Kerala High Court
K.P. Basi vs Commissioner Of Income-Tax on 5 September, 1991
Equivalent citations: [1992]196ITR795(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. At the instance of an assessee to income-tax, the Income-tax Appellate Tribunal (in short, "the Tribunal") has referred the following question of law for the decision of this court :
" In the light of the order/proceedings under Section 132(5) of the Income-tax Act, 1961, was the Appellate Tribunal justified in law in holding that the assessee concealed the particulars of his income or furnished inaccurate particulars of such income?"
2. The respondent is the Revenue. We are concerned with the assessment year 1975-76, for which, the accounting period ended on March 31, 1975. The assessee was carrying on the business of money-lending with effect from December, 1973. His residence-cum-business place was raided on December 17, 1974. The said disclosed an excess cash balance with the assessee in the sum of Rs. 63,853.54. A sum of Rs. 35,000 was seized by the Department. Proceedings were initiated against the assessee under section 132 of the Income-tax Act, 1961. The Income-tax Officer passed an order, under Section 132(5) of the Act, dated March 14, 1975. In the said proceedings, the assessee explained the source for the funds. He stated that his mother-in-law, Smt. Ammakunju, who expired on December 4, 1974, had entrusted a sum of Rs. 37,000 to his wife, Santha, and the seized amount of Rs. 35,000 formed part of the said Rs. 37,000. The Income-tax Officer held that the explanation for the source of funds was not satisfactory. He held that the sum of Rs. 63,853.54 represented the assessee's income from undisclosed sources. A sum of Rs. 35,917 was determined as tax payable on such undisclosed income. The sum of Rs. 53,000 seized on December 17, 1974, was retained towards tax liability. A sworn statement was taken by the Income-tax Officer in proceedings under section 132 of the Act on February 28, 1975. The petition filed by the assessee before the Central Board of Direct Taxes under section 132(11) of the Act on March 24, 1975, was dismissed. Subsequently, the assessee filed returns of income for the year 1975-76 on December 29, 1975 (December 15, 1975 ?), in which no part of this amount of Rs. 63,853.54 was shown. When questioned, the assessee explained before the Income-tax Officer that this sum of Rs. 63,853.54 was made up of contributions or loans from his mother-in-law and brothers-in-law (Dr. Natarajan and Narayanan). An affidavit signed and filed by all the children of Smt. Ammakunju, excepting the predeceased son and the mentally unsound daughter, supported the plea of the assessee to the effect that Rs. 37,000 of the said amount belonged to Ammakunju. The Income-tax Officer did not accept the plea of the assessee. In appeal, the Appellate Assistant Commissioner accepted that a sum of Rs. 15,000 from Dr. Natarajan, brother-in-law of the assessee, and a sum of Rs. 5,000 from Ammakunju (mother-in-law of the assessee) were properly explained, as belonging to them. In the further appeal before the Tribunal, the quantum fixed by the Appellate Assistant Commissioner was confirmed. The Tribunal referred to the earlier statement given by the assessee to the Income-tax Officer on December 17, 1974, and the later sworn statement dated February 28, 1975, as also the affidavits and statements filed by near relations and held that there are discrepancies and the quantum fixed by the Appellate Assistant Commissioner does not require interference. The Tribunal noticed a deposit made in the name of the mother-in-law, Ammakunju, in the sum of Rs. 15,000. It was held that the amount of Rs. 37,000 was not availed of as pleaded by the assessee. Regarding Narayanan, the Tribunal held that he was not in a position to lend a sum of Rs. 10,000. The appeal filed from the order of assessment was disposed of by the Tribunal, thus sustaining the additions to the extent of Rs. 45,656 out of the addition of Rs. 65,686 made by the Income-tax Officer in his order dated March 31, 1976. Proceedings were initiated against the assessee for levy of penalty under Section 271(1)(c) of the Act by the Inspecting Assistant Commissioner of Income-tax, Trivandrum. By order dated March 29, 1979, the Inspecting Assistant Commissioner held that the case attracted levy of penalty under Section 271(1)(c) of the Act read with the Explanation thereto and levied a sum of Rs. 50,000 as penalty. In the appeal filed by the assessee, the Tribunal, in I. T. A. No. 140/(Coch) of 1979, by order dated September 30, 1981, held that the explanation of the assessee regarding the source of funds is false. It was further held that though the Income-tax Officer was aware of the stand of the assessee even before the return was filed to the effect that the amounts came out of the funds belonging to Ammakunju (mother-in-law of the assessee) and others and the that non-inclusion of the amount in the return was consistent with the stand taken before the authorities, in proceedings under Section 132 of the Act and also the assessment proceedings, the non-declaration of the disputed income was based on a false explanation which amounts to fraud in terms of the Explanation to Section 271(1)(c) of the Act as it stood at the relevant time. In other words, the Tribunal held that the Income-tax Officer was aware even before the returns were filed by the assessee about the amounts unearthed during the raid and the non-inclusion of the said amount in the return was consistent with the stand taken by the assessee in proceedings under Section 132 and the assessment proceedings. Since the non-inclusion of the said income is due to a false explanation which amounts to fraud in terms of the Explanation to Section 271(1)(c) of the Act, penalty under Section 271(1)(c) of the Act read with the Explanation was justified. However, with regard to the amount of Rs. 10,000 said to be a loan from Narayanan, the Tribunal held that the explanation of the assessee was found to be only unacceptable but not found to be false. So a penalty on this amount under Section 271(1)(c) read with the Explanation was uncalled for and was deleted. The penalty was reduced to Rs. 37,000, the minimum leviable. It is thereafter at the instance of the assessee that the question of law formulated hereinabove has been referred by the Tribunal for the decision of this court.
3. We heard counsel. The following facts are not in dispute : The assessee's mother-in-law, one Ammakunju, lived with him till she died on December 4, 1974. There was a raid in the residence-cum-business place of the assessee on December 17, 1974. A statement was recorded from the assessee on that day. Subsequently also, a sworn statement was taken from the assessee by the Income-tax Officer, A-Ward, Quilon, on February 28, 1975. The Officer also passed an order under Section 132(5) of the Act on March 14, 1975. The petition filed before the Central Board of Direct Taxes under Section 132(11) of the Act on March 24, 1975, was futile. The assessee filed a return of his income for the assessment year 1975-76 on December 28, 1975. No part of the amount unearthed during the raid, determining the income from undisclosed sources in the sum of Rs. 65,656 under the Section 132(5) proceeding, was shown in the returns. The assessment was completed on March 31, 1976. In proceedings under Section 132(5) of the Income-tax Act, 1961, by order dated March 14, 1975, the Income-tax Officer held that the explanation offered by the assessee for the source of the funds is not satisfactory. On this basis, the sum of Rs. 65,656 was held to represent the assessee's income from undisclosed sources. Similarly, in the assessment proceedings, the source pointed out by the assessee for the funds was disbelieved and the income was added. Only in appeal, the Appellate Assistant Commissioner accepted the source to the extent of Rs. 20,000. This was affirmed in the quantum assessment appeal by the Tribunal. The main source for the funds was the amount obtained from the mother-in-law, Ammakunju, in the sum of Rs. 37,000. The source for Rs. 37,000, as obtained from Ammakunju, was not accepted. In the penalty proceedings, all these aspects were stressed and the Inspecting Assistant Commissioner levied the penalty by an order dated March 29, 1979, in the sum of Rs. 50,000. In the appeal, the Tribunal adverted to the proceedings under Section 132 of the Act, the assessment order, the order passed in appeal by the Appellate Assistant Commissioner, the order of the Tribunal affirming the order passed by the Appellate Assistant Commissioner in the quantum appeal, and the explanation offered by the assessee and the findings of the Inspecting Assistant Commissioner and the various statements recorded by the assessee on different dates, December 17, 1974, February 28, 1975, etc., and held thus : (1) the explanation that the mother-in-law, Ammakunju, gave a sum of Rs. 37,000 is false ; and (2) the non-declaration of the amount in the return though consistent with the earlier stand taken by the assessee is based on a false explanation which amounts to a fraud in terms of the Explanation to Section 271(1)(c) of the Act and so there is concealment of income.
4. The only question referred to this court seems to suggest that, in the light of the order passed in proceedings under Section 132(5) of the Act, the Tribunal erred in law in holding that the assessee concealed particulars of his income or furnished inaccurate particulars of his income. It is true that, in the order dated March 14, 1975, passed under Section 132(5) of the Income-tax Act, 1961, the Income-tax Officer held that the assessee has no satisfactory explanation for the source of the funds and so the sum of Rs. 65,656 represented the assessee's income from undisclosed sources. If the order stood thus, and thus far only, it may be a case where the addition made was due to non-acceptance of the explanation or the unsatisfactory nature of the explanation offered by the assessee for the source of the funds. But that is not the case here. In the penalty proceedings, after referring to the various earlier proceedings and the statements of the assessee at different stages, the Tribunal has entered a finding of fact that the explanation offered by the assessee for the sum of Rs. 37,000 as having received from the mother-in-law, Ammakunju, is false. If it is a case where amounts were unearthed during a raid, and in the proceedings under Section 132 of the Act due to the unsatisfactory explanation, the amounts were added as the assessee's income from undisclosed sources, the failure to return the said income in the returns filed by the assessee, consistent with the earlier stand before the authorities, cannot be considered to be concealment of the income, in the returns filed by the assessee as was held in an earlier Bench decision of this court in CIT v. Shri Pawan Kumar Dalmia [1987] 168 ITR 1. But, in this case, the Tribunal has positively found after analysing the various facts inclusive of the statements and the explanations given by the assessee that the explanation offered for the source of the funds is patently false. This is a pure finding of fact. This finding has not been assailed by framing an appropriate question for consideration. So long as that finding stands, it is obvious that the assessee offered a false explanation. It is conceded that the Explanation to Section 271(1)(c) applies to the facts of this case. It is further conceded that the income returned is less than 80 per cent. of the income determined in the assessment. The burden of proof was on the assessee to show that the failure to return the correct income did not arise from any fraud or wilful neglect on his part. If it is not so shown, the assessee will be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purpose of Section 271(1)(c) of the Act. In this case, the Tribunal has categorically found that the explanation offered by the assessee is false. The non-declaration is based on such false explanation. This amounts to a fraud in terms of the Explanation to Section 271(1)(c) of the Act. The finding that the explanation offered by the assessee is false and that it amounts to a fraud is a finding of fact. It is not the case of the assessee that the said finding is based on no material or is otherwise perverse or irrational. The said finding is not challenged by framing an appropriate question in this reference. So long as the said finding stands, the conclusion arrived at by the Tribunal is not open to any challenge. We should hasten to state that, really, the question of law referred to this court is rather academic and the answer that can be given is only hypothetical. If the order passed under Section 132(5) of the Act was alone the basis for the levy of penalty, the position may be different. In this case, the penalty was not solely based on the order passed under Section 132(5) of the Act. The Tribunal held that the assessee has concealed the particulars of his income or has furnished inaccurate particulars of his income. The Tribunal went further and de hors the findings contained in the order passed under Section 132(5) of the Act found on independent material available during the penalty proceedings that the explanation of the assessee for the source of funds is false. This is a vital aspect that should be borne in mind in evaluating as to how far the order of penalty passed by the Tribunal was justified on the facts of this case. We have no doubt that the Tribunal was justified in sustaining the penalty in the sum of Rs. 37,000 in the light of the independent material available and adverted to by it during the penalty proceedings. We, therefore, answer the question referred to this court by holding that the Tribunal was justified in holding that the assessee concealed the particulars of income or furnished inaccurate particulars of his income. The order passed under Section 132(5) of the Act was not the basis or foundation for sustaining the penalty in the sum of Rs. 37,000.
5. We answer the question in the affirmative, against the assessee and in favour of the Revenue.
6. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.