Kerala High Court
Commissioner Of Income-Tax vs Saraf Trading Corporation on 8 June, 1987
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. As directed by this court in O.P. No. 100 of 1979, the Income-tax Appellate Tribunal (Cochin Bench) has referred the following three questions of law for the decision of this court:
" 1. Whether, on the facts and in the circumstances of the case, and especially in view of the admission of escapement of income made by the assessee for the assessment year 1969-70, the findings of the Income-tax Appellate Tribunal that ' there is no basis for holding that the assessee had Rs. 33,000 as at the end of the accounting year ' and that ' we do not find any evidence that there was a cash balance of Rs. 33,000 and it could be taken as part of the unaccounted investment' are unwarranted, unreasonable, wrong and based on surmises ?
2. Whether, on the facts and in the circumstances of the case, and in view of the fact that the assessee itself had admitted a sum of Rs. 45,323.99 as escaped income before the Income-tax Officer for the assessment year 1969-70, the Income-tax Appellate Tribunal is right in law in cancelling the penalty under Section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1969-70 ?
3. Whether, on the facts and in the circumstances of the case, and in view of the confirmation of the orders of penalty under Section 271(1)(c) of the Income-tax Act, 1961, for the assessment years 1962-63 to 1967-68, the Income-tax Appellate Tribunal is justified in cancelling the penalty under Section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1969-70, giving the assessment year a separate treatment ? "
2. The Revenue is the applicant. The respondent herein is an assessee to income-tax. The assessment year involved is 1969-70. In this reference the controversy is regarding the penalty levied for the said year under Section 271(1)(c) of the Income-tax Act. The assessee (firm) filed a return on November 4, 1969, showing an income of Rs. 1,62,742. During the course of the assessment proceedings, inflations in the revenue account and omission in sales came to light. The assessee, by annexure G letter dated February 3, 1971, and annexure H letter dated September 10, 1971, admitted that there has been escapement of income for the assessment years 1962-63 to 1969-70. A sum of Rs. 4,84,348 was conceded as the concealed income for the above years. Accordingly, revised returns were filed. For the assessment year in question (1969-70), the revised income furnished was Rs. 2,35,637. On the basis of the revised return and after making an addition for sales tax refund claim for Rs. 89,679, the Income-tax Officer fixed the total income at Rs. 3,24,929. Penalty proceedings were initiated. The matter was referred to the Inspecting Assistant Commissioner. For the reasons stated in his order dated October 22, 1974 (annexure B), the Inspecting Assistant Commissioner of Income-tax held that the escaped income relating to the assessment year 1969-70 was Rs. 45,329 and levied a penalty of Rs. 45,400. The assessee filed appeals before the Income-tax Appellate Tribunal for the years 1962-63 to 1969-70. The appeals for the years 1962-63 to 1967-68, numbered as ITA Nos. 525 to 530 (Coch)/l973-74 and the appeal relating to the year 1969-70 numbered as ITA 395 (Coch)/1973-74 were disposed of by a common order dated January 30, 1976 (annexure C). The Appellate Tribunal found that penalty is exigible for the years 1962-63 to 1967-68 and upheld the penalty.
3. The penalty appeal for the year 1969-70 was considered separately in paragraphs 20 to 22, by the Appellate Tribunal, in annexure C. The Appellate Tribunal stated that the position for this year is slightly different. After stating the background of the case relating to the assessment year 1969-70, in paragraphs 2 and 3 of the appellate order, the Appellate Tribunal stated that the total investments made during the year 1969-70 is Rs. 1,11,191 and the said figure was arrived at by taking into consideration the closing balance of Rs. 33,000. The Tribunal observed that the Department accepted that the total amount available with the assessee was Rs. 79,500 and the investments made during the year amounted to Rs. 78,191. Excluding the cash balance of Rs. 33,000, there was really an excess of Rs. 1,309. (The Tribunal seems to have mistakenly said that the unexplained part of this year's investments will amount to Rs. 1,309). Holding that this crucial question was not dealt with by the Inspecting Assistant Com-missioner, the Appellate Tribunal proceeded to state as follows :
" We find that this point had not been dealt with by the Inspecting Assistant Commissioner. There is no basis for holding that the assessee had Rs. 33,000 at the end of the accounting year. We asked whether in the subsequent year this amount was brought in as cash balance brought forward with the concurrence of the Income-tax Officer. We are told that no such amount was brought forward and there was no concurrence of the Income-tax Officer on that point. In the earlier years wherein we have confirmed the penalties, the extent of the concealed income was immaterial for the quantification of penalty. Even if Re. 1 is found to have been concealed, the minimum penalty has to be imposed. But for 1969-70, each rupee alleged to be concealed has to be proved to be so. We do not find any evidence that there was a cash balance of Rs. 33,000 and it could be taken as part of the unaccounted investment. So this amount has to be deducted from the concealed income. That leaves Rs. 1,309 only.
21. Out of the amount of Rs. 78,191 which had been treated as an investment of this year, there was an investment in a firm, Bandra Tea Mart, (being) repayment of loan Rs. 20,000. The assessee stated that this was not an investment but merely repayment of what had been received earlier. The books of account have also been shown before us. The books show receipt from Bandra Tea Mart and certain drawings on subsequent dates by the partners. These drawings are said to have been utilised for repayment. It was argued that it should not be taken as concealed income. The departmental representative submitted that the drawings made by the partners which allegedly was used in the repayment to Bandra Tea Mart had already been considered in explaining certain other investments and it could not be available for this purpose. But in view of the entries, etc., we think that concealment of such an amount cannot be taken as proved. It is not necessary for us to say that the entire Rs. 20,000 is concealed income. After deducting the closing cash balance of Rs. 33,000, the asses-see is left only with Rs. 1,309 to explain. Considering this smallness of the amount and the relevant facts and circumstances of the case, we think that for 1969-70, no penalty should have been imposed. That order will be cancelled."
4. The questions of law, referred for the decision of this court, are to be answered in the light of the above findings.
5. It should be stated that none of the facts stated by the Appellate Tribunal (annexure C) are disputed by the Revenue. It is true that as per letters dated February 3, 1971, and September 10, 1971 (annexures G and H), the assessee conceded that some lapses and omissions have occurred and so " income " has escaped in the assessment years 1962-63 to 1969-70.
6. At the same time, it was categorically stated that the assessee could not readily identify, quantify or locate the specific area wherein such omissions have occurred. In view of the complexity of the case and the practical difficulty involved in locating the field or region in which the lapses and omissions could have occurred, the assessee suggested that the best way to arrive at the true and correct assessment of the quantum of escaped assessment would be to prepare a statement of wealth as at the end of each accounting period, which should take within its fold all the assets of the partners of the firm and their close relations. It is evident that the assessee suggested a package deal for the years 1962-63 to 1969-70 and the quantum of escaped income to be arrived at by the above method. It is only one of the methods to quantify the correct income. In such circumstances, it cannot admit of any doubt that the income offered can be added for the purpose of arriving at the assessable income for the periods in question. That has, admittedly, been done in the instant case.
7. But the crucial question that arises for consideration is whether, on the facts disclosed in the case, penalty is exigible on the said income offered for assessment. On the facts of the case, the Appellate Tribunal held that for the years 1962-63 to 1967-68, there is ample evidence to show that the assessee has concealed income. The levy of penalty for the said years was upheld. At the same time, in considering the totality of the facts and circumstances, the Appellate Tribunal came to the conclusion that the position is slightly different in the assessment year 1969-70. After adverting to the total investments, the cash balance available and the total amount available with the assessee, it came to the conclusion that the "concealment" of income for the year 1969-70 cannot be taken as proved and, on the facts of the case, no penalty is exigible. Prima facie, the finding of the Appellate Tribunal, after advertence to the peculiar facts and circumstances of the year 1969-70, and in holding that no penalty is exigible for this year, is a question of fact.
8. Mr. Menon, counsel for the Revenue, vehemently contended that the very fact that the assessee conceded that there is escapement of income for the year 1969-70 also, would be sufficient, without anything more, for the levy of penalty. It was urged that in the light of the admission, the Tribunal was in error in deleting the penalty levied. We should say that the proposition as stated by counsel for the Revenue is too wide. For the assessment year 1969-70, the assessment order was passed on March 22, 1972. The order levying the penalty was passed on October 22, 1974. It will be useful to quote Section 271(1)(c) and the Explanation thereto which is relevant for the purpose of adjudicating the contentions raised before us. (The law as it stood then):
"271. (1) If the Income-tax Officer or the Appellate Assistant Com missioner, in the course of any proceedings under this Act, is satisfied that any person--......
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income.......
Explanation.--Where the total income returned by any person is less than eighty per cent, of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under Section 143 or Section 144 or Section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the 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 concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this subsection. "
9. The import of the above section has been the subject-matter of innumerable decisions of courts. We do not propose to advert to all of them. We shall only state the gist of the law as laid down by courts. Penalty proceedings are penal in nature. The elementary principles of criminal law will apply. It is a quasi-criminal proceeding. There should be conscious concealment. The provisions should be construed strictly. Penalty proceedings are distinct and different from assessment proceedings. The findings in the assessment proceedings are not conclusive but are relevant. The entire materials available should be considered afresh by the authorities before imposing the penalty. Even after the addition of the Explanation to Section 271(1)(c), conscious concealment is necessary. The Explanation provides only a Rule of evidence raising a rebuttable presumption in certain circumstances. No substantive right is created or annulled thereby. The substantive law relating to levy of penalty is preserved. The initial burden of proof is cast on the assessee to displace the presumption arising in certain cases. The assessee can discharge the onus, either by direct evidence or circumstantial evidence, or both. The cumulative effect of all the facts should be taken into consideration. The assessee is entitled to show and establish by the material and relevant facts which may go to affect his liability or the quantum of penalty. As to whether there is concealment to make the penalty exigible is normally a question of fact. Whether the burden of proof in a given case has been discharged on a set of facts, is also a question of fact. To similar effect is the question, as to whether the presumption under the Explanation to Section 271(1)(c) has been rebutted, in a particular case, by evidence, is a question of fact.
10. Section 271(1)(c) of the Act as it stood then before the Taxation Laws Amendment Act of 1975 but after the insertion of the Explanation by the Finance Act of 1964 with effect from April 1, 1964, specified that in cases where the total income returned by any person is less than 80% of the total income as assessed, such person, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, will be deemed to have concealed the particulars of such income or furnished inaccurate particulars of such income. Proceeding on the basis that the income returned by the assessee is less than 80% of the total income as assessed, it should be stated that the assessee should initially prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. Unless it is so shown, the assessee shall be deemed to have concealed the particulars of the income or furnished inaccurate particulars of such income. It is only a presumption.
The burden is cast on the assessee to prove a negative fact. This can be discharged either by independent evidence led during the penalty proceed ings or by a closer scrutiny or appraisal of the existing facts and data avail able. This will take in even the materials available at the assessment stage.
The presumption under the Explanation to Section 27l(1)(c) can be displaced by the assessee proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect and the quantum of proof necessary would be that required in a civil case, namely, preponderance of probabilities--CIT v. Sankarsons & Co. [1972] 85 ITR 627 (Ker).
Bearing the above principles in mind, if we scan through the decision of the Appellate Tribunal in the instant case, it is evident that the Tribunal adverted to the total investments in the year 1969-70, the amount avail able with the assessee, which was accepted by the Department and the investments made during the year, as also the cash balance and on an analysis of the above factors, held that if at all, the assessee is left with only Rs. 1,309 to explain and considering the smallness of the amount and the relevant facts and circumstances, no penalty should be imposed in the instant case. On a fair reading of the appellate order of the Tribunal as a whole (annexure C), we are satisfied that the Appellate Tribunal, on a preponderance of probability, held on the facts, that the assessee has discharged the burden cast on him and has proved that the failure to return the correct income, did not arise from any act of omission or commission on his part, as envisaged by Section 271(1)(c) of the Act. We are of the view that since the various facts stated by the Tribunal in the appellate order are not disputed by the Revenue, advertence to the facts stated in the light of the discussions amply justify the conclusion of the Appellate Tribunal that no penalty is exigible in this case. In the light of our above conclusions, we answer the questions referred to us in the following manner;
11. We answer question No, 1 in the negative, in favour of the assessee and against the Revenue.
12. Question No. 2 is answered in the affirmative, against the Revenue and in favour of the assessee.
13. Question No. 3 is answered in the affirmative, against the Revenue and in favour of the assessee.
14. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Tribunal.