Bombay High Court
Commissioner Of Income-Tax vs Lunidaram Tulsidas Panjabi on 15 April, 1993
Equivalent citations: [1993]204ITR674(BOM)
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under section 256(1) of the Income-tax Act, 1961 ("the Act"), the Income-tax Appellate Tribunal ("the Tribunal"), at the instance of the Revenue, has referred the following question of law to this court for opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalties of Rs. 65,870 and Rs. 76,063 imposed by the Inspecting Assistant Commissioner under section 271(1)(c) for the assessment years 1971-72 and 1972-73, respectively ?"
2. This reference relates to two assessment years, viz., 1971-72 and 1972-73. The controversy, as is evident from the question itself, relates to the levy of penalty, under section 271(1)(c) of the Act. The material fact of the case, briefly stated, are as follows :
The assessee, who is an individual, carried on powerloom cloth business and was also a partner in three firms dealing in cloth and building construction. In the course of assessment proceedings for the assessment years 1971-72 and 1972-73, it was revealed that the assessee had received a sum of Rs. 54,890 as jackpot winnings from the Royal Western India Turf Club (RWITC) during the previous year ending on March 31, 1971, and similar jackpot winnings of Rs. 63,386 during the previous year ending on March 31, 1972. In this connection, the assessee produced RWITC vouchers showing the following receipts :
Assessment year 1971-72 :
Rs.
27-1-1971 38,257.50 Treble Pool
14-3-1971 16,632.00 Jackpot
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54,889.50
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Assessment year 1972-73 :
Rs.
11-04-1971 17,889.00 Jackpot
05-12-1971 11,003.00 Jackpot
01-01-1972 14,849.50 Jackpot
17-03-1972 8,741.00
26-03-1972 10,993.00
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63,385.50
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3. The Income-tax Officer recorded the statement of the assessee in this regard and also the statement of one Shri N. M. Virwani, from whom the assessee is said to have obtained the tips. The assessee deposed before the Income-tax Officer that he had started going to the race course in 1971 and stopped doing so after 1972. He also stated that he was obtaining the tips for this purpose from his friend, Shri N. M. Virwani. The assessee also deposed that his friend, Virwani, had also stopped going to the races. The assessee stated in his deposition that the entrance fee to the race course enclosure was Rs. 5. The assessee was unable to answer the Income-tax Officer's query as to whether he could recall any of the well-known races that had taken place. The assessee was also unable to answer the query as to which was the biggest jackpot amount talked of during the period under consideration.
4. Shri. N. M. Virwani was also examined by the Income-tax Officer who stated in his deposition that he was a life member of the Turf Club and that he had been going to the races for more than 20 years and that he was still attending the races regularly. Shri Virwani owned a race hose and stated that he used to give some tips to the assessee whenever asked.
5. The Income-tax Officer found that the assessee's version of the story could not be believed. The Income-tax Officer also found that the entry fee for the public enclosure was not Rs. 5 as deposed by the assessee, but Rs. 8 for the first enclosure and Rs. 6 for the second enclosure during the relevant period. The Income-tax Officer further found that it was something unusual for a person claiming to have attended the races regularly for two years not to remember the name of a single well-known race. The Income-tax Officer further observed that the assessee did not know as to what was the jackpot amount and what was his share in it. The Income-tax Officer also noticed a number of discrepancies in the deposition of the assessee. Considering all theses factors, the Income-tax Officer came to the conclusion that the assessee had not really won the jackpot and treble pool, that he had merely obtained the relevant vouchers from RWITC by purchasing the winning ticket at a premium from other parties as was the rampant practice and that the assessee had merely converted his unaccounted earnings into race winnings by adopting the subterfuge. The Income-tax Officer found that the normal rate of premium for purchase of such winning tickets was about 20 per cent. of the prize value and on that basis, he determined the assessee's income from undisclosed sources at Rs. 65,870 for the assessment year 1971-72 and Rs. 76,063 for the assessment year 1972-73. The Income-tax Officer, therefore, invoked the provisions of section 69 of the Act and treated the income of the assessee as his undisclosed income of the relevant assessment years. On appeal by the assessee, the Appellate Assistant Commissioner deleted the additions made by the Income-tax Officer on the ground that the additions had been made only on circumstantial evidence. The finding of the Appellate Assistant Commissioner was, however, reversed by the Tribunal on appeal by the Revenue. The Tribunal, while allowing the appeal of the Revenue against the order of the Appellate Assistant Commissioner and affirming the additions made by the Income-tax Officer, observed as follows :
"In our opinion, on the fact, it must be said that the assessee has out up a false story in this regard and the amount received from the RWITC did not represent genuine race winnings, but represented only the encashment of winning tickets purchased from others at a premium in order to convert his undisclosed income into white money. There was also nothing improper on the part of the Income-tax Officer in relying on circumstantial evidence for this purpose inasmuch as no direct evidence of such shady transaction is ever possible."
