Kerala High Court
Commissioner Of Income-Tax vs P.T. Antony And Sons on 4 June, 1991
Equivalent citations: [1992]194ITR23(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.P. Balanarayana Marar, J.
1. At the instance of the Revenue, the following question has been referred for decision by this court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that no penalty could be levied under Section 271 (1)(c) read with the Explanation to that, section ?"
2. The respondent assessee is a registered firm having business in jewellery. Originally, it was carried on by one P. T. Antony. From April 1, 1968, his major sons were taken as partners and the business was converted into a partnership. The then managing partner, P. T. Antony, died on July 14, 1970. The reference is in respect of the assessment year 1970-71 for which period the return was filed by Sri P. A. Jose, son of Sri Antony. For this year of assessment, the assessee had originally filed a return showing an income of Rs. 1,45,992. The assessing authority determined the assessable income at Rs. 1,47,700 and tax was levied thereon. Subsequently, the assessment was reopened. In the return filed pursuant to the notice under Section 148 of the Income-tax Act, 1961 (for short "the Act"), an additional amount of Rs. 43,607 was also shown, which according to the assessee was omitted to be shown in the original return. The assessing authority estimated the escaped income liable to be assessed at Rs. 52,093 and a reassessment order was passed on March 19, 1973.
3. The assessing authority initiated proceedings under Section 271(1)(c) of the Act on the basis that the assessee had concealed the particulars of his income. Since the concealed income exceeded Rs. 25,000, the assessing authority referred the matter for further action to the Inspecting Assistant Commissioner, Ernakulam Range. The Inspecting Assistant Commissioner held that the disclosure was made only after the conclusion of the original assessment proceedings. Having found that there was concealment of income in those proceedings, he levied an amount of Rs. 50,000 as penalty. A second appeal was filed before the Income-tax Appellate Tribunal, Cochin Bench. The appeal was allowed by the Tribunal. The request of the Revenue to refer the questions of law raised by them to this court was turned down by the Tribunal. Thereupon, the Revenue moved this court under Section 256(2) of the Act and, by judgment dated December 22, 1978, in O. P. No. 4 of 1977, this court directed the Income-tax Appellate Tribunal to refer the questions suggested by the Revenue for the opinion of the court.
4. The matter came before this court as I. T. R. 149 of 1979. This court, by judgment dated June 27, 1984, reported in CIT v. P. T, Antony and Sons [1985] 151 ITR 34, observed that the Tribunal has not approached the case in a right perspective. Before this court, it was contended that the Tribunal failed to take note of the Explanation added to Section 271(1)(c) by the Finance Act, 1964, This court held that the Tribunal is bound to consider the applicability of the Explanation to the case. The non-consideration of the Explanation has resulted in miscarriage of justice. In view of these observations, this court declined to answer the question referred to this court and the Tribunal was directed to rehear the appeal and to decide it in accordance with law. The Tribunal reopened the appeal and held that the assessee has shown that the failure to show the correct income in the original return was not due to fraud or any gross or wilful neglect on the part of the assessee and that no penalty is leviable. It was thereafter that at the instance of the Revenue that the question aforesaid has been referred to this court for a decision.
5. The question for consideration in this reference is whether penalty is exigible under Section 271(1)(c) of the Act. The order levying the penalty was passed on March 12, 1975. In order to appreciate the contentions raised on both sides, it is advantageous to refer to Section 271(1)(c) of the Act as it stood before the Taxation Laws (Amendment) Act of 1975 and the Explanation inserted by the Finance Act of 1964, with effect from April 1, 1964.
"271. (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 ...
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."
6. Before the introduction of the Explanation to Section 271(1)(c), the onus was on the Revenue to prove that the assessee had concealed the income or that he had furnished inaccurate particulars. It was to obviate the difficulties created in proving the fact of concealment that the Explanation was added. On the onus of establishing concealment, when the matter was covered by the Explanation, a Division Bench of the Madras High Court in CIT v. Prakasam Readymade Stores [1983] 140 ITR 601, 604, held thus :
"The normal Rule in matters of penalty is that it is for the taxing authorities to prove concealment of income on the part of an assessee. Under this evidentiary rule, which has long been established by judicial decisions, the onus would squarely lie on the Revenue from first to last. The Explanation which Parliament introduced for the first time in 1964, inverted the burden of proof laid down by the courts. But this inverted onus under the Explanation applied only up to a point, and also not in all cases, but only in those cases where the returned income is found to be lower than 80% of the assessed income. In such cases, the Explanation lays down only an initial presumption that the assessee had concealed his income as respects the difference between the returned income and the assessed income. But even this initial presumption the assessee can always rebut, by showing that the higher figure adopted in the assessment order was not because of his returning a lower figure of income in his return or was owing to any fraud or neglect on his part, but was owing to a misunderstanding of the tax treatment of certain items of receipts, expenses, reliefs and the like, or owing to the inherent processes of assessment Once the assessee establishes even in cases covered by the Explanation that his return of income at less than 80 per cent, of the assessed income was neither fraudulent nor negligent, the onus at once shifts to where it properly belongs, namely, the Revenue. Thus, in every case where the Explanation is invoked it becomes a matter of inquiry whether the assessee's conduct in filing his return in the way he did rules out fraud or gross negligence. Where fraud or negligence on the assessee's part is ruled out, then despite the fact that the returned income is less than 80 per cent, of the assessed income, the enquiry must be whether the Department has established, on the basis of acceptable evidence, that the assessee had concealed particulars of his income to any extent whatever."
