Income Tax Appellate Tribunal - Kolkata
Eagle International Ltd. vs Assistant Commissioner Of Income-Tax on 21 December, 1994
Equivalent citations: [1996]57ITD512(KOL)
ORDER
R.V. Easwar, Judicial Member
1. This is an appeal by the assessee and is directed against the order of the CIT(A) sustaining the penalty of Rs. 68,775 imposed under Section 271 (1)(c) of the Income-tax Act.
2. The assessee is a public limited company which came into existence during the year of account. It made a public issue of share capital and received contributions on account of share application money as well as allotment money. In the assessment proceedings the ITO noticed that the assessee received as share subscription a sum of Rs. 55,22,250. The assessee furnished a complete list of shareholders and also a copy of the respective accounts maintained by its bankers, namely, Canara Bank and Allahabad Bank through whom the amount was collected. The ITO scrutinised the list and observed that a sum of Rs. 1,23,000 was not received by means of account payee cheques but was received in cash. He called upon the assessee to explain the nature and source of the deposit in response to which the assessee contended that since the number of shareholders was more than 2200 it would not be possible for the company to produce confirmation from all of them. Subsequently, the assessee was able to furnish list of confirmation from most of the shareholders who deposited the money by means of cheques. In respect of the amount of Rs. 1,23,000 deposited in cash, the assessee was not able to furnish any confirmation but it was able to furnish the names of the subscribers, their addresses and the number of shares subscribed by them. Their income-tax file numbers could not be given on the ground that there was no information in this regard. The ITO from those facts concluded that the assessee was not able to establish the creditworthiness of the parties who deposited Rs. 1,23,000. The amount was accordingly treated as the assessee's income from undisclosed sources and was added under the head 'Other sources'.
3. There was an appeal against the addition to the CIT(A). The CIT(A) very briefly dealt with the addition. He was of the view that the assessee could not furnish anything regarding the identity or creditworthiness of the subscribers. He, therefore, confirmed the addition.
4. There was no further appeal by the assessee against the order of the CIT(A). In other words the addition was accepted by the assessee.
5. In the course of assessment proceedings, the ITO initiated proceedings for the levy of penalty under Section 271 (1)(c) of the Act for concealment of income. The assessee submitted an explanation in writing. It was pointed out that the assessee had furnished a list of the share subscribers from which the department could have verified the genuineness of the contributions by issuing summons under Section 131 of the Act or by calling for information as per Section 133(6) of the Act. It was further pointed out that the amount was collected by the assessee's bankers from their various branches in India and it cannot be postulated that the moneys belonged to the assessee. Under these circumstances it was pointed out that no penalty can be imposed on the ground that the assessee had concealed its income.
6. The ITO was not convinced by the assessee's explanation. He held that the onus was on the assessee to prove the genuineness and creditworthi-ness of the subscribers in the course of the assessment proceedings which had not been done. He referred to the judgment of the Calcutta High Court in Shankar Industries v. CIT[1978] 114 ITR 689 where the degree of onus which lay on the assessee was laid down. Since the assessee did not discharge the onus, it was liable for penalty, according to the ITO. In this view he imposed a penalty of Rs. 68,775 which represented 100% of the tax sought to be evaded.
7. On appeal the CIT(A) agreed with the ITO. He was further of the view that the assessee's case stood covered by Explanation 1(B) appended to Section 271(1)(c)(iii) of the Act. He, therefore, confirmed the levy of penalty.
8. In the further appeal it is submitted that the assessee's explanation in the course of the penalty proceedings has not been found false. It is contended that Explanation 1(B) invoked by the CIT(A) was not applicable to the assessee's case. It was further contended that even assuming that the Explanation was attracted, the assessee's case stood covered by the proviso to the Explanation. It was submitted that the penalty was imposed merely by rejecting the assessee's explanation which is not permissible in law. It is pointed out that there is no finding in the order of penalty to the effect that the assessee had concealed its income or had furnished inaccurate particulars thereof. It is pointed out that the penalty has been levied merely for the reasons given in the assessment order which is not permissible in law. The learned Counsel for the assessee further contended that the addition was made merely because of the inability of the assessee to prove the creditworthiness of the subscribers who deposited the allotment money in cash and that finding alone was not sufficient to charge the assessee with concealment. He pointed out that the assessee had accepted the order of the CIT(A) confirming the addition only because of the low tax effect and that such acceptance did not amount to admission of guilt. Adverting to the judgment of the Supreme Court in Sreelekha Banerjee v. CIT[1963] 49 ITR 112, he pointed out that notwithstanding the fact that the assessee had submitted a list of all the shareholders with their detailed addresses and had made a request to the ITO to issue summons to them, the ITO did not accept the assessee's request and had proceeded to reject the proof offered by the assessee as amounting to nothing which was opposed to the principles laid down in the aforesaid judgment. He also referred to the judgment of the Madras High Court in CIT v. V. Ramaswamy Naidu [1994] 208 ITR 377 in support of his plea that no penalty was imposable under these circumstances.
9. On the other hand, the learned departmental representative pointed out that none of the allottees of the shares came forward to confirm the deposit. He further pointed out that the assessee itself did not issue any letter to the shareholders to confirm the deposit made in cash which showed lack of bona fide on its part. Referring to the j udgment of the Full Bench of the Delhi High Court in CIT v. Sophia Finance Ltd. [1994]205 ITR 98 (FB) he contended that the onus on the assessee with regard to the degree of proof to be adduced in support of the share subscriptions was the same as that required with regard to the cash credits under Section 68 of the Act. It is contended that the assessee cannot simply throw the burden on the department by inviting the ITO to issue summons to the subscribers in a bid to save itself from the penal consequences. He drew our attention to the following judgments :
(1) C. Kant & Co. v. CIT[1980] 126 ITR 63 (Cal.);
(2) Oriental Wire Industries (P.) Ltd. v. CIT[1981] 131 ITR 688 (Cal.);
(3) CIT v. United Commercial & Industrial Co. (P.) Ltd, [1991] 187 ITR 596 (Cal.);
(4) CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 (SC);
(5) CIT v. K.R. Sadayappan [1990] 185 ITR 49 (SC);
(6) Addl CIT v. Jeevan Lal Sah [1994] 205 ITR 244 (SC);
(7) NandlalKanaiyalal v. CIT [1994] 205 ITR 360 (Guj.).
The learned D.R. also supported the conclusion of the CIT(A) that the provisions of Explanation 1(B) below Section 271(1)(c)(iii)areattracted to the assessee's case since the assessee had furnished an explanation in support of the receipt of the share capital in cash which it was not able to substantiate.
10. On a careful consideration of the rival contentions and after going through the orders of the deptt. authorities we are of the view that the penalty has to be cancelled. As rightly pointed out by the Ld. counsel for the assessee the penalty order does not contain any independent finding regarding the concealment. All that the penalty order contains is a repetition of the contents of the assessment order in brief and a reference to the onus upon the assessee to prove the creditworthiness of the subscribers. It is a well settled position in law as held by the Supreme Court in CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369 and in Anantharam Veerasinghaiah & Co.v. CIT[1980] 123 ITR 457 that thefindings contained in the assessment order do not operate as resjudicata in penalty proceedings though they would be relevant and admissible material, because the considerations which arise in penalty proceedings are different from those in assessment proceedings. This position has also been accepted by the Calcutta High Court in CIT v. Bhuramal Manick chand [1980] 121 ITR 840. In the present case there has been no attempt by the ITO, as far as we could gather from the penalty order, to have a fresh look at the issue, in the light of the explanation offered by the assessee during the penalty proceedings. If one is to go purely by the findings contained in the assessment order, there can be no two opinions on the question that these findings miserably fail to bring home the concealment. The assessment order merely says that the ITO was not satisfied with the proof adduced by the assessee in support of the subscriptions received in cash and made the addition on the ground that the creditworthiness of the subscribers was not established. The addition has been made on the ground that the assessee could not establish the creditworthiness of the parties in the manner required by the department and to its satisfaction. However, in the course of the penalty proceedings, the assessee has pointed out to the list of shareholders furnished at the time of the assessment and has also invited the ITO to issue summons to them under Section 131 of the Act or to obtain relevant information under Section 133(6) of the Act in order to elicit the true position regarding the cash subscription. It is no doubt true that the ITO can refuse to issue summons and treat the subscription as the assessee's income in the assessment but for the purpose of levying penalty he cannot refuse to carry out an enquiry. It should be remembered that the subscribers were not under the assessee's control. In fact, no such case has been made out by the ITO. They were not obliged in law to supply any information to the assessee merely because they had been allotted shares in the assessee-company. If that is so and if the assessee was helpless in obtaining confirmation from a large number of subscribers, it was certainly the duty of the ITO, especially when he proposed to take penal action against the assessee, to make an effort when invited, to elicit the information from the shareholders themselves at least in a bid to call the assessee's bluff, if nothing else. It is not out of place here to mention that under more adverse circumstances even additions have been cancelled -please see the judgment of the Supreme Court in CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78. In fact, in that case the summons issued by the ITO were returned unserved but still it was held that the assessee had discharged its onus. The position in the cases of penalty would be 'a fortiori'. Therefore, a mere discussion of the onus that lay upon the assessee to prove the sources of the share subscription and a finding that the assessee had failed to discharge the onus is not sufficient to levy penalty for concealment of income.
11. The fact that the assessee accepted the addition does not amount to admission of concealment as held by the Supreme Court in Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705.
12. The learned D.R. had raised a point that the assessee did not address any letter to the shareholders asking them to confirm the subscription. There is no basis for this contention. The assessment order records the fact that the assessee was not able to indicate the income-tax file numbers of the subscribers since they failed to respond to the assessee's query in this regard. We also find a letter dated 9-9-1987 addressed by the assessee to the ITO which states that the assessee had sent several letters to the subscribers who have paid the allotment money in cash, but there was no response from their side. It is with this letter that the assessee had furnished a list of shareholders along with their complete addresses. Therefore, the contention of the learned D.R. that the assessee did not issue any letter to the shareholders does not appear to be correct. As we have seen earlier even the ITO has not doubted the fact.
13. The next question is whether the assessee has concealed its income or furnished inaccurate particulars thereof. The answer is to be in the negative. We have already seen that the penalty order in substance relies on the findings contained in the assessment order and does not record any independent finding in the penalty proceedings regarding the concealment. It is no doubt true that under Explanation 1(B), where in respect of any facts material to the computation of the income of the assessee he of fers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the explanation and material to the computation of its total income were disclosed by him, then the amount added shall be deemed to represent income in respect of which particulars have been concealed. But the question in the present case is whether the assessee is caught within the deeming provision of the Explanation. There was some debate before us as to whether Explanation 1(B) as it stood prior to the amendment made by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from 10-9-1986 should govern the case or whether the Explanation as it stands after the amendment should apply. In our opinion it is not necessary to decide this question. Prior to the amendment Explanation 1(B) provided for deemed concealment of income if the assessee offers an explanation which he is not able to substantiate. There was a proviso to the Explanation which was as under :
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 bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him. After the amendment the proviso was omitted. However, by the same amendment the ingredients of the proviso were incorporated in the Explanation itself which stands as under:
(B) Such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, 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 the sub-section, be deemed to represent the income in respect of which particulars have been concealed.
What we thus find is that the only substantial change that has been effected by the amendment is that whereas prior to the amendment the proviso was couched in such language as to give room for the interpretation that the burden to show that the explanation was not bona fide was on the revenue, after the amendment the Explanation is so worded that the burden is shifted to the assessee. The main ingredients of the Explanation, namely, that there can be no concealment if the explanation is bona fide etc. still continue to remain, though after the amendment it will be for the assessee to prove the same. In fact, sub-paragraph (c) of paragraph 12.4 of the circular No. 469 dated 23-9-1986 containing the explanatory note to the amending Act makes this position clear. It is therefore incumbent upon the assessee, on the basis of the Explanation as it stands after 10-9-1986, to prove that the explanation is bona fide etc.
14. Having arrived at the above conclusion it is now our task to enquire whether the assessee has discharged the burden. In this connection, we may first notice a few judgments as to the burden of proof, with regard to the penalty for concealment. The recent decision of the Supreme Court in Mussadilal Ram Bharose 's case (supra) settled the debate as to whether after the insertion of the Explanation to Section 27(1)(c) with effect from 1-4-1964 the onus still continue to remain on the revenue to prove the concealment. While upholding the contention of the revenue that under the Explanation the burden was shifted to the assessee to show that the difference between the returned income and the assessed income was not due to fraud or gross or wilful neglect on the assessee's part, the Supreme Court laid down the following further propositions :
(1) the onus placed on the assessee under the Explanation was rebuttable;
(2) if the Tribunal or the fact-finding authority is satisfied that the assessee was not guilty of fraud or any gross or wilful neglect and if no evidence has been adduced by the revenue to prove the same then the assessee cannot come even within the mischief of the Explanation; and (3) the burden placed upon the assessee does not stand discharged by any fantasic explanation. It is not the law that each and every explanation of the assessee should be accepted. The explanation must be an acceptable one to the fact-finding body.
15. The aforesaid principles were reiterated by the Supreme Court in the following decisions:
(1) K.R. Sadayappan's case (supra);
(2) Jeevan Lal Sah 's case (supra);
(3) Nandlal Kanaiyalal's case (supra).
16. In the present case, in our opinion, the assessee has proved that the explanation is bona fide, by pointing out to the fact that the application money received from the subscribers has been accepted as genuine and it is only a part of the allotment money received in cash which was not accepted in the assessment. The fact that the assessee has allotted shares to the subscribers is not also doubted. The assessee has also requested, in the course of the penalty proceedings, the ITO to issue summons under Section 131 of the Act to the subscribers, in order to elicit the correct position. It has to be remembered that the assessee's attempt to obtain confirmation from the subscribers failed and this fact when notified to the ITO during the assessment proceedings was not seriously doubted. When the assessee has come forward with a request to the ITO who is vested with the powers of civil court while trying a suit in respect of discovery and inspection, examination of any person on oath and compelling the production of books of account, etc. it has to be held that the assessee has proved its bona fides. It is all the more so because the names and complete addresses of the subscribers, 94 in number, who paid the application monies of Rs. 1,23,000, were furnished to the ITO in the course of the proceedings. Since the assessee could not obtain the confirmation from these persons, it had requested the ITO to invoke his powers under Section 131, but the request was not acceded to. The fact that the assessee invited the ITO to issue summons indicates its bona fide. The word "bona fide" means "in good faith or genuinely; in other words it conveys absence of intent to deceive" - Smt. Subhadran Devi v. Sunder Dass Tek Chand AIR 1965 Punj. 188. In Sohan Lal v. Poonam Chand AIR 1961 Raj. 32 it was held that "nothing is bona fide which is not done with due care and attention". According to the Madras High Court decision in Chandra lekha v. P.K. Sushila Row [1969] 2 MLJ 17 "bona fide" denotes actions which have relation to the mind or motive of the person. A bona fide transaction requires that there are no secret arrangements or reservations and that what is apparent is also real. The transactions are stated to be bona fide if they are not fictitious or colourable but are real and genuine for all intents and purposes - A.G. v. Richmond (Duke) [1909] AC 466. The Allahabad High Court has held in CIT v. Devi Dayal Aluminium Industries (P.) Ltd. [1988] 171 ITR 683 that the assessee furnished all details and does not withhold anything then it cannot be said that he was not acting bona fide merely because his explanation was not accepted. If the assessee's action in the present case is judged by the aforesaid tests we are unable to say that his explanation is not bona fide. The assessee has not been shown to have taken any evasive steps or ambulatory stand. He has come forward with the full facts relating to the case when called for by the ITO. Therefore, though the assessee has offered an explanation which he was not able to substantiate in the manner required by the revenue authorities, it cannot be stated that the other conditions stipulated in Explanation 1(B) have been satisfied. In our opinion, on the facts and in the circumstances of the case, the assessee has proved that the explanation is bonafide; it has also disclosed all the facts relating to the same and material to the computation of the income. We are therefore of the considered opinion that the assessee's case is not covered by the said Explanation.
17. The learned D.R. referred us to certain judgments wherein the Calcutta High Court has taken the view that in the case of cash credits or loans the assessee has to establish the identity of the creditors, his creditworthiness and the genuineness of the transaction. It was his contention that in the present case the assessee has not discharged the burden. It is no doubt true that the assessee has not discharged this burden by adducing evidence to the satisfaction of the ITO and in the manner required by him. But the failure to do so would only permit the ITO to add the share subscriptions made in cash as the assessee's income. It does not "ipsofacto "authorise the ITO also to draw the conclusion that the assessee has concealed its income or furnished inaccurate particulars thereof or that the assessee's case is covered by Explanation 1(B). If such a conclusion is permissible, then there would really be no need to introduce Explanation 1(B). It would have been sufficient for the Legislature to provide that concealment can be inferred from the mere fact that the assessee had offered an explanation in respect of the addition made which it was not able to substantiate. The fact that under certain circumstances the assessee cannot be said to have concealed its income notwithstanding that its explanation could not be substantiated recognises the principle that mere inability to prove the identity and creditworthiness of the subscribers and the genuineness of the transaction does not per sesuffice for the purposes of levying penalty. We therefore reject the contention of the department.
18. For these reasons we are of the view that the penalty levied on the assessee cannot be sustained. We cancel the same and allow the appeal.