6. So far as the imposition of penalty under section 271(1)(c) of the Act is concerned, being of the view that the penal provisions of section 271(1)(c) were attracted, the Income-tax Officer recorded his findings to that effect in both the assessment orders and referred the case to the Inspecting Assistant Commissioner ("the IAC") as required under section 274(2) of the Act. The Inspecting Assistant Commissioner, after allowing the assessee opportunity of being heard and on a consideration of the explanation submitted by him, held that he was satisfied that the requirements of section 271(1)(c) read with the Explanation thereto were applicable to the facts of the case of the assessee and considering the facts and circumstances of the case levied the minimum penalty of Rs. 65,870 and Rs. 76,063 for the assessment years 1971-72 and 1972-73, respectively. The Inspecting Assistant Commissioner, in his order, carefully considered the entire facts and circumstances of the case and found that the explanation given by the assessee was false. He also perused the order of the Tribunal in the appeals of the assessee against the assessment orders in question and particularly the following observations of the Tribunal made in its order on the quantum appeals in the case of the assessee :
".... In our opinion, on the facts, it must be said that the assessee has put up a false story in this regard and the amount received from the RWITC did not represent genuine race winnings but represented only the encashment of winning tickets purchased from others at a premium in order to convert his undisclosed income into white money. There was also nothing improper on the part of the Income-tax Officer in relying on circumstantial evidence for this purpose inasmuch as no directed evidence of such shady transaction is ever possible."
7. The Inspecting Assistant Commissioner considered the provisions of section 271(1)(c) of the Act and the Explanation thereto and the various decisions of the courts in that regard and arrived at an independent finding that the preponderance of probability was positively against the assessee's explanation.
8. The assessee filed appeals to the Tribunal against the orders of the Inspecting Assistant Commissioner levying the penalty. The Tribunal, on a detailed consideration of the facts and circumstances of the case, recorded a clear finding of fact that the explanation offered by the assessee was false. However, curiously enough, despite such a finding, the Tribunal set aside the penalty imposed by the Inspecting Assistant Commissioner on the ground that for sustaining the penalty, something more than falsity of the explanation was necessary. The understanding of the Tribunal of section 271(1)(c) of the Act read with the Explanation thereto may be seen from the following passage in its order :
"No doubt the explanation offered by the assessee has been held to be false. Further no doubt the Explanation to section 271(1)(c) was very much on the statute book and has been referred to by the learned Inspecting Assistant Commissioner; in fact, he has relied on the same. However, something more than the falsity of the explanation is necessary to justify penalty even after considering the Explanation to section 271(1)(c) as it stood then. No doubt the burden is on the assessee to establish that there was no fraud or gross of wilful neglect on his part. This is a negative burden. In our view, the assessee should be treated as having discharged this negative burden and hence very light burden by pointing out that the monies were received by cheques from the RWITC. The burden for making the addition and the burden for imposing penalty are entirely different. The assessee showed that the monies were received by cheques from the RWITC; the story was discarded as improbable and the addition was made. The addition sustained on circumstantial evidence without any substantial positive evidence to reject the assessee's explanation would not justify imposition of penalty. The penalties imposed for the two years are, therefore, deleted."
9. Against the above order of the Tribunal, the Revenue has come to this court by way of reference under section 256(1) of the Act.
10. We have heard learned counsel for the parties. We have very carefully perused the order of the Inspecting Assistant Commissioner levying penalty and the impugned order of the Tribunal setting them aside. On a careful consideration of the facts and circumstances of the case and the law on the point, we find it difficult to agree with the approach of the Tribunal and its order.
11. Section 271(1)(c) and the Explanation thereto, as they stood at the relevant time, reads as follows :
"271. Failure to furnish returns, comply with notices, concealment of income etc. - (1) If the Income-tax Officer or the Appellate Assistant Commissioner, 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, he may direct that such person shall put by way of penalty, - ...
(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.
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 purposes 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 sub-section."
12. It may be mentioned that the above Explanation was inserted by the Finance Act, 1964, with effect from April 1, 1964, and it continued in the same form till March 31, 1976, when it was substituted by four new Explanations with which we are not concerned in the present case.
13. Sub-section (2) of section 274 which is also relevant, at the material time, stood thus :
"(2) Notwithstanding anything contained in clause (iii) of sub-section (1) of section 271, if in a case falling under clause (c) of that sub-section, the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty-five thousand rupees, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers conferred under this Chapter for the imposition of penalty."
14. Counsel for the Revenue submits that having arrived at a definite finding that the explanation offered by the assessee was false, the Tribunal was not justified in deleting he penalty on the ground that something more than the falsity of the explanation was necessary to justify penalty even after considering the Explanation to section 271(1)(c) of the Act. Learned counsel also objected to the observation of the Tribunal that the onus of proof put on the assessee was very light. According to learned counsel, once the returned income is less than the eighty per cent. of the assessed income, the Explanation comes into operation and a presumption is raised against the assessee that he is guilty of any fraud or gross or wilful neglect as a result of which he has concealed the income and such presumption can be rebutted by the assessee not by mere denial but by relevant and cogent material. Learned counsel further submits that in the instant case the Tribunal on a consideration of the materials on record, came to a positive finding that the explanation given by the assessee was not any improbable but "false". In the face of such findings by the Tribunal, it was not open to it to say that the onus put on the assessee by the Explanation to section 271(1)(c) has been discharged and it was for the Revenue to produce "substantive positive evidence" to justify imposition of penalty.
15. Learned counsel for the assessee, on the other hand, submits that (i) the provision of section 271(1)(c), being a penal provision, has to be construed strictly; (ii) the findings arrived at in the assessment proceedings cannot form the basis for imposition of penalty as different considerations apply to assessment and imposition of penalty; (iii) the onus of proof put on the assessee is much lighter in nature and once the assessee explains his conduct, the onus gets shifted on to the Revenue to prove the concealment by adducing positive and substantive evidence.
16. We have carefully considered the rival submissions. We find force in the submission of learned counsel for the Revenue. In our opinion, the submissions of learned counsel for the assessee cannot be accepted. In the facts and circumstances of the present case, the said submissions, in our opinion, do not have any relevance. It is true that provisions dealing with penalty should be construed strictly within the terms and language of the statute. It is also equally true that penalty proceedings are separate from assessment proceedings and different considerations arise in penalty proceedings than those in assessment proceedings. As such, the findings arrived at in the assessment proceedings cannot be held to be conclusive nor can they operate as res judicata in the penalty proceedings. An assessee is entitled to adduce any evidence which he had not adduced in assessment proceedings in support of his contention that failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. The assessee is entitled, in the penalty proceedings, to take up new pleas which he had not taken in the course of assessment proceedings and all such evidence adduced by the assessee or pleas taken by him are to be duly considered by the concerned authorities while deciding the question of levy of penalty.
17. The only thing that needs consideration in this case is the effect of the Explanation which was added with effect from April 1, 1964, and was applicable to the penalty proceedings in question. Under the law as it stood prior to the incorporation of the above Explanation in 1964, the onus was on the Revenue to prove that the assessee had furnished incorrect particulars or had concealed the income. Difficulties were found in proving the positive element required for concealment under the law which had to be established by the Revenue. It is with a view to obviate such difficulties that the Explanation was added. The effect of the Explanation is that where the income returned by any person is less than eight per cent. of the total income assessed, the onus is on such person to prove that the failure to file the correct income did not arise from any fraud or gross or wilful neglect on his part and unless he did so, he shall be deemed to have concealed the particulars of his income or furnished incorrect particulars for the purpose of section 271(1)(c).
