Income Tax Appellate Tribunal - Delhi
Smt. Shanta Kumari vs Income-Tax Officer on 18 April, 1991
Equivalent citations: [1991]38ITD175(DELHI)
ORDER
M.A. Bakhshi, Judicial Member
1. These four appeals are directed against the consolidated order of AAC, Ambala and the issue involved is common. We accordingly find it convenient to dispose of these appeals by this consolidated order. The brief facts are as under.
2. Shri Jagdish Chander along with three other family members purchased 30 acres of agricultural land in consideration of Rs. 1,80,000 during the accounting period relevant to assessment year 1977-78. The said members were partners of two firms. An amount of Rs. 6,400 had been invested by these four members in the purchase of land and the rest of the amount was stated to have been met out of loans procured from agriculturists. The names of creditors along with complete addresses were furnished before the Assessing Officer. Affidavits from the agriculturists were also furnished. The creditors were produced before the Assessing Officer and the latter recorded their statements. The creditors reaffirmed having advanced loans to the four family members for the purchase of agricultural land. The amount of loan was stated to have been returned to the creditors subsequently. The Assessing Officer, considering the financial position of the creditors and other circumstances, treated only part of the amounts as genuine. The balance amount was treated as assessee's own income from undisclosed sources. The details of creditors, the amounts accepted as genuine and the amount treated as income from undisclosed sources in respect of four assessees is given hereunder:
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Name of the creditor Amount of loan Amount accepted Amount treated
Rs. as genuine as income
Rs. from undisclosed
sources
Rs.
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1. Smt. Shanta Kumari Ram Krishan Rajputa 5,000 5,000 Nil Randhir Singh 20,000 10,000 10,000 Mukhtiar Singh 20,000 7,000 13,000
-------
23,000
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2. Late Ramditta Ram Prithi Singh 25,000 11,000 14,000 Ramkishan Das 20,000 10,000 10,000
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24,000
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3. Jagdish Chander Own Saving 3,000 1,000 2,000 Index Singh 25,000 15,000 10,000 Jai Singh 20,000 8,000 12,000
-------
24,000
-------
4. Roshan Das Dalel Singh 20,000 10,000 10,000 Balwant Singh 25,000 14,000 11,00
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21,000
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3. Assessee appealed to the AAC, Ambala as against the relief claimed by the appellant, the first appellate authority issued notices for enhancement of income. After giving opportunities of being heard to the assessees, the entire amount of loans were treated as income from undisclosed sources. The incomes of the assessees were thus enhanced by the first appellate authority.
4. Assessees failed to appear before the Tribunal and thus the orders passed by the AAC treating the entire loans as income from undisclosed sources were confirmed. The Tribunal in ITA Nos. 241 to 244/Chandi/85 for assessment year 1977-78 vide order dated 17th March, 1986 analysing the statement of the creditors came to the conclusion that though the assessee has identified the creditors and even the capacity to advance the money was also partly been established but the genuineness of the credits and advancement of money by them to the four assessees was not proved.
5. Assessing Officer had initiated penalty proceedings during the course of assessment proceedings in respect of all the four assessees. After giving opportunity of being heard he imposed penalties under Section 71(1)(c) for concealment of income as under:
Name Penalties Imposed
1. Shanti Kumari Rs. 13,475
2. Ramditta Ram Rs. 15,125
3. Jagdish Chander Rs. 18,205
4. Roshan Das Rs. 16,115
The first appellate authority confirmed the levy of penalty mainly on the ground that the additions made have been confirmed by the Tribunal.