7. After referring to the Full Bench decision of the Punjab and Haryana High Court in Vishwakarma Industries v. CIT [1982] 135 ITR 652 and other decisions on the subject, the Supreme Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, laid down the law thus (p. 21) :
"We are of the opinion that the view of the Full Bench of the Punjab and Haryana High Court is the correct view when it states that it only makes a presumption but the presumption is a rebuttable one and if the fact-finding body on relevant and cogent materials comes to the conclusion that in spite of the presumption the assessee was not guilty, such conclusion does not raise any question of law."
8. The Supreme Court further observed that if a party comes within the mischief of the Explanation, then there is a presumption against, him and the onus to discharge the presumption lies on the assessee, but being a presumption, it is a rebuttable one, and if on appropriate materials the Tribunal has rebutted that presumption, no question of law can be said to arise.
9. On a review of the decision, a Division Bench of this court in CIT v. Saraf Trading Corporation [1987] 167 1TR 909 stated the gist of the law thus (Headnote) :
"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."
10. The position of law that emerges is that if the returned income is less than 80% of the assessed income, a presumption is raised against the assessee that he is guilty of fraud or gross or wilful neglect This presumption can be rebutted by him on producing relevant materials It is thus for the fact-finding authority to evaluate the relevancy and sufficiency of those materials. If that authority comes to the conclusion that the onus of proof charged on the assessee by the Explanation is discharged, that becomes a conclusion of fact. In such a case, no question of law arises.
11. Adverting to the facts of this case, it has to be mentioned that there has been concealment of income in the return submitted by the assessee with regard to the stock of gold. The explanation of Sri Jose who filed the return on behalf of the partnership was that he was not aware of the manipulations in the accounts and that, on knowing about the malpractices found to have been carried out in the business, he had put an end to the same. The assessment for 1972-73 was taken up for hearing on November 22, 1972. It was in the course of that hearing that the assessing authority noticed that the assessee had shown advances received from customers, of gold weighing more than 9 kilograms. Since no dealer can possess more than 9 kilograms under the Gold (Control) Act or under the Central Excise Rules, the assessee was requested to give the details of names and addresses of the parties who had entrusted gold to him. The assessee informed the Income-tax Officer that the gold represented their own stock and it was the accumulation over a period of years. It was admitted that this accumulation was liable to be assessed in respect of the assessment years. It appears that the advocate for the assessee admitted before the Assessing Officer on November 22, 1972, that the gold stock represented the assessee's stock. On December 8, 1972, a letter was written by the assessee to the Income-tax Officer referring to the admission made by the advocate that the firm had not disclosed the correct income in the past and that the same had been brought to account in the shape of gold advances received for manufacturing ornaments, It was contended before the Tribunal that Sri Jose filed a return on the basis of the account and, at that time, he had no reason to suspect that there was suppression of income in the account by making false entries regarding the stock of gold. It was further contended that Sri Jose became aware of the true position only when the matter came under scrutiny during the proceedings relating to the assessment year 1972-73 and that the partners had immediately admitted the correct position and agreed to the escaped income being assessed. On a consideration of these circumstances, the Tribunal opined that it cannot be presumed that Sri Jose was in the know of everything that was going on in the business. The managing partner was his father who had been carrying on the business earlier. A partnership was formed by taking his major children as partners and admitting the minors to the benefits of the partnership. The Tribunal is of the opinion that it is probable that the management of the business was entirely in the hands of Sri Antony arid that the children have been involved in their studies. The Tribunal was not inclined to believe that Sri Jose became aware of the fact that the entries in the accounts with regard to the gold stock were fictitious. While finding that there was concealment of income in the accounts by false entries with regard to gold stock, the Tribunal considered the circumstance that the management suddenly passed to the young and inexperienced sons of Antony who chose to file the return on the basis of the accounts available with them. Since the return was filed under such circumstances, the Tribunal observed that it cannot be said that Sri Jose was acting fraudulently or with gross or wilful neglect, For the above mentioned reasons, the Tribunal accepted the explanation of the assessee that when the return was filed by Jose, he was not aware of the manipulations in the accounts. Having accepted the explanation of the assessee, the Tribunal proceeded to hold that there was no fraud or any gross or wilful neglect on the part of the assessee in not showing the correct income in the original return.
