The filing of revised returns after search and statement by accountant is not sufficient evidence of admission of concealment of income and the law prevailing at the time of filing of the original return, and not the law prevailing at the time of filing of the revised return, is to be applied in determining the penalty.

Headnote:
INCOME TAX - Concealment of income - Penalty - Filing of revised returns after search and statement by accountant - Whether sufficient evidence of admission of concealment - Whether law prevailing at the time of filing of revised return or original return to be applied.
Fact of the Case:

The assessee, a doctor, was found to have concealed income during the assessment years 1972-73 to 1975-76. After a search and a statement by his accountant, the assessee filed revised returns and offered the concealed income for taxation. The Assessing Officer levied penalty under section 271(l)(c) of the Income-tax Act, but the Commissioner and the Tribunal set aside the penalty.
Finding of the Court:

The court held that the assessee had concealed his income and that the filing of the revised returns was not a purely voluntary act unconnected with the search or the statement given by his accountant. The court further held that the law prevailing at the time of filing of the original return, and not the law prevailing at the time of filing of the revised return, was to be applied in determining the penalty.
Issues: 1. Whether the Tribunal was justified in cancelling the penalties levied under section 271(l)(c) of the Income-tax Act for the assessment years 1972-73 to 1975-76? 2. Whether the Tribunal was justified in holding that the revised returns filed by the assessee cannot be regarded as sufficient evidence of admission of concealment of income? 3. Whether the Tribunal was justified in holding that the materials seized and the statement given have to be disregarded in considering whether the penalties imposed were justifiable? 4. Whether the Tribunal was justified in holding that the penalty, if held to be leviable, would be only that calculated in accordance with the law as it stood on the date when the penalty was imposed? 5. Whether the decision of the Tribunal cancelling the penalties under section 271(l)(c) is unreasonable and unsustainable in law?
Ratio Decidendi: 1. The assessee had admitted to concealing his income and the filing of the revised returns was not a purely voluntary act unconnected with the search or the statement given by his accountant. 2. The law prevailing at the time of filing of the original return, and not the law prevailing at the time of filing of the revised return, was to be applied in determining the penalty.
Final Decision: The court answered all the questions in favor of the Revenue and against the assessee.

Judgment :-

R. JAYASIMHA BABU, J.

The assessee is a doctor, who runs a nursing home at Nagercoil. There was a search in his premises on February 23, 1977. His accountant gave a sworn statement that the doctor was not accounting for 50 to 70 per cent, of his receipts and that there was large scale concealment. Thereafter, the assessee gave a petition to the Commissioner on May 5, 1977, seeking settlement of his tax liability for the years 1972-73 to 1976-77. In that petition, he stated that in the light of the statement given by his accountant, Abu Backer, in the return of income to be filed by him for the assessment year 1977-78, he would take note of that statement, and that so far as the years 1972-73 to 1976-77 are concerned, the basis for computing his income for those years would be the accretion to his wealth, that wealth being in the form of the nursing home, which had been built during that period. The assessee stated that the accretion to his wealth in the years ended March 31, 1972, to March 31, 1975, was about Rs. 2,92,000 and that the income already assessed for that period was Rs. 1,00,679, the excess being Rs. 1,91,321. He requested that amount to be spread over and assessed in the assessment years 1972-73 to 1976-77 and, as far as 1977-78 is concerned, in the absence of accounts, the excess of investments over available funds amounting to Rs. 88,600 would be offered as his income assessable in that year. He also mentioned in that petition that there was no incriminating document found during the search for the earlier years. He concluded by stating that he should be saved from penalty and prosecution, as he had filed the settlement petition in a spirit of co-operation.

2. The Commissioner, by his order dated May 23, 1977, directed the assessee to file his returns of income under section 147(a) of the Income-tax Act for the years 1972-73 to 1974-75. He also added the amount, now offered to the income already assessed in respect of each of those years, for the years 1976-77 and 1977-78, for which returns, apparently, had not been filed at that time, the income offered was assessed. After giving that instruction, the Commissioner also directed that penalty proceedings under section 271(l)(c) of the Act be initiated against the assessee for the years 1972-73 to 1975-76.

3. The assessment proceedings were completed in the manner indicated by the Commissioner, and, thereafter, the penalty proceedings were initiated. The Assessing Officer levied penalty in a sum equal to the amount added to the income of the assessee for those years on the ground that, that amount of income had been concealed by the assessee, the assessee, having admitted that income only after search had taken place, and after his accountant had given a statement, which clearly showed that the assessee had been consistently suppressing his income and concealing the same by not truly recording all the receipts

4. The Commissioner, however, set aside the penalty so imposed. The Tribunal has sustained the order of the Commissioner. Being aggrieved by that order of the Tribunal, the Revenue is now before us seeking answers to the following questions:

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in cancelling the penalties levied under section 271(l)(c) of the Income-tax Act for the assessment years 1972-73 to 1975-76?

2. Whether having regard to the quantification of income on the basis of accretion to wealth computed on the basis of the seized material and other incriminating evidence, the Appellate Tribunal is justified in holding that revised returns filed by the assessee cannot be regarded as sufficient evidence of admission of concealment of income?

3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in holding that the materials seized and the statement given have to be disregarded in considering whether the penalties imposed were justifiable

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