6. These orders are challenged by the assessee and the learned counsel for the assessee Shri M.L. Aneja contended that reasonable opportunity of being heard was not allowed by the Assessing Officer before the levy of penalty as the request for keeping the proceedings in abeyance till disposal of appeal by the Tribunal, was not acceded to by the Assessing Officer. According to the learned counsel, the Assessing Officer has unjustifiably proceeded to levy the penalty and thereby depriving the assessee a reasonable opportunity of being heard. According to the learned counsel even otherwise penalties under Section 71(1)(c) on merits are not warranted in these cases. All the fourassessees have furnished evidence in supportof theclaim of having received the loans from friends, who are agriculturists. The confirmations and affidavits of the parties were filed before the Assessing Officer followed by the personal appearance by the creditors. Their statements have been recorded and the parties have unequivocally confirmed having advanced the money to the assessees. As far as assessees are concerned, they have done their best at their command to furnish the necessary evidence in support of the claims. According to the learned counsel, it is a different matter that the evidence furnished by the assessee has not been believed. Inferences have been drawn by the authorities and the Tribunal has confirmed the additions by holding that the creditors may have been identified and the capacity to pay also proves but the genuineness of the creditors and advancement of money by them to these four persons had not been established. The conclusion drawn by the authorities was not on the basis of any evidence but from the inference drawn from the statements of the creditors. According to the learned counsel, it is a case where the explanation of the assessee has been rejected but the same has not been established to be false. The learned counsel pleaded that Explanation 1 to Section 71(1)(c) inserted w.e.f. 1-4-1976 is inapplicable as the explanation furnished by the assessee has not been proved to be false and that the assessee has not only furnished the explanation but has also supported the same. The learned counsel further contended that the inference may be drawn from the statement for the purposes of assessment but for the levy of penalty there must be material on record to justify the imposition. It was accordingly pleaded that the penalty imposed in respect of all the four cases may be cancelled.
7. In the alternative, the learned counsel contended that for imposition of penalty under Section 71(1)(c) satisfaction of the Assessing Officer during the course of any proceedings is a condition precedent. When assessments were made in these cases Assessing Officer was satisfied about the assessee having concealed the income to the extent the amounts were treated as income from undisclosed sources by him. In these cases enhancement of income was made by the first appellate authority for which there is no initiation of penalty proceedings either by the Assessing Officer or by the first appellate authority. It was accordingly pleaded that penalties imposed in all the four cases being contrary to law are liable to be cancelled. Reliance was placed on the decision of the Allahabad High Court in the case of CIT v. Shadiram Balmukand [1972] 84 ITR 183-186. The decision of the same High Court in the case of CIT v. Dwarka Prasad Subhash Chandra [1974] 94 ITR 154 was also cited in support of the contention. It was accordingly urged that the appeals of the assessees may be accepted and the penalty orders cancelled.
8. The learned D.R. Shri Subhash Kumar, on the other hand, justified the imposition of penalty in these cases. It was contended that these cases related to investments made in immovable property and not to cash credits. If the assessee, during the course of carrying on of the business receives cash from creditors and is unable to substantiate the genuineness of the cash credits, benefit of doubt could be given in penalty proceedings. However, in a case where assessee had purchased property such a concession, according to the learned D.R., cannot be made as assessee would normally not purchase the property unless it had funds to purchase the same. He relied upon the decision of the Tribunal in quantum appeal and pleaded that the statement of the creditors have been analysed by no less an authority than the Tribunal and the conclusions arrived at regarding the non-genuineness of the loans. It was accordingly pleaded that the penalty imposed may be confirmed.
9. With regard to the alternative contention raised by the learned counsel for the assessee, the learned D.R. stated that the issue may be decided on merits.
10. We have given our careful consideration to the rival contentions and have perused the records. Section 9 of the Income-tax Act, 1961 empowers the Assessing Officer to treat the amounts invested by any assessee which are not recorded in the books of accounts maintained for any source of income and in respect of which assessee offers no explanation about the nature and sources of investment or the explanation offered by him is not in the opinion of the Assessing Officer satisfactory, as income from undisclosed sources. In the cases before us Assessing Officer found the assessees having made investments which were not recorded in the books of accounts. All the four assessees offered explanations about the nature and source of investment but such explanations were found to be unsatisfactory by the Assessing Officer for part of the investments. Later on the first appellate authority considered the explanations furnished by the assessee to be unsatisfactory for the entire investments made and enhanced the assessed income. Whereas Section 9 empowers the Assessing Officer to reject, the explanation furnished by the assessee if it is found unsatisfactory, the question before us is as to whether such a power is extended to the levy of penalty under Section 71(1)(c). If we read Section 71(1)(c) in the light of judicial pronouncements without the explanations inserted w.e.f. 1-4-1976 then it would be easy for us to hold that the budern which lies upon the assessees under Section 9 is not extended in relation to the penalty proceedings. In order to justify levy of penalty two factors must co-exist. Firstly, there must be some material or circumstances leading to thereasonable conclusion that the amounttreated as income from undisclosed sources does represent the assessees income. It is not enough for the purposes of levy of penalty that the amount has been assessed as income. The circumstances must show that there was conscious concealment or conscious furnishing of inaccurate particulars on the part of the assessee. Explanation 1 to Section 71(1)(c) has, however, been inserted w.e.f. 1-4-1976 by the Finance No. 2 Act of 1975. It reads as under :
Where in respect of any facts material to the computation of the total income of any person under this Act,-
(A) such person fails to offer an explanation or offers an explanation which is found by the Income-tax Officer or Appellate Assistant Commissioner or the Commissioner (Appeals) to be false, or (B) such person offers an explanation which he is not able to substantiate, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of Clause (c) of this Sub-section, be deemed to represent the income in respect of which particulars have been concealed :
Provided that nothing contained in this Explanation shall apply to a case referred to in Clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bonafide and all the facts relating to the same and material to the computation of his total income have been disclosed by him.
