SUDARSHAN SILKS AND SAREES vs. COMMISSIONER OF INCOME TAX, KARNATAKA

CIVIL APPEAL No. 5204/2002Supreme Court[2008] 6 S.C.R. 45611 April 2008Bench: 2 JudgesAuthor: ASHOK BHAN, DALVEER BHANDARI12 pages
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What were the facts?

The assessee, Sudarshan Silks and Sarees, is in appeal against the High Court's order concerning assessment years 1984-85 to 1987-88. Following a search on October 14-15, 1987, it was found that the assessee maintained double sets of books and accounted for only 50% of sales. A partner admitted this under Section 132(4). The assessee filed revised returns declaring higher income, which were accepted. Penal action under Section 271(1)(c) was initiated, and the Assessing Officer levied maximum penalty. The CIT(Appeals) set aside the penalty, finding no case made out. The Income Tax Appellate Tribunal upheld the CIT(Appeals)'s order. The Revenue filed a reference application, and the High Court, finding the Tribunal's findings perverse, held that penalty was exigible.

What did the Supreme Court hold?

The Supreme Court held that the High Court exceeded its jurisdiction. The Tribunal is the final court of fact. The High Court's jurisdiction in a reference application is to answer questions of law referred to it. The High Court can only go into the findings of fact recorded by the Tribunal if a question is referred to it challenging the perversity of those findings, meaning no reasonable person could have arrived at such a conclusion. In this case, the question referred to the High Court was whether the Tribunal was right in upholding the cancellation of penalty. The question of perversity of the Tribunal's findings on facts was neither raised nor referred to the High Court. Therefore, the High Court was precluded from discussing the perversity of the Tribunal's findings. Consequently, the orders under appeal were set aside, and the orders of the CIT(Appeals) and the Tribunal were restored. It was held that, in the facts and circumstances of the case, penalty under Section 271(1)(c) was not exigible.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the orders of the CIT(Appeals) cancelling the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961? (Question of law). Assessee's contention: The Tribunal is the final fact-finding authority. The High Court's jurisdiction in a reference application is limited to answering questions of law referred to it. The High Court exceeded its jurisdiction by finding the Tribunal's findings perverse, as no such question was raised or referred. The High Court should have accepted the Tribunal's findings of fact and decided the referred question of law. Authorities relied on: K. Ravindranathan Nair v. Commissioner of Income Tax, T. Ashok Pai v. Commissioner of Income Tax. Revenue's contention: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 256,Section 132(4)

AI-generated summary — verify with the full judgment below

(2008] 6 S.C.R 456 A SUDARSHAN SILKS AND SAREES v. COMMISSIONER OF INCOME TAX, KARNATAKA (Civil Appeal Nos. 5204-5207 of 2002) B APRIL 11, 2008 [ASHOK BHAN AND DALVEER BHANDARI, JJ.] Income Tax Act, 1961: s.256 - Reference juri iction - Scope of- Question as c to perversity of findings of facts recorded by Tribunal - Neither raised nor referred to High Court for its opinion - Held: Juri iction of High Court in reference application is to answer question of law that are referred to it - Since finding of fact recorded by Tribunal not challenged as being perverse, D question of law did not arise. s.271(1)(c) - Penalty - Levy of - For concealment of income- Held: In facts and circumstances of the case, penalty not leviable. E The Department's case was that the appellant was maintaining double set of books and was accounting for only 50% of sales in the regular set of books, thus was guilty of concealment of income. The assessee came forward with an offer of additional income and filed a F revised return. This was accepted and after verification, the assessment was completed. In the course of assessment proceedings, penal action under s.271(1)(c) of the I

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