12. Assailing the above finding of the Tribunal, Sri P, K. R. Menon, learned counsel for the Revenue, would contend that the Tribunal having found that there was concealment of income in the accounts by making false entries with regard to the gold stock (paragraph 18 of the Tribunal's order), the Tribunal has committed a grave error in accepting the explanation offered by the managing partner, Sri Jose. Whether the burden of proof in a given case has been discharged is a question of fact. Whether the presumption under the Explanation to Section 271(1)(c) of the Income-tax Act had been rebutted by evidence is also a question of fact: see CIT v. Shri Pawan Kumar Dalrnia [1987] 168 ITR 1 (Ker). On the facts and circumstances, the Tribunal found the explanation to be acceptable. That is a question of fact. No question of law, therefore, arises. That does not mean that any and every explanation offered by the assessee should be accepted. The Supreme Court, in Mussadilal Ram Bharose's case [1987] 165 ITR 14, agreed with the observation of the Patna High Court in CIT v. Nathulal Agarwala and Sons [1985] 153 ITR 292 [FB], that as to the nature of the explanation to be rendered by the assessee, it was plain on principle that it was not the law that the moment any fantastic, or unacceptable explanation was given, the burden placed upon him would be discharged and the presumption rebutted. The Supreme Court further agreed with the view of the Patna High Court that it is not the law that any and every explanation by the assessee must be accepted. It was observed that it must be an acceptable explanation, acceptable to a fact-finding body. If such a fact-finding body comes to the conclusion that the assessee has discharged the onus, it becomes a conclusion of fact.
13. On behalf of the Revenue, Sri Menon would contend that the question is not a pure question of fact but is a mixed question of law and fact Relying on the decision in Monghyr Electric Supply Co. Ltd. v. CIT [1954] 26 ITR 15 (Patna), it is contended that the Tribunal has applied a wrong legal principle and the matter passes from the realm of fact into the realm of law. The Patna High Court, in that case, held that the High Court is entitled to interfere with the finding of the Appellate Tribunal in such a case. An argument was advanced in that case that the question whether a certain item of receipt is of a capital nature or of a revenue nature has to be treated as a question of fact which the Appellate Tribunal was competent to determine. The Patna High Court held that the question at issue was not a pure question of fact but a mixed question of fact and law. But this court in CIT v. Shri Pawan Kumar Dalmia [1987] 168 ITR 1, has held that the question whether the burden of proof in a given case has been discharged is a question of fact and further that the question whether the presumption under the Explanation to Section 271(1)(c) of the Income-tax Act had been rebutted by evidence is also a question of fact So, the initial burden of proof is cast on the assessee and it has only to be seen whether the assessee has discharged that onus either by direct evidence or by circumstantial evidence or by both. What has to be looked into is only whether relevant and cogent materials had been furnished before the fact-finding authority for coming to the conclusion that the assessee was not guilty. On the rendering of such a finding, the assessee had discharged the onus cast on him by the Explanation and, as observed by the Supreme Court, the finding becomes a conclusion of fact.
14. Learned counsel for the Revenue urged that the assessee is precluded from contending that he had not concealed the particulars of his income nor can it be contended that the concealment was not known at the time of submission of the return. It is his contention that the return was submitted by Sri Jose, one of the partners of the firm, and his acts bind the firm. Attention is drawn to Section 19 of the Partnership Act which says that, subject to the provisions of Section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. According to counsel, Sri Jose had acted under this implied authority. It is also pointed out that the signing of the return by-one of the partners amounts to an admission by the firm of the correctness of the contents of the return which concerns the affairs of the firm and the return is evidence against the firm in view of Section 23 of the Partnership Act. Every partner is liable jointly with all the other partners and also severally, for all the acts of the firm done while he is a partner. Counsel would, therefore, contend that the assessee being a firm and the return having been submitted by one of the partners, the act of that partner binds the firm. There cannot be any dispute regarding these propositions of law. That there has been concealment of income has been found by the Tribunal. That the total income returned is less than 80% of the total income assessed is also not disputed. The Explanation to Section 271(1)(c) also raises a presumption that, in such a case, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. Such a presumption was drawn by the Tribunal and, thereafter, the question whether the assessee has proved absence of fraud or gross or wilful neglect on his part was considered by the Tribunal. The Tribunal was aware of the direction of this court in CIT v. P.T. Antony and Sons [1985] 151 ITR 34, and the limited question which it was called upon to consider. That is manifest from the following observation contained in paragraph 11 of the Tribunal's order :
"The only question that the Tribunal has now to consider is whether the assessee had shown that the failure to furnish the full particulars of the income in the original return was not due to any fraud or gross or wilful neglect and this is exactly what the Hon'ble High Court directed this Tribunal to do."
15. In accordance with the direction of this court, the Tribunal has proceeded with the enquiry into the question. After a consideration of the facts and circumstances and the explanation of the assessee, it was found that the assessee has discharged the burden cast on it and has shown that the failure to show the correct income in the original return was not due to any fraud or gross or wilful neglect on the part of the assessee. It was for this reason that the Tribunal found that no penalty is leviable. The Tribunal has given valid reasons for arriving at this conclusion. We had adverted to these reasons earlier in this judgment. The conclusion reached by the Tribunal is on a question of fact. No question of law arises for consideration. No error of law has been committed by the Tribunal requiring correction by this court.
16. The reference is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.
17. A copy of the judgment under the seal of the court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin.