer this question to the High Court, the remedy of the assessee was to have moved an application to the High Court under Section 256(2) of the Act, for calling for a reference from the Tribunal on this point.'

11. The court then finally made the following observations (p. 697):

'Finally, it seems to us that the question whether the penalty was actually exigible or not would depend upon certain investigation of facts from which an inference of deliberate concealment or wilful negligencecould be drawn. These facts had first to be pleaded and proved and could not be raised for the first time before the High Court, because the High Court was not competent to go into questions of fact. If the assessees would have pleaded and raised this question before the Income-tax Officer or the Inspecting Assistant Commissioner or even before the Tribunal at the time of hearing the appeal, something could be done. For these reasons, we are unable to allow the assessee to argue this point at this stage when his right to move this court has become barred by limitation as provided for in Section 256(2) of the Act.'

12. It was under these circumstances that the assessee was not permitted by this court at the time of hearing of the earlier reference to raise the contention that the material on record did not justify the finding by the IAC or the Tribunal that the assessee had concealed its income in respect of the New Bharat Transporters or that penalty was leviable on the assessee under Section 271(1)(c) of the Act for concealment of such income. But the position so far as the present reference is concerned is different. During the proceedings before the IAC for levy of penalty for the assessment year under reference, namely, 1966-67, a contention had been specifically raised on behalf of the assessee that no penalty could be levied because the assessee had not accepted that any income had been concealed. A specific contention was also raised before the Tribunal in the appeal against the order of the IAC, that there was no specific finding by the authority below that the assessee had concealed its income and, therefore, no penalty was at all leviable in this case. It was because of these specific contentions raised before the IAC as well as before the Tribunal that the Tribunal has formulated the first question. Whether the letter of the CIT dated March 13, 1968, read with the letter of the assessee dated March 14, 1968, amounts to an order under Section 271(4A) of the Act and what consequences follow from it have to be considered later. Neither the IAC nor the Tribunal considered the said letters of the CIT as amounting to an order under Section 271(4A). They have no doubt considered these letters in arriving at the finding that the assessee had concealed its income from M/s. New Bharat Transporters. Even in the judgment of this court in the said references the court declined to give a finding on the question whether the assessee had concealed its income not because it was unnecessary to give a finding in view of what it called an order of the CIT under Section 271(4A) but because the assessee had not specifically pleaded either before the IAC or before the Tribunal that there was no concealment of income by the assessee and that no penalty at all was leviable and also because no question was referred by the Tribunal to the court on this aspect. But, as already stated, the assessee had specifically raised this contention both before the IAC as well as before the Tribunal and the Tribunal has also framed a specific question on this point and has referred it to this court for opinion. We are, therefore, bound to answer this question.

13. Before answering this question with reference to the facts, it is desirable to state the position of law. The leading case on this point is CIT v. Anwar Ali : [1970]76ITR696(SC) . In that case, the assessee was called upon to explain the source of a cash deposit of Rs. 87,000 made by the assessee in the bank. The assessee explained that this amount represented the total of various amounts received by him from his relations and which was entrusted to him during the communal riots in Bihar in 1946. The explanation offered by the assessee was rejected by the ITO and the amount of Rs. 87,000 was included in the income of the assessee as income from undisclosed sources. The ITO also instituted penalty proceedings against the assessee under Section 28(1)(c) of the Indian I.T. Act, 1922, and levied a penalty of Rs. 66,000 on the assessee. After passing through the stages of the AAC the Tribunal and the High Court, the matter ultimately came up before the Supreme Court. The Supreme Court cancelled the penalty levied against the assessee and, in doing so, laid down the following principles (p. 700):

'The first point which falls for determination is whether the imposition of penalty is in the nature of a penal provision. The determination of the question of burden of proof will depend largely on the penalty proceedings being penal in nature or being merely meant for imposition of an additional tax, the liability to pay such tax having been designated as penalty under Section 28... It is true that penalty proceedings under Section 28 are included in the expression 'assessment' and the true nature of penalty has been held to be additional tax. But one of the principal objects in enacting Section 28 is to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest... It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings [Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) . In England also it has never been doubted that such proceedings are penal in character.'

14. Having held that penalty proceedings were penal in nature, the Supreme Court then proceeded to consider the question of the nature of the evidence which would justify the levy of the penalty. It observed thus (pp. 700-701);

'The next question is that when proceedings under Section 28 are penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable to payment of penalty. As has been rightly observed by Chagla C.J. in Commissioner of Income-tax v. Gokuldas Harrivallabhdas : [1958]34ITR98(Bom) , the gist of the offence under Section 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and, therefore, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income.'

15. It must be remembered that the proceedings under Section 28 are of a penal nature and the burden is on the department to prove that a particular amount is a revenue receipt.

'It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars (p. 701).'

16. The above principles laid down by the Supreme Court in Anwar Ali's case : [1970]76ITR696(SC) were reiterated in a later case in CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) . In that case, the assessee which was a firm carrying on the business of manufacturing spirituous drugs and chemicals returned an income of Rs. 51,214. To the income returned by the assessee the ITO added a sum of Rs. 77,518 and also a sum of Rs. 9,900. These additions were made on the ground that some of the said bills produced by the assessee were found to be forged and some of the purchasers of tincture were also fictitious persons. There was no evidence produced by the assessee to show that kolae powder which was essential for the manufacture of tincture had been purchased by it. The ITO drew the inference that the assessee had not really manufactured tincture and on the other hand must have sold alcohol illicitly. On the basis of the above additions made by the ITO, he proceeded to levy a penalty of Rs. 35,000 on the assessee under Section 28(1)(c) of the Indian I.T. Act, 1922, on the ground that the assessee had concealed the particulars of his income. The penalty was cancelled by the Supreme Court, applying the principles laid down in Anwar Ali's case : [1970]76ITR696(SC) to the facts of this case. The Supreme Court observed as follows (p. 375):

'One thing that strikes us when going through, the order of the Income-tax Officer levying penalty and the order of the Appellate Assistant Commissioner confirming the said levy, is that there is not much of an independent discussion regarding the material question that has to be considered, namely whether the firm has concealed the particulars of its income or whether it has deliberately furnished inaccurate particulars of such income. On the other hand, the Income-tax Officer, after referring to the explanation furnished by the assessee to the show-cause notice, clearly says that the facts relating to the unaccounted items have been fully discussed already in the relevant assessment orders for the concerned assessment year and that the reasons given therein need not be repeated again. Then there is only a very summary disposal of the plea raised by the respondent that he has not concealed the particulars of his income, nor has it deliberately furnished inaccurate particulars of its income. The approach made by the Appellate Assistant Commissioner is not far different from that of the Income-tax Officer......From what we have stated above, it is clear that while there has been no proper approach made by either the Income-tax Officer when he levied penalty or by the Appellate Assistant Commissioner when he confirmed the order levying penalty, the Appellate Tribunal, on the other hand, has made a very correct and judicial approach in considering the question whether the penalty provisions are attracted as against the respondent.'

