Commissioner of Income-tax Vs. T. Abdul Majeed. - Court Judgment

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head note: income tax reference--question of law--penalty under s. 271(1)(c)--concealment of income--assessee's explanation rejected--penalty set aside by tribunal--question of law arises from order of tribunal. held : in the proceedings under s. 271, the explanation of the respondent has a distinct significance. if he fails to substantiate the explanation, the amount added to his income is deemed to represent the income in respect of which particulars have been concealed. but, if, his explanation is bona fide, the consequence laid down in cl. (b) of expln. i, may not follow. in order to attract the consequence of penalty, the proviso to expln. i, cl. (b) needs to be considered. the application of the statutory provisions, is an additional factor which makes the question of concealment of particulars of income by the respondent, a question of law. income tax act 1961 s.256(2) income tax act 1961 s.271 - labour & services appointment: [v.k. bali, ch, p.r. raman & s. siri jagan, jj] post of pharmacist in homeopathy subordinate service - special rules for kerala homeopathy subordinate service rules, 1999 introducing new qualifications vacancy arising subsequent to coming into force of the said special rules held, vacancies have to be filled up only in accordance with special rules, 1999. unfilled vacancy that had arisen prior to amendment cannot be filled up by candidate not possessing amended qualifications prescribed by special rules. state government has the power to frame or amend the special rules with or without retrospective effect. mohanan k.r. & anr vs director of homeopathy, kerala homeopathy services, trivandrum & ors. - we thought it necessary to distinguish between the existence of a question and the existence of an answer because the respondent, relying upon the proviso to explanation 1 to sub-section (1) of section 271 of the act urged that his explanation that bona fide, his failure to substantiate his explanation about the discrepancy in the value of the stock does not attract penalty.g. h. guttal j. - in this petition by the commissioner of income-tax (hereinafter referred to as 'the petitioner'), the question which arises for consideration is whether any question of law arises out of the order of the income-tax appellate tribunal dated december 22, 1983, in income-tax appeal no. 321 (coch.) of 1982, made under section 254 of the income-tax act, 1961 (hereinafter referred to as 'the act'). the question arises out of the facts set out in paragraphs nos. 2 and 3 below. the assessee is hereinafter referred to as the respondent.in a search of the respondents premises made on january 12, 1977, the books of account including the stock register and inventories were seized by the petitioner. the respondent filed his income-tax return for the assessment year 1977-78 (accounting year ending on december 31, 1976) declaring an income of rs. 85,200. an examination of the books of account of the respondent revealed that the value of the closing stock for the assessment year in question was rs. 12,17,726. the respondent had declared the value of such stock to be rs. 10,36,385. the respondents explanation of this discrepancy was this :(i) there were duplication of entries in the stock register which caused the discrepancy.(ii) the damaged goods had not been accounted for and allowance made for them.(iii) the books of account were with the petitioner from january 12, 1977. the respondent made the statement about the value of his closing stock, on december 31, 1977, at a time when the books required for making an accurate statement of value of the stock were not with him but were with the petitioner.on march 14, 1980, the income-tax officer rejected the explanation of the respondent and assessed the income of the respondent by adding rs. 1,71,341 to the declared income. the total taxable income was held to be rs. 2,77.410. this assessment was upheld by the commissioner of income-tax (appeals). the income-tax appellate tribunal, exercising jurisdiction under section 254 of the act, upheld the addition of the sum of rs. 1,71,341 to the declared income.the income-tax officer commenced proceedings under section 271(1)(c) for levying penalty as he considered that the respondent had 'concealed the particulars of his income.' the income-tax officer, by his order dated october 31, 1981, in pn-7323/ekm (b), held that rs. 1,71,341 'could be treated as concealed income' and levied penalty of rs. 1,20,000. the commissioner of income-tax (appeals), by his order dated february 17, 1982, in appeal no. it-47-e/cit of 1981-82, allowed the appeal and set aside the penalty imposed on the respondent. he held that the reapondent had not concealed the particulars of his income. his reason were :(a) since the details of the respondents stock were known to the petitioner who possessed all the account books for the 11 months preceding the filing of the income-tax return, the element of secrecy which is the essence of concealment was absent from the transaction, and(b) since the petitioner knew the position of the stock and its value from the account books in his possession, the respondent cannot be said to have concealed the particulars of his income.the income-tax appellate tribunal, cochin bench, by its order dated december 22, 1983, in i. t. a. no. 321/(coch.) of 1982, confirmed the decision of the commissioner of income-tax (appeals) whereby the penalty was cancelled.whether a 'question' 'arises' and whether such question is answerable in favour of the respondent are two distinct matter. we wish to emphasise the distinction between the existence of a question and the answerability of such question in order to avoid loss of perspective of the matter. the existence of a question is one thing. the existence of an answer is quite another. we are dealing with the stage of proceedings where we are not called upon to answer a reference made under section 256 of the income-tax act. we are at a stage where the existence of a question of the kind referred to in section 256 of the act is being considered.in its literal meaning, 'question' means an interrogative sentence soliciting an answer. it may be a query or an inquiry. but it is in the essence of a 'question' that it presents a doubt and demands an answer. a question 'arises' when such an interrogatory enquiry springs into view, rises or appears. the petitioner urged that the respondent, by declaring stock of lesser value, has 'concealed' his income. the respondent offered the explanation set out in paragraph no. 2 above and urged that he did not. in considering whether a question of concealment of particulars of income arises, the truth or otherwise of the respondents explanation is not relevant. even there a question has been answered and was always answerable in favour of the respondent, the fact remains that the question does arise. we thought it necessary to distinguish between the existence of a question and the existence of an answer because the respondent, relying upon the proviso to explanation 1 to sub-section (1) of section 271 of the act urged that his explanation that bona fide, his failure to substantiate his explanation about the discrepancy in the value of the stock does not attract penalty. if the respondent, by reason of the bona fieds of his conduct, has, as he claims, a complete answer to the charge of concealment of income, the question may be answered in his favour. but the question does not cease to exit; indeed, the existence of an answer accentuates the presence of the question.the income-tax appellate tribunal made its order under section 254 of the act. the question whether the respondent 'has concealed the particulars of his income' was urged before the tribunal in the proceedings under section 271 of the act. the tribunal answered it in favour of the respondent. however, in view of the judgment of the supreme court in cit v. scindia steam navigation co. ltd. : [1961]42itr589(sc) , and having regard to the essentials of a question, we hold that a question about the concealment of the particulars of income by the respondent arises out of the order of the income-tax appellate tribunal made under section 254 of the act.the next question is : is it a question of low concealment of particulars of income is an inference which flows from certain evidence such as the statements annexed to the income-tax return field by the respondent and their scrutiny with reference to the accounts books. the discrepancy is admitted but is explained by the respondent. on a superficial view 'concealment of particulars of income ' appears to be a question of fact. the inference that the respondent concealed his income attracts the consequence of penalty the levy of which depends on the construction of the proviso to explanation 1 to sub-section (1) of section 271 on which the respondent has placed reliance. the circumstances which give rise to a question of law are varied and cannot be encapsulated in a single proposition. a finding of fact based on surmises or in violation of fundamental rules of justice as in dhakeswari cotton mills ltd. v. cit [1954] 26 itr 775 , or a finding of fact arrived at by misconstruction of a document as in cit v. sivakasi match exporting co. : [1964]53itr204(sc) , or a finding which depends upon the interpretation of statutory provision as in liquidators of pursa ltd v. cit : [1954]25itr265(sc) , illustrate how the apparently factual character of a question may, in reality, be a question of law. where, as in this case, the ultimate finding that the respondent has concealed particulars of his income is an inference to be drawn from the admitted discrepancy in the value of the closing stock, the explanation offered by the respondent and consideration of the true meaning of 'concealment' the essence of which is secrecy and deception, what we have is a mixed question of law and fact. and where there is a mixed question of law and fact, the inference from the facts found is a question of law : sree meenakshi mills ltd. v. cit : [1957]31itr28(sc) . concealment of particulars of income by an assessee attracts penalty stipulated by section 271 of the act. the finding of concealment of particulars of income is thus related to the consequence of penalty. in proceedings under section 271 of the act, the explanation of the respondent has a distinct significance. if he fails to substantiate the explanation, the amount added to his income, vis, rs. 1,71,341, is deemed to represent the income in respect of which particulars have been concealed (explanation 1, clause (b) of sub section (1) of section 271). but, if, as urged by the respondent, his explanation is bona fide, the consequence laid down in clause (b) of explanation 1, may not follow (proviso to explanation 1, sub-section (1) of section 271 of the act).therefore, the facts of the case before us raise a question beyond the fact of concealment. in order to attract the consequence of penalty, the proviso to explanation 1, clause (b), needs to be consideration. the application of the statutory provision is an additional factor which makes the question of concealment of particulars of income by the respondent, a question of law.learned counsel for the petitioner cited this courts judgments in cit v. p. t. antony and sons : [1985]151itr34(ker) , cit v. haji p. mohammed [1981] 132 itr 623 and the judgment of the orissa high court in cit v. laxmi auto stores : [1977]106itr626(orissa) . the judgments in these cases were in answer to references under section 256 of the act and the question whether a reference ought to have been made did not arise for consideration.for the reasons stated in the foregoing paragraphs, we hold that a question of law arises out of the order of the income-tax appellate tribunal made under section 254 of the act. we, therefore, direct the income-tax appellate tribunal, cochin bench, to state the case and refer the following question to the high court under section 256(2) of the act :'whether having regard to the facts and circumstances of this case and having regard to the provisions of section 271(1) of the act, the appellate tribunal was right in holding that the assessee cannot be said to have concealed any income or intended to furnish inaccurate particulars thereof, and that, therefore, penalty was not leviable under section 271(1)(c) ?'the petition is allowed. in the circumstances, we make no order as to costs.