18. The true effect of the Explanation was considered by the Supreme Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, 20, in the following words :
"The position is that the moment the stipulated difference was there, the onus to prove that it was not the failure of the assessee or fraud of the assessee or neglect of the assessee that caused the difference shifted to the assessee but it has to be borne in mind that though the onus shifter the onus that was shifted was rebuttable. If in an appropriate case, the Tribunal or the fact-finding body was satisfied by the evidence on the record and inference drawn from the record that the assessee was not guilty of fraud or any gross or wilful neglect and if the Revenue had not adduced any further evidence, then, in such a case, the assessee cannot come within the mischief of the section and suffer the imposition of penalty. That is the effect of the provision."
19. The Supreme Court further held that the Explanation only makes a presumption but the presumption is a rebuttable one and if, in a given case, the fact-finding body on relevant and cogent materials comes to a conclusion that in spite of the presumption the assessee was not guilty, such conclusion will be final.
20. The position was summed up by the Supreme Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, in the following words (at page 22) :
"The position, therefore, in law is clear. If the returned income is less than 80 per cent. of the assessed income, the presumption is raised against the assessee that the assessee is guilty of fraud or gross or wilful neglect as a result of which he has concealed the income but this presumption can be rebutted. The rebuttal must be on materials relevant and cogent."
21. The aforesaid view has been followed and reiterated by the Supreme Court in CIT v. K. R. Sadayappan [1990] 185 ITR 49. In this case also it was reiterated that the presumption raised by the Explanation can be rebutted only by cogent, reliable and relevant materials.
22. The Inspecting Assistant Commissioner as well as the Tribunal considered the explanation of the assessee in the light of the facts and circumstances of the case and not only found it to be unreliable but arrived at a categorical finding that the explanation offered by the assessee was false. Having arrived at such a finding of fact, the Tribunal, in our opinion, committed a patent error of law in holding that something more than falsity of explanation was necessary to justify the penalty even after the introduction of the Explanation to section 271(1)(c). The Tribunal was also not correct in such circumstances in holding that the Inspecting Assistant Commissioner was not justified in imposing penalty without any substantive positive evidence to reject the assessee's explanation. We find it extremely difficult to agree with the interpretation given by the Tribunal to the Explanation to section 271(1)(c) of the Act which, in our opinion, goes counter not only to the express language of the Explanation, but also to the decision of the Supreme Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, which has clarified the position of law after incorporation of the Explanation.
23. There is no dispute in the instant case that the returned income was less than 80 per cent. of the assessed income. The Explanation was attracted and hence a presumption was raised against the assessee that he was guilty of fraud or gross or wilful neglect as a result of which he had concealed the income. This presumption could have been rebutted by the assessee by adducing relevant and cogent material. The assessee submitted an explanation. The said explanation was found by the Inspecting Assistant Commissioner as well as the Tribunal to be "false". Having arrived at such a finding, we do not find any justification for the Tribunal still to say that penalty could not be levied without producing further substantive material to prove the concealment. Such an interpretation will frustrate the very purpose of the Explanation. In the instant case, the assessee and other concerned persons were examined. Their deposition was properly considered in the light of the facts and circumstances of the case not only by the assessing authority in the course of assessment proceedings and by the Tribunal in the course of hearing of the appeal in the quantum matter but also by the Inspecting Assistant Commissioner while deciding the appeal against the levy of penalty. The Inspecting Assistant Commissioner arrived at an independent finding that the Explanation to section 271(1)(c) Was attracted and the assessee failed to rebut the presumption raised by the Explanation. On the other hand, the Tribunal found the explanation of the assessee to be "false". In the face of such a finding of fact, it was not open to the Tribunal to set aside the penalty.
24. In view of the foregoing discussion, we are of the clear opinion that on the facts and in the circumstances of the case, the Tribunal was not justified in cancelling the penalties imposed by the Inspecting assistant Commissioner. Accordingly, we answer the question referred to us in the negative, that is, in favour of the Revenue and against the assessee.
25. Under the facts and circumstances of the case, we make no order as to costs.