17. The principles laid down in Anwar Ali's case : [1970]76ITR696(SC) have been followed by several High Courts and reference may be made to some of their judgments.

18. In Gumani Ram Siri Ram v. CIT the assessee was called upon to prove the genuineness of the cash deposits amounting to Rs. 12,000 appearing in his books. The assessee stated that he was not in a position to prove the genuineness of these entries and made a statement surrendering the said cash deposits for being included in the assessee's income. The amount of Rs. 12,000 was accordingly included in the assessee's income and in the penalty proceedings which followed a penalty of Rs. 6,768 was levied on the assessee under Section 271(1)(c) of the Act. The penalty was confirmed by the Tribunal but at the instance of the assessee the Tribunal made a reference to the Punjab and Haryana High Court. Applying the principles laid down in Anwar Ali's case : [1970]76ITR696(SC) , the Punjab and Haryana High Court cancelled the penalty and, in doing so, made the following observations (p. 70):

'So far as the Tribunal is concerned it assumed that the amount of Rs. 12,000 represents the income of the assessee and proceeded on that basis. It will be apparent from the two orders already referred to that from the only circumstance that the amount of Rs. 12,000 was surrendered by the assessee, an inference has been drawn that the amount represents the income of the assessee. In our opinion, this conclusion is not inevitable.There may be hundred reasons for the assessee to surrender this amount irrespective of the fact whether it was his income or not and it was incumbent, in view of the observations of the Supreme Court in Anwar Ali's case : [1970]76ITR696(SC) , for the Income-tax Officer to find on evidence that the amount of Rs. 12,000 represented the income of the assessee. Therefore, we are clearly of the view that the requirements of Section 271(1)(c) have not been satisfied so as to bring the case of the assessee within the same.'

19. In CIT v. Net Ram Ram Swamp : [1973]88ITR213(All) the assessee was required to prove the genuineness of certain cash credits appearing in its books of account. The assessee wrote a letter to the ITO surrendering for assessment the cash credits and accordingly the cash credits were included in the income of the assessee in the assessment proceedings. On the basis of the addition of these amounts, the ITO levied a penalty on the assessee under Section 28(1)(c) of the Indian I.T. Act, 1922. The Allahabad High Court cancelled the penalty on the basis of the principles laid down in Anwar Ali's case : [1970]76ITR696(SC) observing that 'the mere failure of an assessee to prove the nature and source of an income would not lead to the inference that he has deliberately concealed the income and has furnished inaccurate particulars thereof '.

20. In Krishan Lal Shiv Chand Rai v. CIT , in the course of reassessment proceedings under Section 148 of the Act, the assessee surrendered certain amounts which he had shown as loans of third parties at the time of regular assessment. The ITO accepted those surrenders and made orders of reassessment after affording an opportunity to the assessee to prove that the credits on the basis of the hundis shown in the names of third parties were genuine credits. At that time, the assessee-firm instead of proving that fact, gave a statement surrendering those amounts to be treated as its income of the year from undisclosed sources. Thereafter, proceedings for imposition of penalty were initiated against the assessee-firm. In those proceedings, it was pleaded by the assessee that it should be given an opportunity to prove that the credits on the basis of hundis in favour of third parties which had been surrendered during the course of the assessment proceedings, were in fact credits of genuine parties and it was only for the sake of avoiding botheration that the firm had surrendered those, credits and agreed to be assessed on the basis of those credits to be taken as the income of the firm from undisclosed sources. The IAC refused to give an opportunity to the assessee-firm to prove their assertion and imposed a penalty of Rs. 18,291, in respect of the assessment year 1959-60 and a penalty of Rs. 22,729 for the assessment year 1960-61. The matter ultimately came up before the High Court of Punjab and Haryana. Applying the principles enunciated in Anwar Ali's case : [1970]76ITR696(SC) , the High Court cancelled the penalty with the following observations (p. 297):

'It is to be borne in mind that the penalty proceedings are distinct from the assessment proceedings and are in the nature of quasi-criminal proceedings. The onus was on the department to positively prove and produce for that purpose, certain other material besides the factum of surrender that the amounts in dispute were the undisclosed income of the assessee. We agree with Mr. Sharma, learned counsel for the assessee, that the mere fact of surrender could not necessarily be an admission of the assessee that the amounts surrendered were its undisclosed income. The surrender by the assessee could have been for more than one reason in spite of the fact that it was not his income and that fact alone could not be the basis for imposing penalty as has been done in the present case.'

21. In CIT v. Narang & Co. : [1975]98ITR462(Delhi) certain cash payments aggregating to Rs. 20,000 were found in the books of the assessee. The assessee explained that the amounts aggregating to Rs. 20,000 had been given to the respective parties in the sundry advances account which on being received back in the previous year was credited in the account. This explanation was not considered proper and the assessee voluntarily agreed that these amounts may be taxed as its income. These amounts were accordingly added to the income of the assessee and on the basis of this addition a penalty of Rs. 12,000 was imposed on him under the Explanation to Sub-section (1) of Section 271. Explaining the scope of the Explanation, the Delhi High Court made the following observations (p. 466):

'It would, thus, be observed that Section 271(1) is not only penal or quasi-criminal in nature, but departs from the normal well-established rule which would throw the burden of proof on the revenue to establish that the assessee had consciously concealed the particulars of his income or deliberately furnished inaccurate particulars in respect thereof. The onus of proof, on the other hand, has been placed on the assessee, who is required to prove the negative, that is, the absence of fraud or gross or wilful neglect on his part. The assessee is to be afforded an opportunity to furnish this proof. He would, in these peculiar circumstances, be taken to have discharged the onus, if he, in the absence of any proof to the contrary, can raise probabilities in his favour or point out circumstances which can create doubts, the benefit of which can be given to him.'

22. The High Court cancelled the penalty. It may be stated that, in the present case, the Explanation to Section 271(1) has not been invoked by the IAC in levying the penalty.

23. In D. Halappa Sons v. CIT : [1974]95ITR542(KAR) , the assessee had returned an income of Rs. 30,965, but the ITO did not accept this return and adding some more amounts determined the total income at Rs. 59,273, Thereafter, penalty proceedings were initiated against the assessee under Section 271(1)(c) of the Act by the IAC to whom the penalty proceedings had been referred. The assessee while denying that he had concealed any income, however, made the following statement before the IAC (p. 544) :

''I concede to the minimum penalty.''

24. Acting on this concession made by the assessee, the IAC passed an order imposing a penalty of Rs. 2,800. The assessee, however, preferred an appeal before the Tribunal and contended that he had not admitted concealment of income and the levy of the penalty was not justified merely because the assessee had agreed to the levy of the penalty. The Tribunal rejected this contention with the following observations (p. 545):

''Having conceded in writing before the Inspecting Assistant Commissioner that a levy of penalty was called for, and having invited the levy of the minimum penalty, it is not open to the assessee to urge before us that the levy of penalty was not justified.''

25. The assessee then took the matter before the Mysore High Court in reference. The High Court noticed that the IAC who made the order of penalty had merely referred to the discussion in the order of the ITO and he had not adduced any additional grounds for coming to the conclusion that penalty was called for. Applying the principles laid down by the Supreme Court in CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) , the High Court cancelled the penalty with the following observations (p. 546):

'In the instant case none of the authorities have stated that the assessee had consciously concealed the particulars of its income...... As alreadystated, the Tribunal has entirely rested its decision on the alleged concession made by the assessee's authorised representative. No penalty can be imposed merely on the concession of an assessee or his representative unless the facts justify or warrant the levy of penalty.'

26. In CIT v. C. V. C. Mining Co. : [1976]102ITR830(AP) , the assessee had returned a net income of Rs. 9,249 from the mining section. The ITO had information about transactions, either internal or external which had not been disclosed by the assessee. The assessee after discussion with the ITO agreed to the assessment on a total income of Rs. 60,000 from mica. The ITO appears to have conducted some subsequent inquiries and thought that even the assessment on the basis of Rs. 60,000 could not be correct. 'He, therefore, ultimately completed the assessment on an income of Rs. 1 lakh. But on appeal the AAC reduced the total income of Rs. 60,000. The ITO also initiated penalty proceedings under Section 28(1)(c) of the Indian I.T. Act, 1922, and levied a penalty of Rs. 14,000. The penalty was, however, cancelled by the Tribunal following Anwar Ali's case : [1970]76ITR696(SC) . The matter was taken before the Andhra Pradesh High Court by the revenue, and it was contended on behalf of the revenue that the asses-see had agreed to the assessment on the total income of Rs. 60,000 despite his return of a much lower amount and that this was sufficient for levy of the penalty. The High Court did not accept this contention and upheld the order of the Tribunal cancelling the penalty. The High Court then referred to the decisions of some of the High Courts in which the levy of penalty had been held to be justified and distinguished them. Referring to the decision of the Delhi High Court in Durga Timber Works v. CIT : [1971]79ITR63(Delhi) , the Andhra Pradesh High Court observed as follows (p. 833):

'It is clearly a case where the assessee admitted that two amounts could be treated as its concealed income it was on this clear admission of concealment the Delhi High Court held that there was no further burden on the department to adduce evidence to establish deliberate concealment.'

27. Referring to the decision of the Punjab High Court in Mahavir Metal Works v. CIT , the High Court observed : 'That was a case in which the assessee had filed a revised return in the course of assessment proceedings and owned the amount in question as his income. It was also established that he had earlier filed a return concealing the said income by deliberately furnishing inadequate particulars of that income. That admission was proved by the department. In such a situation, the Punjab High Court held that the burden would shift to the assessee to establish that the admission made by him was wrongly or illegally made or was incorrect.' (p. 833).

28. Lastly, referring to the decision of the Allahabad High Court in CIT v. Sir Shadi Lal Sugar & General Mills Ltd. : [1972]86ITR776(All) , the High Court observed as follows (p. 833):

'There also there was an admission by the assessee that there were false claims of payment to contractors and that those items represented its income. These are clear cases of admission of concealment by the assessees and they do not help the revenue in this case because there is no such admission here. As we have pointed out, the only circumstance that is pressed against the assessee is that it had admitted for a higher assessment than its returned income. It is not, therefore, possible to say that the burden placed on the revenue in penalty proceedings to establish deliberate concealment has been completely discharged.'

29. The position of law that emerges from the authorities cited above may be briefly stated thus:

(1) penalty proceedings are penal in character and the burden of proving that the assessee concealed his income lies on the revenue;

(2) the mere fact that the assessee did not show a particular amount in his return as income but such amount was treated as his income in the assessment proceedings is not sufficient for levy of penalty ;

(3) the mere fact that the assessee could not prove the genuineness of cash credits or the source of any deposits or investments made by him and surrendered the said amount for being assessed as his income is not sufficient for levy of penalty ;

(4) even a false explanation given by the assessee with regard to any particular cash credit, deposit or investment is not sufficient for levy of penalty;

(5) even if the assessee agrees to the levy of penalty without admitting that he has concealed his income it is not sufficient for levy of penalty ;

(6) the revenue has to prove by cogent evidence in the penalty proceedings not only that a particular amount on the basis of which the penalty is proposed to be levied was the revenue income of the assessee, but also that he had deliberately concealed the said income ; and

(7) in penalty proceedings the facts found in the assessment proceedings may constitute evidence but such evidence is not conclusive.

30. I shall now proceed to examine the facts in the present case in the light of the legal position stated above. These facts have already been stated, but it would be necessary at this stage to restate some of them. In the return of income filed by the assessee he had not shown the income from M/s. New Bharat Transporters. While the assessment proceedings were still pending, he approached the CIT, making certain proposals. One of such proposals was that the business in the name of M/s. New Bharat Transporters will be treated as a branch of the Fairdeal Motors. The CIT wrote to the assessee a letter dated March 13, 1968, stating that he was prepared to agree with the above proposals if the assessee accepted certain conditions, one of them being that a minimum penalty of 20% would be imposed under Section 271(1)(c) of the Act on M/s. Fairdeal Motors in respect of the income of M/s. New Bharat Transporters which was now agreed to be a branch of the firm for the years 1963-64 to 1967-68. In his letter dated March 14, 1968, the assessee while accepting the conditions proposed by the CIT stated as follows :

'As regards the conditions imposed in para. 2 of your letter aforesaid I accept them provided you will kindly appreciate that my acceptance of these proposals and conditions is actuated by considerations other than purely legal nor it ever be construed by our acceptance that I ever attempted to conceal any income or to introduce any benamidar in my business.

But the main consideration has been that I wanted to buy peace of mind even at some cost and sacrifice on my part in view of the political vendetta which has been carried on in the past with regard to my affairs......'

31. The assessee had thus only agreed that the business in the name of M/s. New Bharat Transporters may be treated as a branch of the Fairdeal Motors. In other words the assessee had agreed to the inclusion of the income from the business carried on in the name of M/s. New Bharat Transporters as the income of the assessee. But at the same time the assessee has explained why he was agreeing to such addition to his income. He has stated that he was so agreeing only in order to buy peace of mind ; he has neither admitted that the income from M/s. New Bharat Transporters was his real income nor has he admitted that he had deliberately concealed such income. He no doubt agreed to the levy of penalty in respect of the income from New Bharat Transporters but this was again with a view to 'buy peace of mind ' and not because he had concealed any income.

32. The income from M/s. New Bharat Transporters was included in the income of the assessee in the assessment proceedings only on the basis of consent given by the assessee in his letter dated March 14, 1968. There was no other evidence on the basis of which this addition was made by the ITO. In the penalty proceedings also the only material before the IAC was the same letter of the assessee. The same was the position before the Tribunal. In my view by writing the letter dated March 14, 1968, the assessee had merely expressed his inability to prove that Messrs. New Bharat Transporters were not a branch of M/s. Fairdeal Motors, and that the assessee had merely surrendered the income from this business for assessment as his own income. He had categorically denied that he had concealed this income from M/s. New Bharat Transporters, but had agreed to the addition of this income in the assessment as well as for levy of penalty on such income only to purchase peace. The said letter of the assessee being the only material before the IAC it was not sufficient for the levy of penalty on the assessee for concealment of such income. In my view, the revenue failed to discharge the burden cast on it to prove for the purpose of levying penalty either that the income from M/s. New Bharat Transporters was the assessee's revenue' income or that the assessee had deliberately concealed such income. The levy of penalty was not justified on the material before the IAC. The first question formulated by the Tribunal is, therefore, answered in the negative, i.e., in favour of the assessee and against the revenue.

33. I shall now proceed to consider the answer to the second question referred to by the Tribunal. I am very much aware of the fact that a similar question had been referred to this court in respect of the earlier assessment years and this court had expressed its opinion on this question to the effect that the letter of the CIT dated March 13, 1968, amounted to an order under Section 271(4A) of the Act. While it would be my duty to attach the greatest importance to the reasons given by this court in support of its finding in respect of the earlier assessment years, it is still my duty to apply my own mind to this question and to give my own finding on it. It is well established that for the purpose of assessment each assessment year has to be treated independently and the findings in respect of one assessment year do not automatically apply to another assessment year. The principle of res judicata does not apply to income-tax proceedings. Section 271(4A) of the Act reads as follows :

'Notwithstanding anything contained in Clause (i) or Clause (iii) of Sub-section (1), the Commissioner may, in his discretion-

(i) reduce or waive the amount of minimum penalty imposable on a person under Clause (i) of Sub-section (1) for failure, without reasonable cause, to furnish the return of total income which such person was required to furnish under Sub-section (1) of Section 139, or

(ii) reduce or waive the amount of minimum penalty imposable on a person under Clause (iii) of Sub-section (1), if he is satisfied that such person-

(a) in the case referred to in Clause (i) of this sub-section has, prior to the issue of notice to him under Sub-section (2) of Section 139, voluntarily and in good faith, made full disclosure of his income; and in the case referred to in Clause (ii) of this sub-section has, prior to the detection by the Income-tax Officer, of the concealment of particulars of income in respect of which the penalty is imposable, or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars;

(b) has co-operated in any, enquiry relating to the assessment of such income; and

(c) has either paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year ;

Provided that-

(i) if in a case the minimum penalty imposable under Clause (i) of Sub-section (1) for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate of the minimum penalty imposable under the said clause for those years, exceeds a sum of fifty thousand rupees, or

(ii) if in a case falling under Clause (c) of Sub-section (1), the amount of income in respect of which penalty is imposable for the relevant assessment year, or, where such disclosure relates to more than one assessment year, the aggregate amount of such income for those years, exceeds a sum of five hundred thousand rupees,no order reducing or waiving the penalty shall be made by the Commissioner unless the previous approval of the Board has been obtained.' Section 271(4A) which has been reproduced above has to be read along with Sub-section (4B) which is in the following terms : 'An order under Sub-section (4A) shall be final and shall not be called in question before any court of law or any other authority.'

34. No decision had been brought to our notice either by the learned counsel for the assessee or for the revenue in which Sub-section (4A) was considered or in which any tests have been laid down for constituting an order under Sub-section (4A). I have, therefore, to decide this question from the language of Sub-sections (4A) and (4B). The language of these sub-sections, in my view, clearly contemplates an order being passed by the CIT. The order contemplated under Sub-section (4A) is not an order levying a penalty which is imposable under Section 271(1) of the Act, because the power to levy such a penalty is vested only in the ITO or in the AAC or in the IAC under Section 274(2) of the Act. The power given to the CIT under Sub-section (4A) is only to reduce or waive the amount of minimum penalty imposable under Section 271(1). Further, the power given to the Commissioner under Sub-section (4A) may be exercised only subject to the conditions laid down in that section. The proviso to Sub-section (4A) places certain restrictions on the power of the Commissioner to pass an order under Sub-section (4A). Finally, Sub-section (4B) gives a finality to an order passed by the Commissioner under Sub-section (4A).

35. In the present case, apart from the letter of the Commissioner dated March 13, 1968, there was no order passed by him after the receipt of the letter of the assessee dated March 14, 1968. In his letter dated March 13, 1968, the Commissioner has merely stated that he is prepared to agree to certain proposals made by the assessee subject to the assessee accepting the conditions specified by the Commissioner in his letter. The assessee has no doubt accepted these conditions but such acceptance, in my view, does not impress the letter of the Commissioner dated March 13, 1968, with the character of an order passed under Sub-section (4A). The acceptance by the assessee of the conditions specified by the Commissioner does not bind the latter to accept the proposals made by the assessee. It is still open to the Commissioner to reconsider the proposals of the assessee and decide whether he should pass an order under Sub-section (4A) of Section 271 either reducing or waiving the penalty imposable on the assessee under Section 271(1). It is no doubt true that neither the Act nor the I.T. Rules prescribe any particular form in which an order under Section 271(4A) has to be passed. The order may be passed even by writing a letter to the assessee that in view of the assessee accepting the conditions prescribed by him, he was either reducing or waiving the penalty imposable under Section 271(1) of the Act. There is no such letter of the Commissioner in this case.

36. If the Commissioner had really passed an order under Section 271(4A) of the Act either reducing or waiving the penalty then there was no need for an order to be passed by the IAC levying penalty on the assessee. On the other hand, by virtue of Section 271(4B), the order of the Commissioner would be binding on the IAC. Sub-sections (4A) and (4B) do not envisage the passing of a fresh order either by the ITO or the IAC levying penalty on the assessee. As a matter of fact the IAC has not treated the letter of the Commissioner dated March 13, 1968, as an order under Sub-section (4A) of Section 271 of the Act. He has merely referred to this letter as well as the letter of the assessee dated March 14, 1968, for arriving at his own independent conclusion that the assessee had concealed his income. Similarly, the Tribunal also has expressed the view that the letter of the Commissioner dated March 13, 1968, did not amount to an order under Section 271(4A) of the Act. I am in agreement with this view of the Tribunal.

37. Another circumstance which supports this view is that the penalty levied by the IAC was not in accordance with the letter of the Commissioner dated March 13, 1968. Whereas the Commissioner in the said letter proposed to levy a penalty only in respect of the income of M/s. New Bharat Transporters, the IAC had imposed a penalty at 20% of the tax sought to be evaded. This court in its judgment in the reference relating to the earlier assessment years has held that the penalty levied by the IAC was not in accordance with the letter of the Commissioner and I am in respectful agreement with this finding.

38. The fact, therefore, that the IAC passed an independent order levying penalty which was imposable strictly in accordance with Section 271(1)(c)(iii) of the Act and not in terms of the letter of the Commissioner supports the view that the letter of the Commissioner did not amount to an order of the Commissioner under Section 271(4A). I, therefore, answer question No. 2, referred to by the Tribunal, in the negative.

39. In view of my answer to question No. 2, it is not necessary to give any answer to question No. 3, referred to by the Tribunal. But if the answer to question No. 2 has to be given in the affirmative, i.e., if it is to be held that the letter of the CIT dated March 13, 1968, read along with the letter of the assessee dated March 14, 1968, amounted to an order under Section 271(4A) of the Act, then it has to be held that the penalty had to be calculated with reference to the tax attributable to only such income included in the total income of the assessee as arose from the business carried on by Messrs. New Bharat Transporters and that it cannot be calculated with reference to the difference between the tax on the total income as finally assessed and the tax on the income shown in the assessee's return, as has been done by the IAC. This is the view expressed by thiscourt in the earlier references and I am in respectful agreement with the said view.

40. In the result, questions Nos. 1 to 3 are answered in the manner stated above. There shall be no order as to costs.

Mufti B. Farooqi, J.

41. The facts of this case have been stated at length by my Lord, Hon'ble the Chief Justice, and need not be restated by me. Suffice it to say here that the Tribunal has referred the following three questions to this court under Section 256(1) of the Income-tax Act (hereinafter called 'the Act'):

'(1) Whether, on the facts and in the circumstances of the present case, the assessee has concealed its income and penalty under Section 271(1)(c) is leviable on it ?

(2) Whether, on the facts and in the circumstances of the present case, the letter of the Commissioner of Income-tax (Central), New Delhi, dated March 13, 1968, addressed to the assessee amounts to an order under Section 271(4A) of the Income-tax Act, 1961 ?

(3) If the answer to the above questions be in the affirmative, whether penalty had to be calculated with regard to the tax attributable to only such income included in the total income of the assessee as arose from his business carried on by M/s. New Bharat Transporters '

42. The learned Chief Justice has answered the first question in the negative holding that on the available material it was not proved that the income from New Bharat Transporters was the income of the assessee-firm or that the assessee-firm had deliberately concealed such income and, so, no penalty could be justifiably imposed on it under Section 271(1)(c) of the Act. His Lordship has answered the second question too in the negative in the view expressed by him that the letter dated March 13, 1968, does not amount to an order of the Commissioner under Section 271(4A). As regards the third question, his Lordship has held that, in view of his answer to the second question, this question does not arise. While I have great respect and regard for the views expressed by his Lordship, I regret, I cannot concur with the same. The reasons may be found in the lines that follow.

43. The present reference relates to the assessment for the year 1966-67. The letter of the Commissioner dated March 13, 1968, covers the assessment years 1963-64 to 1967-68, and not only the assessment year 1966-67. Earlier, in the course of assessment for the assessment years 1964-65 and 1965-66, a dispute arose between the revenue and the assessee-firm as regards the scope and the legal quality of the aforesaid letter, in consequence whereof the same two questions, as are now questions Nos. 2 and 3, were referred by the Tribunal for the opinion of this court. To be more accurate, the questions referred then were stated thus :

'(1) Whether, on the facts and circumstances of the case, the letter of the Commissioner of Income-tax dated March 13, 1968, amounts to an order under Section 271(4A) ?

(2) If answer to the above question is in the affirmative, whether the Commissioner had reduced or waived the penalty below the minimum provided for under the statute and restricted it to 20% of the tax attributable to the income from New Bharat Transporters ?'

44. That reference was heard by a Division Bench of this court consisting of myself and the then Hon'ble Chief Justice, Shri S.M.F. Ali. By our judgment dated October 4, 1974, in Fairdeal Motors v. CIT we held that the letter dated March 13, 1968, amounted to an order under Section 271(4A) and replied the first question in the affirmative. On the second question we held that the penalty would be restricted only to 20% of the tax attributable to the income of New Bharat Transporters and replied the question accordingly. The question is whether the decision will operate as res judicata and the court is bound to answer the questions in the same manner as was done by it in that decision.

45. It is true that the general principle of res judicata does not apply totax matters but that is so in the sense that the decision on assessment inone year is no bar against such decision in the following year, even if the facts be the same, and it is open to the ITO to reinvestigate the facts and even come to different conclusions if he finds that the conclusions arrived at in the earlier year were arbitrary or perverse. Where, however, the assessment is dependent upon a fundamental question of law say, for example, the construction or legal quality of a document, which is not peculiar to the year of assessment, and such question has been finally decided at the highest level of the High Court, expressly or by necessary implication, it cannot be reasonably held that the decision will only govern the assessment for the year in question and not for the subsequent years. Any other view would mean that the parties will be at liberty to project new views and ideas every time the point crops up between them in the assessment proceedings. If this is permitted, the litigation between them can hardly see the end and, moreover, their rights in the matter would remain involved in an endless confusion. This is what the law does not countenance. For the principle of law is that there should be an end to litigation and that no man should be vexed twice over for the same cause. In my opinion, therefore, the decision on a fundamental question of law, which is not peculiar to the year of assessment, will operate as res judicata in the subsequent years. Even if it were assumed that it is not so, the decision will still operate as a binding judicial precedent not only on the parties to it but also on the court itself unless it is overset by a Bench of higher strength of that court or by the Supreme Court.

46. In this connection, I may refer to the judgment of the Supreme Court in Amalgamated Coalfields Ltd. v. Janapada Sabha, Chhindwara : AIR1964SC1013 . In that case, the question for determination was stated thus :

'Where the liability of an assessee for a particular year is considered and decided, does the decision for that particular year operate as res judicata in respect of the liability for the subsequent year ?'

47. In dealing with this question, their Lordships noticed various English decisions and observed (p. 1019):

'In considering this question, it may be necessary to distinguish between decision on questions of law which directly and substantially arise in any dispute about the liability for a particular year, and questions of law which arise incidentally or in a collateral manner, as Lord Radcliffe himself has observed in the case of The Society of Medical Officers of Health [1960] AC 551, that the effect of legal decisions establishing the law would be a different matter. If, for instance, the validity of a taxing statute is impeached by an assessee who is called upon to pay a tax for a particular year and the matter is taken to the High Court or brought before this court and it is held that the taxing statute is valid, it may not be easy to hold that the decision on this basic and material issue would not operate as res judicata against the assessee for a subsequent year. That, however, is a matter on which it is unnecessary for us to pronounce a definite opinion in the present case. In this connection, it would be relevant to add that even if a direct decision of this court on a point of law does not operate as res judicata in a dispute for a subsequent year, such a decision would, under Article 141, have a binding effect not only on the parties to it, but also on all courts in India as a precedent in which the law is declared by this court. The question about the applicability of res judicata to such a decision would thus be a matter of merely academic significance.'

48. Reference may also be invited to the judgment of the Allahabad High Court in Kamlapat Motilal v. CIT : [1950]18ITR812(All) . The Allahabad High Court was dealing with the question of res judicata as applicable to a decision of the High Court and what the learned Chief Justice held may be stated in his own words thus (p. 820):

'All that can, therefore, be said is that if in the course of the assessment for one year a general question of right or title has been decided, this decision will not only govern the assessment for the year in question but in subsequent years. Even if the question has not been expressly decided but the decision is by implication, either because the point was not raised or was conceded, the same result will follow.'

49. Thus, there is ample authority to support the principle stated by me above. Applying that principle to the facts of the present case there is reallynot much difficulty in deciding questions Nos. 2 and 3. I have already stated that questions Nos. 2 and 3 are the same as the two questions which were referred to this court previously. Those questions have been already decided by the court in express terms by its judgment dated October 4, 1974--See . That judgment has since become final. As such, questions Nos. 2 and 3 must be answered in the same manner as was done in that judgment. In that view, my answer to question No. 2 would be in the affirmative and I would hold that the letter dated March 13, 1968, of the Commissioner amounts to an order under Section 271(4A) of the Act, and, as regards question No. 3, I would say that the penalty is to be calculated with reference to the tax attributable to only such income included in the total income of the assessee as arose from the business carried on by him in the name of M/s. New Bharat Transporters.

50. Then remains question No. 1. In dealing with this question it may be stated that, at the hearing of the earlier reference, a contention was raised on behalf of the assessee-firm that no penalty could be imposed on it unless there was a clear finding that it was guilty of wilful non-disclosure or of any negligent act in deliberately concealing its income. This court refused to go into this point on the ground that the assessee-firm had neither raised it before the IAC nor in the appeal filed by it before the Tribunal and that ultimately, even when it asked the Tribunal to make a reference on this point and the Tribunal refused to do so, it did not pursue the matter by moving this court under Section 256(2) of the Act. Therefore, in the earlier reference, the court was not called upon to consider if the plea was at all available to the assessee-firm when the letter dated March 13, 1968, of the Commissioner amounted to an order under Section 271(4A). But this is precisely the point arising in the present reference.

51. Section 271(4A) reads thus :

'Notwithstanding anything contained in Clause (i) or Clause (iii) of Sub-section (1), the Commissioner may, in his discretion-

(ii) reduce or waive the amount of minimum penalty imposable on a person under Clause (iii) of Sub-section (1), if he is satisfied that such person-

(a) in the case referred to in Clause (i) of this sub-section has, prior to the issue of notice to him under Sub-section (2) of Section 139, voluntarily and in good faith, made full disclosure of his income ; and in the case referred to in Clause (ii) of this sub-section has, prior to the, detection by the Income-tax Officer, of the concealment of particulars of income in respect of which the penalty is imposable, or of the inaccuracy of particulars furnished in respect of such income, voluntarily and in good faith, made full and true disclosure of such particulars ;

(b) has co-operated in any enquiry relating to the assessment of such income; and

(c) has either paid or made satisfactory arrangements for payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year :

Provided that-

no order reducing or waiving the penalty shall be made by the Commissioner unless the previous approval of the Board has been obtained.' Clearly, the power of the Commissioner to make an order under this sub-section is dependent, inter alia, on the fact that penalty is imposable on a person under Clause (i) or Clause (iii) of Sub-section (1). This is a jurisdictional fact which, like any other fact, must be found by the Commissioner on the material placed before him, before he can make an order under this sub-section reducing or waiving the penalty. In dealing with this matter, it will not be necessary that the penalty should have been imposed on the assessee, because there is a clear distinction between the words 'reduce or waive the amount of minimum penalty imposable on a person' used in this sub-section and the words 'reduce or waive the amount of minimum penalty imposed on a person'. As was held by this court in Fairdeal Motors v. CIT , the words 'reduce or waive the amount of minimum penalty imposable' clearly connote the penalty which is liable to be imposed on the assessee and not the penalty which has been imposed oh the assessee. Therefore, the fact that the penalty has been imposed may be a factor to be taken into consideration by the Commissioner but it will not bind him. He must come to his own independent conclusion in the matter. In case he finds that the penalty is imposable he will be entitled to make an order reducing or waiving the penalty, of course, if the case also satisfies other requirements of this sub-section. Conversely, if the Commissioner has made an order under this sub-section,he must be deemed to have found that the penalty is imposable. By virtue of Sub-section (4B), every such order made by the Commissioner is final and cannot be called in question before any court or other authority. Accordingly, on the point that penalty is imposable, the order must be held to be final and conclusive between the parties and even binding on the High Court in any matter referred to it by the Tribunal. As such, if the letter dated March 13, 1968, of the Commissioner amounts to an order under Sub-section (4A), as held by me on the basis of the earlier judgment of this court, it is not open to the assessee-firm to contend nor even to this court to find that no penalty is imposable on the assessee-firm under Section 271(1)(c). That being so, it will not be necessary to go into the question about the principles governing the imposition of penalty and their applicability or otherwise to the present case. The discussion of that matter would be purely of academic value in this case. In this background my answer to the first question would be that the matter covered by it stands finally and conclusively decided against the assessee-firm by the order of the Commissioner under Sub-section (4A), as his letter dated March 13, 1968, amounts to.

52. The reference is disposed of accordingly. There will be no order as to costs.

[On difference of opinion between Mr. Justice M. R. A. ANSARI C.J. and Mr. Justice MUFTI B. FAROOQI J.]

Jalal-Ud-Din, J.

53. This reference was originally heard by a Division Bench of this court consisting of the Hon'ble Chief Justice (Shri M. R. A. Ansari) and Mr. Justice Mufti Baha-ud-Din Farooqi. In view of the difference of opinion between them, the case has been referred to me.

54. The facts of the case have been set out in detail by the leading judgment of the Hon'ble Chief Justice. Briefly speaking, the facts of the case are as follows:

M/s. Fairdeal Motors (hereinafter to be referred to as 'the assessee') is a registered firm conducting its business in the sale of trucks, scooters and motor spare parts. The assessee filed its return for the assessment year 1966-67 (accounting year ending 31st of December, 1965). It declared its income of Rs. 94,623. No income derived from the business of the transport of products of M/s. Indian Oil Co. Ltd., which was carried on in the name of M/s. New Bharat Transporters, was shown in the company's said returns as, according to the assessee, the said business was not a branch of M/s. Fairdeal Motors (the assessee). However, later on, the assessee agreed that the business carried on in the name of the New Bharat Transporters be treated as a branch of the said business concern of the assessee. This agreement by the assessee was conveyed to the CIT by letter dated March 14, 1968. Following this, the ITO included a sum of Rs. 62,536 representing the income from the business run in the name of M/s. New BharatTransporters in the income of assessee. Assessment was completed on a total income of Rs. 1,79,220. Penalty proceedings were initiated against the assessee under Section 271(1)(c) of the I.T. Act of 1961, as according to the ITO the assessee had concealed a portion of the income accruing from New Bharat Transporters. The IAC to whom the case was referred by the ITO heard the assessee. He was of the opinion that the assessee had concealed the income derived from M/s. New Bharat Transporters and levied a penalty of Rs. 12,632. On appeal before the Appellate Tribunal, Amritsar Bench, the order of the IAC was confirmed. The assessee, thereafter, moved the Tribunal for referring the case to the High Court under Section 256(1) of the I.T. Act. The Tribunal formulated the following three questions for the opinion of this court:

'(1) Whether, on the facts and in the circumstances of the case, the assessee had concealed its income and penalty under Section 271(1)(c) is leviable on it ?

(2) Whether, on the facts and in the circumstances of the case, the letter of the Commissioner of Income-tax (Central), New Delhi, dated March13, 1968, addressed to the assessee, amounts to an order under Section 271(4A) of the Income-tax Act, 1961 ?

55. The reference, as stated above, was heard by a Division Bench of this court. The Hon'ble Chief Justice has held that the finding of the Tribunal that the assessee had concealed its income from New Bharat Transporters was based on no evidence but upon the letter of the assessee dated March14, 1968, which was in reply to the letter of the CIT dated March 13, 1968. This letter did not constitute any evidence of concealment of income so as to be used against the assessee. The assessee had never admitted that he had deliberately concealed the income derived from M/s. New Bharat Transporters. In the opinion of the learned Chief Justice the levy of penalty was not, therefore, justified on the material before the IAC. The first question was, therefore, answered in the negative, i.e., in favour of the assessee and against the revenue.

56. Answer to question No. 2 was also given in the negative holding that the letter of the Commissioner dated March 13, 1968, did not amount to an order under Section 271(4A) of the I.T. Act.

57. On question No. 3 his Lordship opined that it was not necessary to record an answer to this question in view of the answer given on question No. 2. His Lordship, however, proceeded to observe that if answer to question No. 3 was necessary to be given then it has to be given and it is tobe held that the penalty had to be calculated with reference to the tax attributable to only such income included in the total income of the assessee as arose from the business carried on by M/s. New Bharat Transporters and that could not be calculated with reference to the difference between the tax on the total income as finally assessed and the tax on the income shown in the assessee's return.

58. Farooqi J. gave a dissenting judgment. According to the learned judge answers to questions Nos. 2 and 3 had already been given by a Division Bench of this court in an earlier income-tax reference between the same parties. According to the earlier judgment, the court had held that the letter of the CIT dated March 13, 1968, amounted to an order under Section 271(4A). The judgment given by the Division Bench on question No. 2, operated as res judicata and this question could not be reopened either by the department or by the assessee. According to the learned judge, these questions having been finally decided at the highest level either expressly or by necessary implication it could not be reasonably held that these decisions would govern the assessment for that year only and not the subsequent years. Answer to question No. 2 was, therefore, given in the affirmative. There was, however, no difference of opinion on the answer given to question No. 3 though in the words of the Hon'ble Chief Justice answer to this question was not necessary in view of the opinion expressed by his Lordship on question No. 2. Answer to question No. 1 was given by the learned judge against the assessee and in favour of the revenue.

59. The pivotal question that falls for determination is whether, on the facts and circumstances of the case, the assessee had concealed its income and, therefore, penalty under Section 271(1)(c) was justified. In my opinion the main controversy centres round this proposition of fact and law. In order to appreciate the factual and the legal position involved in the case it is pertinent to take notice of some more facts which preceded the order of assessment. The present reference relates to the assessment for the year 1966-67. The letter of the Commissioner dated March 13, 1968, covers the assessment for the years 1962-63 to 1967-68 which includes the assessment year 1966-67. When the assessment for the year 1964-65 and 1965-66 was made, a controversy did arise between the assessee and the revenue as regards the liability of the assessee to pay the penalty on the basis of the said letter. Following this, two questions were referred by the then Income-tax Appellate Tribunal for the opinion of this court which were as follows:

'(1) Whether, on the facts and circumstances, of the case, the letter of the Commissioner of Income-tax dated March 13, 1968, amounts to an order under Section 271(4A) ?

(2) If the answer to the above question is in the affirmative, whether the Commissioner had reduced or waived the penalty below the minimum provided for under the statute and restricted it to 20% of the tax attributable to the income from New Bharat Transporters?'

60. That reference was heard by a Division Bench of this court. The court by its judgment in unanimously held that the letter dated March 13, 1968, amounted to an order under Section 271(4A) and thus replied the first question referred to it in the affirmative.

61. As regards the second question, the court held that the penalty would be restricted only to 20% of the tax attributable to the income of New Bharat Transporters. It is important to mention here that question No. 1 now referred by the Tribunal relates to the fact of concealment of income and the justification of the revenue to impose penalty on the assessee because of this concealment of income. This question was not at all referred by the Tribunal in the earlier reference. Before the Division Bench which heard the earlier reference a contention was advanced on behalf of the assessee that he had not concealed the income derived from M/s. New Bharat Transporters and that no enquiry had been held by the revenue on that aspect of the matter. The assessee sought the consideration of this matter by the High Court. The High Court, however, declined to accede to the contention of the assessee to consider this question as in the opinion of the High Court this question had not been referred to it by the Tribunal for opinion. That indeed is not the position in the present reference. Herein a specific question of concealment of income which is the subject-matter of question No. 1 has been referred for opinion.

62. In my opinion, it cannot be said that the decision given by the High Court in the earlier reference would operate as res judicata on this point and that the assessee would be precluded from reopening this matter. In the first instance, the principle of res judicata may not strictly apply to assessment proceedings. The observations made in Amalgamated Coal Fields v. Janapada Sabha Chhindwara : AIR1964SC1013 , and relied upon by the learned counsel for the revenue, are relevant to a case, where the validity of a taxing statute 'has been called in question. Their Lordships of the Supreme Court observed that it may not be easy to hold that the decision on this basic and material issue would not operate as res judicata against the assessee for a subsequent year adding further that even if a direct decision of this court on a point of law does not operate as res judicata in a dispute for a subsequent year, such a decision would, under Article 141 of the Constitution, have a binding effect not only on the parties to it, but also on all courts in India as a precedent in which the law is declared by the Supreme Court. That indeed is not the position in the present case. In that view of the matter, the observation made in the Supreme Courtjudgment may not, therefore, strictly apply to the facts of the present case. In this connection, reference is also made to Jhaverbhai Patel v. CIT : [1976]103ITR728(Patna) , where a Division Bench of the Patna High Court holding that a decision raised in an earlier income-tax proceeding cannot operate as res judicata.

63. Secondly, even if it is assumed for the sake of argument that the general principle of res judicata applies to income-tax proceedings it must nevertheless be shown that the matter sought to be raised in the present reference was raised, heard and decided in the earlier reference. Unless a question or an issue is raised, heard and finally determined by a competent forum it cannot be said that the bar to raise such a question would operate. It is obvious that question No. 1 in the present reference was not at all formulated and referred by the Tribunal to the High Court for opinion, nor did the revenue raise this matter in the High Court, nor did the High Court permit this question to be raised, much less hear and decide the subject-matter of question No. 1. Therefore, in my opinion, the bar to pronounce upon the merits of this question cannot be legally countenanced.

64. Having expressed my opinion on the question of res judicata, I shall now proceed to discuss the merits of question No. 1. A bare perusal of the penalty order passed by the IAC would show that it is the letter of the assessee dated March 14, 1968, on which is founded the penalty order. There is no material apart from the letter of the assessee which the IAC took into consideration for holding that the assessee had concealed his income accruing from New Bharat Transporters. As the document, the letter dated March 14, 1968, is the corner stone of the case of the revenue, it is, therefore, pertinent to reproduce the said letter as also the letter of, the Commissioner. The letter of the CIT is as under :

'With reference to the representation made by you and your counsel before me and your letter dated 23rd December, 1967, to the Income-tax Officer, Central Circle VIII, Delhi, I write to place on record the proposals made by you before me, viz :

(a) The firm of Fairdeal Motors shall be allowed to be treated as a registered firm.

(b) Shri Gulam Qadir will be treated as the benamidar of Shri Bashir Ahmed and the latter's share will be taken to be 33% from 1962-63 onwards.

(c) Smt. Fatima Begum will be treated as the benamidar of Shrimati Shama Mir and the latter's share will be taken to be 33% from 1962-63 onwards.

(d) The business in the name of New Bharat will be treated as a branch of Fairdeal Motors.

2. I am prepared to agree to the above proposal if you accept the following conditions:

(i) A minimum penalty of 20% will be imposed under Section 271(1)(c) on M/s. Fairdeal Motors in respect of the income of New Bharat T.P.T.S., which is now agreed to be a branch of the former for the years 1963-64 to 1967-68.

(ii) A minimum penalty of 20% will be imposed under Section 271(1)(c) on Shri Bashir Ahmed in respect of the income of New Bharat T.P.T. which is now agreed to be the proprietary concern of Shri Bashir Ahmed for the years 1964-65 to 1967-68.

(iii) In arriving at the income of M/s. New Bharat T.P.T. the story of hiring of trucks from the minor children of Shri Bashir Ahmed and Smt. Shama Mir will not be accepted and the entire income including the alleged payment to the minors, will be treated as the income of M/s. Fair-deal Motors.

You are requested to furnish the written concurrence of Shri Bashir Ahmed, Smt. Shama Mir and M/s. Fairdeal Motors to the terms set out in this letter by the 16th instant and also to produce the books of Nav Bharat T.P.T. and New Bharat T.P.T. immediately before the Income-tax Officer.'

65. Letter dated March 14, 1968, runs as under :

'Inviting kind reference to your letter No. JD1(9)/CR/67-68 dated 13th March, 1968, I hereby signify my assent to the proposals stated therein. As regards the conditions imposed in para. 2 of your letter aforesaid I accept them provided you will kindly appreciate that my acceptance of these proposals and conditions is actuated by considerations other than purely legal nor it ever be construed by our acceptance that I ever attempt-ed to conceal any income or to introduce any benamidar in my business. But the main consideration has been that I wanted to buy peace of mind even at some cost and sacrifice on my part in view of the political vendetta which has been carried on in the past with regard to my affairs. I must, however, express my feeling in this context that you being at the helm of affairs in this matter have not been influenced by any political considerations.

Further, it should be clearly understood that the assessments that are made on the basis of the acceptance of these proposals as mutually agreed upon shall never be questioned again in my income-tax proceedings for any assessment year and the decision shall be irrevocable so far as the points covered in these proposals are concerned.

I again express my sense of deep gratitude to you for the nice treatment you have given to us through the proceedings. Thanking you.'

66. The important question that falls for consideration is whether the letter of the assessee could be construed to mean that the assessee had admitted the concealment of income derived from M/s. New Bharat Transporters. As is obvious, the assessee never admitted the concealmet of income but on the other hand it categorically took the position that the acceptance of the proposals and conditions by the assessee was actuated by considerations other than purely legal nor it ever be construed by its acceptance that the assessee ever attempted to conceal any income or to introduce any benamidar in the company. The main consideration by accepting the proposal was to buy peace of mind even at some cost and sacrifice in view of the political vendetta which was carried on in the past with regard to the assessee's affairs. This amply demonstrates that the assessee never accepted the fact of concealment of income derived from M/s. New Bharat Transporters. Therefore, without holding an independent enquiry in this behalf the finding of the revenue that the assessee had concealed its income was not justified and on the bare letter of the assessee such a finding was not warranted. The authorities have gone to the extent of holding that even if the assessee agrees to the levy of penalty without admitting that he concealed Ms income, it is not sufficient for levy of penalty. The revenue has to prove by independent evidence in the penalty proceedings that the assessee had deliberately concealed the said income. In D. Halappa Sons v. CIT : [1974]95ITR542(KAR) , the IAC made an order imposing the penalty on the assessee on concession made by the assessee. The matter was taken up in appeal before the Tribunal. The Tribunal dismissed the appeal observing that the assessee had conceded in writing before the Commissioner that a levy of penalty was called for and that he was prepared to pay the minimum penalty. It was not, therefore, open to the assessee to urge that the levy of penalty was not justified. On reference made to the Mysore High Court, the court answered the question in favour of the assessee and made the following observations :

'In the instant case none of the authorities have stated that the assessee had consciously concealed the particulars of its income...As already stated, the Tribunal has entirely rested its decision on the alleged concession made by the assessee's authorized representative. No penalty can be imposed merely on the concession of an assessee or his representative unless the facts justify of warrant the levy of penalty.'

67. Again, there is a catena of authorities for the proposition that the question of concealment of income must be fully investigated and the finding recorded on positive evidence before penalising the assessee.

68. For the foregoing reasons, I am of the view that the revenue had not established the question of concealment of income derived by the assessee from M/s. New Bharat Transporters and as the fact of concealment was not established, imposition of the penalty was not justified.

69. Answer given to question No. 1. in favour of the assessee against the revenue has clinched the whole matter. In that view of the matter, there is no necessity to give answers to questions Nos. 2 and 3. In the circumstances of the case, there will be no order as to costs.

Subject	Direct Taxation
Court	Jammu and Kashmir High Court
Decided On	Aug-20-1976
Case Number	Income-tax Reference No. 6 of 1975
Judge	M.R.A. Ansari, C.J.,; Mian Jalal-Ud-Din and; M.B. Farooqi, JJ.
Reported in	[1979]117ITR137(J& K)
Acts	Income Tax Act, 1961 - Sections 271(1), 271(1)(4A), 271(1)(4B) and 274(2)
Appellant	Fairdeal Motors
Respondent	Commissioner of Income-tax
Appellant Advocate	R.N. Kaul, Adv.
Respondent Advocate	J.N. Bhan, Adv.
Cases Referred	Amalgamated Coal Fields v. Janapada Sabha Chhindwara

Fairdeal Motors Vs. Commissioner of Income-tax - Court Judgment