Judgment:
1. The Revenue, through Assistant Commissioner of Income-tax (ACIT), has filed this appeal challenging the order of the Appellate Commissioner (A/C) dated 22-3-1990 for the assessment year 1974-75 cancelling penalty of Rs. 28,934 imposed under section 271(1)(c) of the Act.
One Shri Nageshwar Prasad, who was a leading Advocate of patna died on 16-7-1977, filed a return on 30-10-1974 declaring an income of Rs. 1,27,325. As there were some mistakes in the original return a revised return was filed by him on 16-8-1976 disclosing taxable income of Rs. 1,53,991. The revised return contained bank interest and capital gain. During the pendency of the assessment proceedings the assessee i.e. Shri Nageshwar Prasad died on 16-7-1977 and his son and legal heir Shri Birendra Prasad come on record and responded to various notices of the A.O. The assessment was completed on Shri Birendra Prasad as legal heir of late Shri Nageshwar Prasad somewhere in the month of March 1984 (date is not mentioned in the copy of the assessment order forming part of the appeal record). The income was computed in a sum of Rs. 1,82,925. The assessment was the subject matter of appeal proceedings. However, we are not concerned with the additions in this appeal. After the completion of assessment the A.O. intended to impose penalty on the legal heir, Shri Birendra Prasad on the basis of penalty proceedings initiated under section 271(1)(c) of the Act. At the time of completion of the assessment the deceased assessee's son, Shri Birendra Prasad submitted a detailed reply to the A.O. through its advocate as per letter dated 5-3-1986 a copy of which is filed on the appeal record.
In this reply letter the L/H of the deceased assessee pleaded for dropping of the penalty proceedings as the concealment of income or furnishing of inaccurate particulars of income was not deliberately made by his deceased father, viz., the deceased assessee. According to the L/R of the deceased assessee the mistake in not showing the enhanced income in the original return was a bona fide mistake committed by the deceased and, therefore no penalty should be imposed upon him. The A.O. was not satisfied with the reply so given and imposed a penalty of Rs. 28,934 under section 271(1)(c) of the Act. The imposition of penalty was challenged by the L/R of the deceased assessee before the A/C who after hearing and considering the submissions gave a finding that the variation of income made by the deceased assessee cannot be attributed to any specific omission of concealment and he was, therefore, satisfied that it was not a fit case for imposing penalty under section 271(1)(c) of the Act and cancelled it. The A.O. is aggrieved. Hence the present appeal.
3. The DR relied upon the reasons given by the A.O. in imposing the penalty under section 271(1)(c) of the Act on the L/R of the deceased assessee. According to the DR the L/R of the assessee who represented the deceased assessee failed to convince that there has been no deliberateness on the part of the deceased assessee in returning the correct income originally. According to the DR the L/R of the deceased assessee also could not come out of the clutches of Explanation appended to section 271(1)(c) of the Act. In the absence of statutory Explanation giving out reasonable causes by the L/R of the deceased assessee the provisions of section 271(1)(c) got attracted and penalty, therefore, was rightly imposed under that provision by the A.O. The DR pleaded for reversal of the order of the A/C impugned in this appeal.
4. The assessee's counsel, while relying on the order of the A/C further submitted that the provisions of section 271(1)(c) cannot be invoked against the present assessee who is the son and one of the legal heirs of the deceased assessee, Shri Nageshwar Prasad. He also relied on the decision of the Calcutta Bench 'D' of this Tribunal in the case of Bhuban Mohan Mitter Charitable Trust v. ITO 45 ITD 617 wherein it has been held that the legal representatives of a deceased assessee cannot be penalised under section 271(1)(c) of the Act. The assessee's counsel strenuously pleaded for upholding the order of the A/C cancelling the imposition of penalty under section 271(1)(c) of the Act.
5. We are convinced with the reasoning of the A/C that the facts of the case do not warrant imposition of penalty under section 271(1)(c) on the present assessee who is the son and one of the L/R of the deceased assessee. The deceased assessee as it appears from the facts did not act deliberately or contumaciously in failing to file correct taxable income in the original return filed by him on 31-10-1974. If the deceased assessee had dishonest intention to evade tax he would not have suo moto filed revised return on 16-8-1976 declaring higher income. In addition to the reasons given by the A/C we are further of the view that the son of the deceased assessee was a representative assessee before the A.O. under section 159 of the Act cannot be penalised under section 271(1)(c) of the Act for the alleged offence of concealment of income or furnishing of inaccurate particulars of such income. Whatever causes the deceased assessee, Shri Nageshwar Prasad had he has taken it alongwith him to the heavenly abode and it is not lawfully proper or justified to expect and demand from the living persons, viz., the legal representatives as to why the deceased assessee committed the offence concealing the income or furnishing inaccurate particulars of such income. There might have been reasonable or sufficient causes with the deceased assessee which he carried alongwith him and the L/Rs cannot be called upon to explain the causes and prove to the satisfaction of the A.O. Had the deceased assessee been alive perhaps he alone could have been in a position to explain the reasons and causes and satisfy the A.O. about the commission of alleged offence and contravention of concealment of income or furnishing on an inaccurate particulars in relation to such income. It is also well known and settled proposition that penal provisions being quasi-criminal in nature die with the man. Similarly quasi-crime should also die with a man. The living persons, viz., legal representative cannot be penalised or made to suffer for the alleged violations, offences, contraventions or crimes or quasi crimes committed by a deceased person/assessee.
The Calcutta Bench 'D' of this Tribunal to which one of us (Shri Abdul Razack - JM) has been a party in the case of Bhuban Mohan Mitter Charitable Trust (supra) has taken a view that penal proceedings under the I.T. Act abate on the death of an assessee and, therefore, legal representative of a deceased person/assessee cannot be penalised for the offences and contraventions under the I.T. Act alleged to have been committed by the deceased person. For the elaborate reasons given in the said reported case, we hold that the L/R and son of the deceased assessee cannot be penalised and, therefore uphold the impugned order of the A/C.7. I have gone through very carefully the proposed order of my learned brother but, with respect, I am unable to agree with the same.
8. Late Shri Nageshwar Prasad filed a return of income on 31-10-1974 showing total income of Rs. 1,27,325. This return was revised by him on 16-8-1976 showing a total income of Rs. 1,53,991. Thereafter, late Shri Nageshwar Prasad died on 16-7-1977. Assessment was completed on legal heir Shri Birendra Prasad on 28-7-1977 on a total income of Rs. 2,05,675. Some relief was allowed by the C.I.T. (A) and it was set aside on certain points. Thereafter, final assessment was passed on legal heirs on 28-1-1984, computing total income at Rs. 1,82,925.
9. Thus, although the original return and revised return was filed by the deceased, the assessment order was passed against legal heirs and subsequent proceedings also took place against him. The penalty order was also passed against legal heir Shri Birendra Prasad when a penalty of Rs. 28,934 was imposed under section 271(1)(c) of the Act. The penalty was cancelled by the C.I.T. (A) on 22-3-1990.
10. My learned brother has held that legal heirs cannot be penalised for defaults of the deceased, relying on a decision of the Calcutta Bench of the Tribunal in Bhuban Mohan Mitter Charitable Trust's case (supra). In this decision, it has been observed that in criminal jurisprudence a crime dies with a man and the legal representative of the deceased offender or criminal cannot be penalised for the offences or crimes committed by the deceased. If this cardinal principle of criminal jurisprudence is also applied to the penalty proceedings under the Income-tax Act, which are quasi-criminal in nature, then the quasi-crimes also die alongwith the deceased and, therefore, it will be highly irrational, harsh and inequitable to penalise or punish the legal representative in respect of the quasi-crime committed by the deceased.
11. In this regard, I shall like to state that it is well settled that the Income-tax Act, 1961 is a self contained code exhaustive of the matter dealt with therein. If authority is required, reference may be made to the decision of the Supreme Court in Rabula Subbarao v. CIT 30 ITR 163, 173. It is, therefore, necessary to see the provisions of the Income-tax Act before applying general principles of law. These are contained in sec. 159 from the Income-tax Act, 1961 relating to legal representatives. Relevant extracts from sub-secs. (1) and (2) of sec.
159 are reproduced below for the sake of convenience : "159 (1) Where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased.
(2) For the purpose of making an assessment (including an assessment, reassessment or recomputation under section 147) of the income of the deceased and for purpose of levying any sum in the hands of the legal representative in accordance with the provisions of sub-section (1),- (a) any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased; (b) any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative; and 12. According to sub-section (1), the legal representative has been made liable to pay "any sum" which the deceased would have been liable to pay, if he had not died, in the like manner and to the same extent as the deceased. The expression "any sum" is wide enough to cover penalties also and is not limited to tax out of assessment alone.
Clause (b) of sub-section (2) makes it clear that any proceeding, which could have been taken against the deceased, if he had survived, may be taken against. The deceased, if he had survived, may be taken against the legal representative. The cumulative effect of these two provisions evidently makes the legal representative liable for penalty even in respect of default of the deceased. These special provisions of the Income-tax Act, 1961, in my opinion, will override general provisions of law, to the effect that a crime dies with the man.
13. In this context, it is significant that a departure has been made from the legal position obtaining under section 24(B) of the Indian Income-tax Act, 1922 in this regard under the old Act of 1922, the liability on the legal representative was confined to the tax payable only, the words "any tax" have been used. In the circumstances, the liability did not extend to penalty or any other sum. However, in the I.T. Act, 1961, the words "any tax" have been replaced by the words "any sum". The use of different words cannot be without any intention and effect must be given to their meaning. I hold that the words "any sum" are wide enough to include penalty under section 271(1)(c) also.
The above decision finds support from three well known commentaries of Income-tax Law. In Kanga & Palkhiwala's The law and Practice of Income Tax, the learned commentators have observed as below : "Penalty on legal representative - Section 24B of the 1922 Act imposed a liability on the legal representative only in respect of the tax payable by the deceased, and not penalty or any other sum.
Therefore penalty proceedings could not be started or continued against the legal representative for any default committed by the deceased. But now penalty proceedings for a default committed by the deceased can be started or continued against the legal representative under this section which applies not only in respect of tax but also any other sum, - Penalty fine or interest." 14. In Chaturvedi & Pithisaria's 'Income-tax Law', the learned Commentators have observed as below at page-3851 of Fourth Edition, Vol. 3 :- "Under section 271(1)(c) - Within the scheme of section 159, a penalty under section 271(1)(c) can be legally imposed on the legal representative of a deceased assessee if concealment of the income of the deceased is discovered in a return filed by the legal representative (Sukumar Mukherjee v. CIT [1958] 33 ITR 231 (Cal.) or by the deceased himself Kalawati Devi v. ITO." 15. In Sampath Iyengar's 'Law of Income-tax', revised by Justice S.Ranganathan, Judge, Supreme Court of India, former President, Income-tax Appellate Tribunal, the learned Commentators have observed as below at page-4549 of Vol. Four, Eighth Edition : "18 Penalty and prosecution - If any penalty had been imposed upon the deceased, the same is liable to be paid by the legal representative. The words 'any sum' have been substituted in section 159(1) in place of 'any tax' which occurred in old section 24B(1) so as to cover not only tax payable by the assessee but also any penalty or interest. In consequence of the provisions of section 159(2)(a), if penalty proceedings are pending against the deceased, the same could be continued against the legal representative. Next, the consequence of clause (b) of section 159(2), penalty proceedings can be started against the legal representative after the death of the deceased, if the deceased had committed any default rendering him liable to penalty." 16. In the footnote, a reference has been made to the decision in Kalawati Devi v. ITO. It is also stated that the position will be different if there is no statutory provision, as, for example, the Wealth-tax Act, 1957.
17. The above view finds support from the decision of the Allahabad High Court in the case of Kalawati Devi (supra).
18. The view also finds support indirectly from the decision of the Allahabad High Court in Rameshwar Prasad v. CWT 124 ITR 77. It was held therein that penalty proceeding commenced against the deceased cannot be continued after his death against his legal heir under the Wealth-tax Act. In that connection, the following observation was made at page 84 : "Section 159 of the I.T. Act, 1961, provides for continuance of proceedings, inter alia, for imposing penalty against the legal representatives. But this section has not been made applicable to proceedings under the W.T. Act." 19. I have held that penalty proceedings could be validly initiated against the legal heirs for default of the deceased. The merits of the case will now be discussed.
20. The income finally assessed as per assessment order dated 28-1-1984 was Rs. 1,82,925. The original return as the basis for concealment, it will be seen that since the return was filed on 31-10-1974, the law applicable during the period 1-4-1964 to 31-3-1976 will be applicable in respect of the penalties under section 273(1)(iii). According to Explanation I to sub-section (1) existing during that period, where the total income returned was less than 80% of the total income assessed, the assessee should, unless he proves that failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have been guilty of concealment or furnishing inaccurate particulars. The degree of proof necessary in this Explanation was that required in a civil suit, viz. preponderance of probability, as held by the Supreme Court in CIT v. Musaddilal Ram Bharosey 165 ITR 14. In this case, 80% of the assessed income is Rs. 1,46,340 whereas the income returned originally was Rs. 1,27,325, which is, therefore, less than 80% of the assessed income. The onus would, therefore, be on the assessee to show that his explanation was not applicable. What has been done to discharge the onus It is seen that the finally assessed income was accepted and no appeal was filed. The onus was, therefore, not discharged and penalty is imposable under Explanation I to section 271(1)(c) existing during that period.
21. It may be mentioned here that it is well settled as far as State of Bihar is concerned that the Explanation to section 271(1)(c) is only a rule of evidence and can be invoked at the appellate stage, even if it has not been invoked earlier. If authority is required, reference may be made to the decision in Warasat Hussain 171 ITR 405 (Pat.) at page 22. The Assessing Officer has taken the original return as the basis for penalty saying that assessment proceedings were started as far back as 2-8-1975 and, therefore, filing of revised return was not voluntary.
I agree with the same.
23. For the above reasons, the imposition of penalty of Rs. 28,934 is upheld and the departmental appeal is allowed.
REFERENCE FOR 3RD MEMBER CASE UNDER SECTION 255(4) OF THE I.T. ACT, 1961, IN THE ABOVE MATTER.As we differ in our views in the above case, we request the Hon'ble President to kindly refer the matter to the 3rd Member on the following Points : (1) Whether on the facts and circumstances of the case penalty under section 271(1)(c) of the Income-tax Act, 1961 can be validly levied in law on legal heirs of the deceased, when the return of income was filed by the deceased during his life time (2) If so, whether on the facts and circumstances of the case penalty under section 271(1)(c) of the Income-tax Act, 1961, levied on the legal heir of the deceased, should be upheld or cancelled on merit (1) Whether on the facts and in the circumstances of the case, the son and one of the legal representatives (L/R) of the deceased and who is deemed as an assessee as per Sec. 159 of the I.T. Act, 1961 can be penalised under section 271(1)(c) of the Act for the alleged offence by the deceased in concealing the true income chargeable to tax (2) Whether, on the facts and in the circumstances of the case, the son and one of the legal representatives of the deceased assessee is obliged in law to answer and explain to the satisfaction of the Assessing Officer that there were reasonable causes with his deceased father for committing the alleged act of concealing income for which he as L/R is charged (3) Whether the son and one of the L/Rs of the deceased assessee is obliged and burdened in law to rebut the presumption of concealment of income as prescribed and laid down in Explanation 1 to section 271(1)(c) of the I.T. Act, 1961 (4) When imposition of penalty under section 271(1)(c) of I.T. Act, 1961 is considered as quasi-criminal in nature, then whether the quasi-crime alleged to have been committed by the deceased assessee has died and ended with the death of deceased offender or whether it survives for penalising the L/R and son of the deceased offender (5) Whether with a view to maintaining judicial discipline and consistency of views of various Benches of this Tribunal, the decision rendered in the case of Bhuban Mohan Mitter Charitable Trust (supra) should be followed in allowing this assessee's appeal (6) Whether, in view of the decision of the coordinate Calcutta Bench 'B' of this Tribunal in the case of Bhuban Mohan Mitter Charitable Trust (supra) the matter should have been placed before the Hon'ble President of Income-tax Appellate Tribunal for constitution of a Special Bench as per the provisions of Section 255(3) of the Act for deciding the controversy involved 1. Since there was difference of opinion between the Members who decided this appeal, the points of difference were referred to me for appointment of a Third Member. However, I may point out that there was no uniformity even in identifying the points of difference between the Division Bench Members. According to the ld. Accountant Member, who is the Sr. Member, the following two points represent the point of difference : (1) Whether on the facts and circumstances of the case penalty under section 271(1)(c) of the Income-tax Act, 1961 can be validly levied in law on legal heirs of the deceased, when the return of income was filed by the deceased during his life time (2) If so, whether in the facts and circumstances of the case penalty under section 271(1)(c) of the Income-tax Act, 1961, levied on the legal heir of the deceased, should be upheld or cancelled on merit However, the ld. Judicial Member sets out a separate set of points which are as follows : (1) Whether on the facts and in the circumstances of the case, the son and one of the legal representatives (L/R) of the deceased and who is deemed as an assessee as per section 159 of the I.T. Act, 1961 can be penalised under section 271(1)(c) of the Act for the alleged offence by the deceased in concealing the true income chargeable to tax (2) Whether, on the facts and in the circumstances of the case, the son and one of the legal representatives of the deceased assessee is obliged in law to answer and explain to the satisfaction of the Assessing Officer that there were reasonable causes with his deceased father for committing the alleged act of concealing income for which he as L/R is charged (3) Whether the son and one of the L/Rs of the deceased assessee is obliged and burdened in law to rebut the presumption of concealment of income as prescribed and laid down in Explanation 1 to section 271(1)(c) of the I.T. Act, 1961 (4) When imposition of penalty under section 271(1)(c) of I.T. Act, 1961 is considered as quasi-criminal in nature, then whether the quasi-crime alleged to have been committed by the deceased assessee has died and ended with the death of the deceased offender or whether it survives for penalising the L/R and son of the deceased offender (5) Whether with a view to maintaining judicial discipline and consistency of view of various Benches of this Tribunal, the decision rendered in the case of Bhuban Mohan Mitter Charitable Trust (supra) should be followed in allowing this assessee's appeal (6) Whether, in view of the decision of the coordinated Calcutta Bench 'B' of this Tribunal in the case of Bhuban Mohan Mitter Charitable Trust (supra) the matter should have been placed before the Hon'ble President of Income-tax Appellate Tribunal for constitution of a Special Bench as per the provisions of section 255(3) of the Act for deciding the controversy involved These two sets of points of difference were put up before me for appointment of a Third Member as well as for identifying the point or points of difference. A reading of section 255(4) shows that while assigning the appeal to a Third Member the President, I.T.A.T., has to frame the point or points of difference which arose between the Division Bench Members. For the purpose of identifying the real point or points of difference. I went through the orders of the ld. Members and it appeared to me that the following points of difference exist between the Members :- (1) Whether in the facts and circumstances of the case, penalty under section 271(1)(c) of the I.T. Act, 1961, can be validly levied against the L/Rs of the deceased assessee when the return of income was filed by the deceased himself during his life time (2) If the answer to the above question is in the affirmative, whether in the facts and circumstances of the case, penalty under section 271(1)(c) of the I.T. Act, 1961, levied on the L/Rs of the deceased should be upheld or cancelled on merits I hold that almost all the points of difference listed by the ld.Judicial Member appear to be mere arguments and they were all adequately taken care of by the comprehensive points suggested by the ld. Judicial Member.
2. As far as tracing out the facts of the case is concerned, there is no difference between the ld. Members. Therefore, the facts of the case may be set out in a nutshell as follows :- Shri Nageshwar Prasad, who was a leading advocate at Patna was the assessee in this case in the status of an individual. For assessment year 1974-75 he filed his return of income on 30-10-1974 disclosing an income of Rs. 1,27,325. However, even before the original assessment was completed he filed a revised return voluntarily on 16-8-1976 were by he returned an income of Rs. 1,53,991. Shri Nageshwar Prasad died on 16-7-1977 and his son Shri Birendra Prasad came on record as his legal heir. The original assessment was completed on 28-7-1977 on a total income of Rs. 2,05,675. During the relevant accounting year the assessee has got income from house property, profession, other sources as well as agriculture. Under the head 'house property', the assessee had disclosed an income of Rs. 29,107. While completing the assessment, the Assessing Officer added a sum of Rs. 3,000. Under the head 'professional income' the gross income disclosed by the assessee was Rs. 1,21,453. From out of that he claimed expenses on estimate basis at Rs. 20,000 and, thus, he disclosed a net income of Rs. 1,01,453.
However, the A.O. while completing the assessment made an addition of Rs. 25,000 to his gross receipts and thus estimated the gross receipts from the profession at Rs. 1,46,453. Under the head 'other sources' the assessee disclosed bank interest of Rs. 19,572. The assessee furnished interest earned on fixed deposits as follows :(i) In the name of Sri Nageshar Prasad Rs. 13,200(ii) In the joint names of Sri Nageshwar Prasadand Smt. Meera Prasad Rs. 5,100(iii) In the joint names of Sri Nageshwar Prasadand Smt. Ahilya Rani Rs. 7,644 --------------- The assessee claimed 50% deduction of interest lying in joint accounts.
The A.O. while making the assessment disallowed the assessee's claim on the ground that although the deposits are in the joint names, the entire deposits belonged to late Sri Nageshwar Prasad himself. The other names have been put just for convenience which is the usual practice now a days to have joint accounts for the sake of avoiding complications at the time of withdrawal. It does not mean that half of the assets belong to other parties.
2.1 Against this original assessment, assessee went in appeal before the CIT(A) Patna. The ld.CIT(A) disposed of the appeal relating to assessment year 1974-75 alongwith the appeals relating to assessment years 1975-76 and 1976-77 by a common order dated 23-3-1979. As regards the house property addition of Rs. 3,000, the ld. CIT(A) deleted the same. As regards the estimated addition of Rs. 25,000 to the gross receipts in his profession, he reduced the addition by Rs. 10,000. When he came to the question of income from 'other sources' the L/Rs submitted before the ld. CIT(A) the orders of the A.O. showing that the interest income from joint F.D. accounts has already been taxed in the hands of the daughters-in-law of Sri Nageshwar Prasad. It was also further submitted that the joint F.Ds. were coming from Scrutiny of the income tax department for the last so many years and the same are being assessed half in the hands of Sri Nageshwar Prasad and the balance in the hands of his daughters-in-law. Appreciating these contentions, the ld. CIT(A) held the following :- "I feel that the Income-tax Officer has made cryptic addition without giving any reasons for doing so. In the face of past history of the case, I feel that in order to differ from the past history, the Income-tax Officer should try to muster some evidence in support of his view. He has not done such thing. I am, therefore, left with no alternative but to set-aside this point to the Income-tax Officer for reconsideration and for passing a speaking order after giving reasonable opportunity to the appellant of being heard and giving reasons in detail if he differs from the appellant's point of view." In order to implement the above directions, the A.O. reopened the assessment proceedings and refixed the case for hearing on the above item of income. However, since the assessee did not cooperate, the A.O.passed order under section 144 dated 2-2-1981. Subsequently, the L/Rs filed a petition under section 146 and got the ex parte order set aside by the order of the A.O. dated 20-4-1981. After the ex parte order was set aside again the assessment was taken up. While considering the question of bank deposits the A.O. merely stated the following : "Interest from fixed deposits is taken, at Rs. 22,944 as discussed in the original assessment order." This assessment order under section 143(3)/146 does not bear any visible date but there was an endorsement that it was received perhaps by the assessee on 20-3-1984. Under the said assessment order the total income assessed was Rs. 1,87,940. The words "initiate penalty proceedings under section 271(1)(c)" were found to have been written in the manuscript in this order of assessment at the end. Thus, it is clear that purporting to implement the CIT(A)'s order the A.O. did not care to implement his direction extracted above regarding bank interest, and thus, the ld. CIT(A)'s order was not followed either in letter or spirit.
3. In the first assessment order dated 28-7-1977 the A.O. initiated proceedings under section 271(1)(c) specifically as follows : "Proceedings under section 271(1)(c) is started for concealment of income from Fixed deposit." However, when I came to the order of the A.O. purporting to implement the CIT(A)'s order under the assessment framed under section 143(3)/146 as already stated the words "initiate penalty proceedings under section 271(1)(c)" are found written in manuscript. Further when I compared the noting with regard to initiation of penalty proceedings under section 271(1)(c) in the ultimate assessment order it is clear that no limitation is placed in the ultimate order to initiate proceedings with reference to other items of concealed income also apart from the bank interest.
4. Now in the above matrix of facts let me examine the difference between the orders of the ld. Accountant Member and the ld. Judicial Member. The ld. Judicial Member was of the view that since the penalty proceedings was quasi-criminal proceedings, penalty proceedings cannot be started against the L/Rs after the death of the deceased assessee.
He also held that the deceased did not act deliberately or consciously in failing to file correct taxable income in the original return on 31-10-1974. If the deceased-assessee had dishonest intention to avoid tax he would not have suo moto filed revised return on 16-8-1976 declaring higher income. Whatever causes the deceased assessee had in his mind for filing in his return with inaccurate particulars, were known personally only to the deceased himself and there is no scope for others to know about them and all those causes and reasons were ultimately carried away by him to his grave and it is not lawful or proper or justified to expect and demand from his L/Rs as to why the deceased committed the offence of concealing his income or furnishing inaccurate particulars of income. The deceased might have reasonable and sufficient causes with him but since he was no more his L/Rs cannot be called upon to explain the cause and prove them to the satisfaction of the A.O. Had the deceased assessee been alive, perhaps he could have been in a position to explain the reasons and causes and satisfy the A.O. Penal provisions being quasi-criminal in nature die with the man.
He very much relied upon the Calcutta 'D' Bench decision of the Tribunal in the case of Bhuban Mohan Mitter Charitable Trust (supra) (to which he himself was a party). In that case a view was taken that penal proceedings under the I.T. Act abate on the death of an assessee and, therefore, legal representative of a deceased assessee cannot be penalised for the offences and contraventions under the penal provisions of the I.T. Act, thus, the ld. Judicial Member decided the case on a point of law.
5. On the other hand, the ld. Accountant Member disputed the correctness of the legal proposition sought to be stressed by the ld.Judicial Member in his order. According to him the clear provisions of section 159(1) would permit penalty proceedings being taken against the L/Rs also since the L/Rs would also be liable to pay "any sum" which the deceased would have been liable to pay, if he had not died in the like manner and to the same extent as the deceased. If the deceased had not died then penalty proceedings under section 271(1)(c) can validly be taken against him and any penalty validly levied is liable to be paid by the deceased. Such a penalty payable by the deceased would be "a sum which the deceased would have been liable to pay". In the absence of the deceased, his L/Rs also would be liable to pay the penalty if it is found legally or justifiably payable by the deceased.
The ld. Accountant Member did not agree with the proposition that penal provisions under the I.T. Act being quasi-criminal in nature dies with the person and the L/Rs cannot be proceeded against in such quasi-criminal proceedings.
The ld. Accountant Member says that the I.T. Act provisions are self contained code and the provisions of the I.T. Act will override the general provisions of law to the effect that the crime dies with the man. The ld. Accountant Member extensively reported from the ld.authors Kanga & Palkhiwala, Chaturvedi & Pithisaria as well as Sampath Iyengar's law of Income tax revised by Justice S. Ranganathan, Judge, Hon'ble Supreme Court in order to high-light the fact that penal proceedings can be validly taken against the assessee though they are the legal heirs to the deceased assessee. Firstly the ld. Accountant Member states that the penalty proceedings can be validly initiated and that is the first difference of opinion between the two ld. Members of the Division Bench.
6. In the case of Raj Kumar v. ITO [1963] 47 ITR 510, the Allahabad High Court held the following as per the Headnote of the decision : "A penalty can be properly imposed under sub-section (1) of section 46 of the Income-tax Act, 1922, on a legal representative where the tax due under an assessment made on his deceased predecessor or under an assessment made against him under section 24B(2), is not paid, and the default is committed by the legal representative." The Calcutta High Court in Sukumar Mukherjee v. CIT[1958] 33 ITR 232 held as per the Headnote that imposition of penalty on the son was valid. Giving out the reasons for their decision the Hon'ble Calcutta High Court held the following as part of the same headnote at page 232 : The effect of the provisions of section 24B(2) of the Income-tax Act that the income of the deceased person may be assessed as if his legal representative were the assessee is to provide by necessary and unavoidable implication that the income is to be assessed as if it were the income of the legal representative.
There is nothing in section 24B(2) to exclude the power of the Income-tax Officer to impose a penalty on a legal representative.
The existence of the power to impose penal is to be ascertained not from sections which provide for the making of assessments, such as section 23(1) or section 23(3) or section 23(4) or section 24B(2), but from the terms of section 28 itself.
The effect of section 24B(2) is such that a penalty may be imposed under section 28 on the legal representative of an assessee for concealment of the income of the assessee in a return submitted by the legal representative." Thus, even under the old I.T. Act, 1922, the imposition of penalty on legal representative is permissible under law.
7. Now coming to the I.T. Act 1961. I have got the Allahabad High Court decision in Kalavati Devi's case (supra). Facts of that case appear to be very near to the facts of the present case. There also the deceased had furnished inaccurate particulars in his income-tax return for which ultimately penalty proceedings were started against the legal representative after the death of the deceased. The validity of such proceedings against the legal representative was questioned in writ proceedings before the Allahabad High Court. Upholding the validity of the proceedings the Hon'ble Allahabad High Court held the following as per the Headnote at page 64 of the reported decision : "Penalty under section 271(1)(c) could validly be imposed against the legal representative for furnishing of inaccurate particulars by the deceased. Section 159 clearly makes the legal representatives liable not only for the tax payable by the deceased assessee but also for all other sums which the deceased would have been liable to pay had he not died. This clearly makes the legal representatives of the deceased assessee liable for the penalty which would have been payable by the deceased assessee had he not died. Under section 159 of the Income-tax Act, 1961 penalty proceedings for a default committed by deceased can be started or continued against the legal representatives.
Held - Therefore, it is not possible to contend that penalty proceedings under section 271 of the Income-tax Act could not be taken against the legal representatives of the deceased assessee who had furnished inaccurate particulars in the return furnished by him - Yawarunnissa Begum v. WTO [1975] 100 ITR 645 (AP) distinguished." The Hon'ble High Court drew a distinction between the provisions of the Income-tax Act, 1961 and Wealth-tax Act, 1957. They seem to have held the opinion that the legal representative cannot be proceeded against in the penalty proceedings or penalty proceedings cannot be initiated against the legal representative only under the Wealth-tax Act.
Therefore, in view of the above decisions rendered by the High Courts, I prefer to follow the same than the decision of the Tribunal in the case of Bhuban Mohan Mitter Charitable Trust(supra). In view of my present finding, I hold in answer to point of difference No. (1) that penalty proceedings can be validly initiated in law on legal heirs when the return of income was filed by the deceased during his life time and when inaccurate particulars as to his income were furnished by the deceased in the said return.
8. Now let me take up the second point of difference, viz., whether in the facts and circumstances of this case, penalty under section 271(1)(c) is fit to be levied on the legal heirs of the deceased and whether the penalty should be upheld or cancelled on merits.
9. After perusing the orders of the ld. Members of the Division Bench and also after going through the whole record of the case and the relevant case law on the subject, I hold that this is not a fit case where penalty can be levied or sustained. Firstly, I have already noted from the assessment order dated 28-7-1977 which is the original assessment order that the initiation of proceedings under section 271(1)(c) was made only for a particular item of income, viz., interest income from fixed deposits. I have already extracted the exact portion of the ITO's order while initiating the penalty proceedings under section 271(1)(c) which is worth of repetition : "Proceedings under section 271(1)(c) is started for concealment of interest income from fixed deposits." I have also stated that the assessee returned only Rs. 19,572 under the head interest on fixed deposits. Admittedly, he was joint holder of fixed deposits along with his daughters-in-law. Smt. Meera Prasad and Smt. Ahilyarani. An amount of Rs. 5,100 was received under the fixed deposits held by the deceased along with his daughter-in-law Smt. Meera Prasad and an amount of Rs. 7,644 was received under the F.Ds. held by the deceased along with his another daughter-in-law Smt. Ahilyarani.
The deceased claimed 50% deduction for the accrued interest under joint accounts with his daughters-in-law. However, the ITO disallowed the assessee's claim holding that though the deposits are in joint names, the entire deposits belonged to late Sri Nageshwar Prasad himself. The other name has been put just for convenience which is the usual practice now a days for the sake of avoiding complications at the time of withdrawal. It does not mean that half of the F.Ds. belong to other parties. Thus, rejecting the contention of the assessee completely in this regard he included a sum of Rs. 22,944 towards interest on fixed deposits in the hands of the deceased assessee. Under the assessment order dated 28-7-1977. Against the said assessment order the L/Rs went in appeal before the CIT(A). Patna and the CIT(A), Patna set aside the order of the ITO for reconsideration and for passing a speaking order after giving reasonable opportunity to the L/Rs of being heard and giving reasons in detail if he differ from the L/Rs point of view.
However, this direction was violated and the same amount of Rs. 22,944 was again added without any discussion whatsoever without making mention to the objections raised by the L/Rs before the CIT(A) and without looking into the records which were produced before the CIT(A) that the joint holders already paid taxes on the half share of the interest income on F.D. amounts held by them jointly with their father-in-law. The order in the assessment made under section 143(3)/146 is as follows :- "Interest from fixed deposits is taken at Rs. 22,944 as discussed in the original assessment order." Therefore, the question would be whether this portion of the ITO's order is in clear contravention of the CIT(A)'s order or the order passed without complying with the specific directions given by the CIT(A) can be taken to be a legal order.
10. In Basudeo Prasad Agarwalla v. ITO [1989] 180 ITR 388, the Hon'ble Calcutta High Court was considering the duty of the ITO passing order in conformity with the directions given by the appellate authorities (in that case the ITAT) and held the following as per the Headnote of the decision :- "The words 'pass such orders as the Tribunal thinks fit' include all the powers (except possibly the power of enhancement) which are conferred on the Appellate Assistant Commissioner in disposing of an appeal. Consequently, the Tribunal has authority under this section to direct the Appellate Assistant Commissioner or the Income-tax Officer to hold a further enquiry and dispose of the case on the basis of such enquiry. If the order of remand is open and authorities concerned, after remand, can exercise the jurisdiction in accordance with law, the High Court cannot regulate such action.
But the Tribunal can give directions to the Income-tax Officer when passing an order of remand and if the scope of remand is limited, the authority concerned, cannot enlarge its scope and make an order beyond its scope. The authority concerned must proceed in accordance with the directions given in the order of remand." Therefore, since the ultimate order of assessment passed under section 143(3)/146, which does not bear any date, the interest income out of the fixed deposits made by the deceased assessee was found added as part of the income of the deceased without following scope of the remand order passed in its letter and spirit, the said order to my mind was not valid as per the decision of the Calcutta High Court mentioned above. If the item of income with reference to which penalty proceedings were started was itself not valid or illegal there is no question of any valid penalty capable of being sustained with regard to such addition either in the hands of the deceased-assessee or after his death in the hands of the legal representatives. Further, initiation of the penalty proceedings under section 271(1)(c) were not attacked as illegal in the appeal filed before the CIT(A) : therefore, there was no scope for the CIT(A) to alter the ITO's order about the initiation of penalty proceedings in his appellate order. In fact, the CIT(A) never modified the initiation of penalty proceedings against the L/Rs If that is so, what is the jurisdiction of the ITO, Cir. 2 Patna to pass again an order regarding initiation of penalty proceedings in a blanket form without confining it to only one item as was done by his predecessor. I have already highlighted the fact that the ITO while passing the assessment order under section 143(3)/146 inserted the following in the manuscript : Thus, in the original assessment order dated 28-7-1977 the penalty proceedings were initiated only with reference to one item i.e., for concealment of interest income from fixed deposits. In such a case whether his successor ITO can modify the initiation of penalty proceedings and extend its scope to consider the penalty not only with reference to the item of interest income but also with reference to other items viz., profession and capital gains also. In my humble opinion this is not permissible under law. In this connection the decision of the Calcutta High Court in the case of V.P. Samtani v.CIT[1982] 135 ITR 313 is relied upon. In that case penalty was imposed by the IAC on the ground of concealment of two items of income, namely unexplained items of hundi loans and certain amount which was said to be the wife's income, not correctly shown in the assessee's return. The Tribunal deleted additions of these two items. However, the Tribunal upheld the order of penalty on the basis of an amount in respect of which the assessee had given a false explanation as to the source. It was held that the Tribunal had no jurisdiction to uphold the imposition of penalty with reference to an amount which did not constitute the basis on which the penalty was imposed. The facts of the case before the Hon'ble Calcutta High Court were given in the following part of the Headnote of the decision at page 313 : "Where penalty was imposed by the IAC on the ground of concealment of two items of income, namely the sum of Rs. 1,25,000 representing hundi loans and an amount of Rs. 6,594 said to be the wife's income not correctly shown in the assessee's return, and both these items were deleted in the quantum appeal and the Tribunal upheld the order of penalty on the basis of an amount of Rs. 1,88,000 in respect of which the assessee had given a false explanation as to source : Held, that the order passed by the Tribunal was bad in law as being beyond the subject-matter of appeal. The Tribunal had no jurisdiction to uphold the imposition of penalty with reference to the amount of Rs. 1,88,800 and which did not constitute the basis on which the IAC passed his order. The order of penalty could not be sustained." In this connection Madhya Pradesh High Court in Khandwala [1982] 132 ITR 523 has taken a similar view wherein it was held that the Appellate Tribunal, in the absence of an appeal or cross objection by the revenue, cannot impose penalty in respect of an item in respect of which the assessee was absolved of liability by the IAC. In fact, the ITO had imposed the penalty under section 271(1)(c) in this case not on the basis of the interest income on fixed deposits but two other altogether different items, namely, profession and capital gains. This would be very clear from the following portion of the ITO's penalty order : "Under the two heads of income, viz., profession and capital gains finally assessed figure is clearly more than what was shown in the revised return." A reading of the ITO's penalty order shows that he had taken the difference between the finally assessed figure and the revised return.
The difference was found out to be Rs. 28,939 and the penalty of an equal amount was imposed under section 271(1)(c). Thus, it is clear that the ITO did not keep in mind one item with reference to which penalty proceedings were initiated, but he had taken several other items also which were ultimately considered while making the final assessment which itself is illegal. If I compare the difference in income from F.Ds between the original return and the revised return, one can find that the difference was only Rs. 66. When I compare the original return with the revised return the variation was found with reference to the following items and amounts :-(i) Capital gain Rs. 6,600(not shown in the original return)(ii) Professional income Rs. 20,000(iii) Bank interest on F.Ds.
Rs. 066 -------------- The ITO proceeded on the basis that the returned income is less than 80% of the finally assessed income. Finally assessed income excluding agricultural income which was exempt was Rs. 1,82,925. 80% of the same comes to Rs. 1,46,340 whereas revised return filed by the deceased assessee disclosed an income of Rs. 1,53,991. Therefore, it cannot be said that the returned income is less than 80% of the finally assessed income. Therefore, the onus to establish the concealment of particulars of income lies on the department but not on the assessee. The CIT(A)'s order against the original assessment was passed on 23-3-1979. Six months time expires on 23-9-1979. Whereas the penalty order was passed on 23-3-1986. Thus, penalty proceedings were barred under section 275 of the I.T. Act. Thus, I hold in answer to the second point of difference that the penalty levied cannot be upheld or it is worth to be cancelled on merits. For all the above reasons which have given in this order, I agree with the ultimate order given by the ld. Judicial Member, though for different reasons which I have set out above. I find that it is not a fit case where penalty can be levied.
11. Now the matter should go back to the Patna Bench of the Tribunal and the appeal should be disposed of according to the majority opinion under section 255(4) of the Act.