As is clear from the above explanation, a fiction has been created for deeming the concealment of particulars of income if in respect of any facts material to the computation of total income any person has failed to offer an explanation or the explanation has been found to be false or where such person has offered an explanation which he is unable to substantiate. Wherein an explanation is furnished which the assessee is unable to substantiate but the assessee establishes that the explanation furnished was bonafide and all the facts relating to the same and material to the computatipn of his total income have been disclosed by him Explanation 1 (B) will be inapplicable.
11. We have to consider as to whether the four assessees would be liable to penalty for concealment of income by virtue of Explanation 1 to Section 71(1)(c) inserted w.e.f. 1-4-1976. Clause (A) of Explanation (I) would be applicable if the person fails to offer an explanation or offers an explanation which is found by the revenue authorities to be false. The cases before us are such where explanation has been offered. Still question remains as to whether the explanation has been found by the Assessing Officer to be false. In our view, there is no material on record to come to the conclusion that the explanation furnished by all the four assessees or any of them is false. Assessee's explanation may be unproved but the same has not been disproved and the circumstances do not lead to the reasonable and positive inference that assessee's case is false, there being no material on record to show that the amount in question which has been treated as income from undisclosed sources was the income of the assessee. The mere fact that assessee's explanation has not been found to be satisfactory would not be conclusive of the fact that assessee's explanation was false. The false explanation is to be found by the authorities on the basis of material.
12. Merely because there are some inaccuracies in details of an explanation or is slightly exaggerated, it cannot be held to be false. One has to see whether the explanation is plausible. It cannot be held to be false unless there is evidence to establish its falsity. This aspect was considered by the P & H High Court in the case of CWT v. Jagir Singh [1985] 154 ITR 633. In that case apart from the falsity of explanation, it was found that there was a devise for concealment or manipulation of documents and acts to hide true state of affairs and thus the falsity was held to be as intentional. In cases before us the explanations were partially accepted by the Assessing Officer at the time of original assessments. The first appellate authority reversed the findings on the basis of the inferences drawn from the statement of the creditors recorded by the Assessing Officer. The creditors have confirmed having advanced money to the assessees. The creditors at no point of time denied having advanced the money. There is no material on record, except the power of the Assessing Officer to consider the explanation as unsatisfactory, that the evidence produced by the assessee was false. Considering the totality of the circumstances of this case and the evidence on record, we are of the view that Explanation 1(A) is inapplicable to the facts of this case.
13. Explanation 1(B) is applicable in cases where the assessee offers an explanation which he is unable to substantiate. To substantiate the explanation would mean that the assessee has to establish the explanation by proof of competent or acceptable evidence. The proof should create belief. Whereas for the purposes of Section 9 substantiating the explanation is to be to the satisfaction of the Assessing Officer, for the purposes of application of Explanation 1(B) one has to consider the evidence furnished by the assessee so as to come to the conclusion whether the evidence creates a belief in favour of the assessee. If it is found that the evidence produced creates a belief in favour of the assessee then in penalty proceedings the benefit of doubt has got to be given to the assessee. In other words whereas for the purposes of Section 9 Assessing Officer may reject the evidence furnished by the assessee on the basis of suspicion generated by inferences, it may not be permissible to do so in the matter of levy of penalty by virtue of an explanation referred to above. The explanation is to be so construed as to harmonise it with the basic principle of justice and fairness. In our view, no penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income with the hypothesis that it does. In these cases assessees have furnished explanations and as far as the assessees are concerned they have also substantiated the same. It would have been a different matter if any one or more of the creditors would have denied having advanced the money to these assessees. As per the order of the Tribunal in quantum appeal assessees have established the identity of the creditors as also their financial capacity to advance the money. The only reason for sustaining the additions was that the assessees have failed to establish genuineness of the loans. As far as assessees are concerned they have done their best to establish even the genuineness of the loans. From the statements of the creditors recorded, a doubt is created about the genuineness of the loans. On the basis of the doubt created Assessing Officer might be justified in treating the evidence as unsatisfactory but, in our view, penalty cannot be imposed merely on the basis of suspicion. The words used in Explanation 1(B) of Section 71(1)(c) are that where the person offers an explanation which he is not able to.substantiate. In our view, where the assessee produces evidence in support of the explanation which creates a doubt in his favour Explanation 1(B) to Section 71(1)(c) would not be applicable. Even otherwise assessee's case would fall within the proviso to the said Explanation. The explanation has been furnished by the assessees corroborating evidence in support of the claim has also been furnished. In such a situation explanation furnished by the assessee can be held to be bonafide and not mala fide. The material facts relating to computation of total income had been disclosed by the assessee. Since assessees cases do not fall within Explanation 1 to Section 71(1)(c), penalty for concealment is not attracted in this case. It is well established principle of law that assessment order is not conclusive evidence that the amount assessed was in fact the income of the assessee. Apart from the order of the Tribunal confirming the addition on the basis of the explanation of the assessee not having been accepted as satisfactory, there is no material on record pointing out towards the concealment of income by the assessees.
14. Assessees also succeed on alternative ground. As is evident from the fact stated above Assessing Officer initiated penalty proceedings during the course of assessment proceedings. Assessments were complete by treating part of the advances as genuine and part as unexplained. Evidently when proceedings for concealment were initiated in respect of the four assessees the satisfaction of the Assessing Officer was to the extent of the income deemed to be income from undisclosed sources by the Assessing Officer. The first appellate authority has enhanced the income and treated the entire advances as income of the respective assessees. There was no satisfaction of the Assessing Officer in respect of the enhanced income as having been concealed by the assessee. The Assessing Officer has imposed the penalty in respect of the entire amount of advances in each case. It is evident from the facts stated above that there has been no satisfaction of the Assessing Officer for levy of penalty for concealment of income is respect of the part of advances which were accepted as genuine by the Assessing Officer at the time of original assessments.
15. In the case of ShadiramBalmukand (supra) an amount of Rs. 9,250 was assessed as undisclosed income by the Assessing Officer and notice for levy of penalty was also issued. In the appeal against the assessment order the AAC increased the amount of undisclosed income to Rs. 46,601. Thereafter the ITO made an order imposing a penalty of Rs. 10,000 under Section 8(1)(c) of the Act taking into account the income discovered by the AAC as undisclosed income. In the second appeal from the order imposing penalty, the Appellate Tribunal held that the Assessing Officer had no jurisdiction to take into account the amountadded by the AAC and accordingly quash the entire penalty order by holding that the said order was not severable. The Allahabad High Court upheld the cancellation of penalty by holding that Section 8(1)(c) contemplates distinct jurisdiction for the ITO, the AAC and the Appellate Tribunal in relation to the proceedings pending before those authorities as far as the imposition of penalty is concerned. It was held that the authority imposing the penalty can do so only on being satisfied in the course of proceedings before it that a person has concealed the particulars of his income or furnished inaccurate particulars of his income. It was further held that the amount of penalty was a single indivisible sum. it could not relate in any specific part to the concealed income concerning which the ITO had the jurisdiction. The facts of the cases before us are para materia the.same as in the above noted case before the Allahabad High Court. Since the Assessing Officer could not have reached the satisfaction relating to the concealment of income for the income discovered by the AAC as undisclosed income he was not competent to levy penalty in respect of such amounts. The orders of penalty under Section 71(1)(c) of the Income-tax Act, 1961 in all the four cases are in respect of the entire amount. We accordingly, by respectfully following the decision of the Allahabad High Court in the case of ShadiramBalmukand (supra), cancel the penalty imposed in respect of all the four assessees.
16. Appeals are allowed: