Gujarat High Court
Usha Fertilizers vs Commissioner Of Income-Tax on 29 August, 2002
Equivalent citations: [2004]269ITR591(GUJ)
Author: A.R. Dave
Bench: A.R. Dave
JUDGMENT D. A. Mehta, J.
1. The Income-tax Appellate Tribunal, Ahmedabad Bench "A", has referred the following question :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the penalty of Rs. 43,000 under Section 271(1)(c) of the Income-tax Act, 1961 ?"
2. For the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (for short "the Act").
3. The assessment year is 1975-76 and the relevant accounting period is year ended on June 30, 1974. The applicant-assessee is a partnership firm which came into existence with effect from April 1, 1974, under a deed executed on April 2, 1974. The said partnership comprised of one Shri Arvindkumar Babubhai and Smt. Kokilaben Chandravadan. The said Shri Arvindkumar was a student of first year in the college.
4. It appears that the assessee-applicant made payments on various dates without having sufficient cash balance on the date of payment. The details of such payments are as under :
------------------------------------------------------------------------------------
Sr. Amount Actual date of pay- Date on which the Opening cash balance on
No. ment as confirmed entries were passed hand as per assessee's
from the sellers in the books of the books on date on which
books of account assessee-firm actual payments were
made
------------------------------------------------------------------------------------1 2 3 4 5
------------------------------------------------------------------------------------
1. Rs. 10,000 15-4-74 10-5-74 Rs. 32.20
2. Rs. 10,980 22-4-74 10-5-74 Rs. 34.25
3. Rs. 43,300 10-5-74 13-5-74 Rs. 31,467.25
------------------------------------------------------------------------------------
Rs. 64,280
------------------------------------------------------------------------------------
5. The Income-tax Officer, therefore, added a sum of Rs. 64,280, as income from undisclosed sources. The assessee's appeal against the said assessment failed up to the level of the Tribunal and thus the addition came to be confirmed. Thereupon, the Income-tax Officer took up penalty proceedings under Section 271(1)(c) of the Act and by order dated July 26, 1982, levied penalty of Rs. 43,000 (the minimum being Rs. 42,952). The said penalty was confirmed by the Commissioner of Income-tax (Appeals) and also by the Tribunal. It is against the aforesaid order of the Tribunal dated May 13, 1986, that the present reference has been preferred.
6. Mr. S. N. Divetia, the learned advocate appearing on behalf of the applicant-assessee, submitted that the penalty had been wrongly levied and confirmed by the authorities below. In support of this proposition it was submitted that the assessee had tendered its explanation to the effect that it had borrowed various sums from different parties and instructed the accountant one Shri Mohanbhai D. Patel at the relevant point of time to pass necessary credit entries in the books of account, but the said accountant had failed to do the needful and the assessee came to know about the same only when its explanation was sought by the Income-tax Officer during the course of assessment proceedings. It was further submitted that at that point of time a period of four years had elapsed and the assessee was not in a position to give the names of the persons from whom the borrowings had been made because the assessee did not remember the names of the said persons. It was further submitted by him that the assessee had placed complete faith in the accountant and at the relevant point of time when the assessment proceedings were going on the relations with the accountant had been strained resulting in the assessee being unable to substantiate its explanation. In support of the submission, that on these set of facts and circumstances no penalty was leviable reliance was placed on the following three decisions of this court :
(1) National Textiles v. CIT [2001] 249 ITR 125 ;
(2) Kantilal Manilal v. CIT [1981] 130 ITR 411 ; and (3) CIT v. Jalaram Oil Mills [2002] 253 ITR 192.
7. An alternative contention was raised by Mr. Divetia to the effect that the authorities below, including the Tribunal failed to apply the correct provision of law and hence the matter should be remanded to the Tribunal for applying the correct provision and appreciate the explanation of the assessee in the light of the same. It was submitted that Explanation 1 to Section 271(1)(c) of the Act as was applicable from April 1, 1976, had been applied in the case of the assessee instead of the Explanation which was applicable up to March 31, 1976. It was contended that the scope of both the Explanations, i.e., one which existed up to March 31, 1976, and one which was applicable from April 1, 1976, was different and the assessee should not be penalised by invoking an Explanation which was not applicable to the assessment year under consideration. In support of the alternative contention reliance was placed on a decision of this court in the case of CIT v. Baroda Tin Works [1996] 221 ITR 661.
8. Mr. B. B. Nayak, learned standing counsel appearing on behalf of the respondent-Revenue, submitted that the Tribunal had recorded the findings of fact and it was not shown that the same were in any way incorrect in law and hence it was not permissible for this court to reappreciate the facts and evidence on record. Mr. Nayak accepted the proposition that for the assessment year under consideration the Explanation which existed up to March 31, 1976, was applicable, but went on to contend that even if the said Explanation was invoked the principles laid down by the Supreme Court in the following cases had to be applied to the facts found.
(1) CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 ; and (2) CIT v. K, R. Sadayappan [1990] 185 ITR 49.
9. He also contended that as required by the said provision the assessee had failed to discharge the burden which lay upon the assessee and further that the explanation tendered by an assessee had to be real and plausible and which was supported by some cogent material evidence. It was therefore con tended that no case was made out to interfere with the order of the Tribunal in any view of the matter.
10. There is no dispute between the parties that the Explanation as was existing up to March 31, 1976, was applicable in the case of the assessee for the assessment year under consideration. We would have accepted the plea for remanding the matter to the Tribunal for applying the said Explanation, but for the fact that the assessee has not been able to show, even prima facie, that on the facts which have already come on record it would be in a position to tender any explanation which would enable the assessee to discharge the rebuttable presumption which would arise by virtue of the statutory Explanation under Section 271(1)(c) of the Act.
11. The facts which have come on record and which are not disputed, show that the assessee had made payment on certain dates when no sufficient cash was available with the assessee. The factum of payment on that particular day has been established from the contra accounts of the parties from whom the assessee had purchased goods, thus leaving no scope for disputing the factum of payment on a particular day. The explanation of the assessee that it had borrowed certain funds and instructed the accountant to pass the necessary credit entries in its books of account remains a bald averment in the absence of the details regarding the names of the persons, the amount advanced or even the dates when the borrowings were made or repaid, whether with or without interest. Furthermore, the assessee has chosen to keep the accountant away from the scrutiny during the course of an inquiry. It was submitted that the accountant could not be produced as the relations were strained. Nothing has been brought on record to show that the assessee made any endeavour in the direction of producing the accountant during the course of assessment proceedings like asking the Income-tax Officer to send a letter to the accountant seeking clarification or getting summons issued asking the accountant to confirm the averment made by the assessee. In the light of these facts if the authorities, including the Tribunal, have come to the conclusion that the assessee has failed to discharge the onus which lay on it no infirmity can be found. The Supreme Court in the case of Mussadilal Ram Bharose [1987] 165 ITR 14 has specifically laid down the scope of the Explanation in the following words (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."
12. As to what could be the explanation by which the assessee can rebut the presumption raised against it, is stated by the apex court in the same decision in the following words while confirming the view expressed by the Full Bench of the Patna High Court in the case of CIT v. Nathulal Agarwala and Sons [1985] 153 ITR 292 (page 22) :
"The Patna High Court emphasised 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 we agree. We further agree that it is not the law that any and every explanation by the assessee must be accepted. It must be an acceptable explanation, acceptable to a fact-finding body."
13. We are aware that it would not be possible for the High Court to enter into a fact-finding exercise or reappreciate the evidence and we do not propose to do so. However, at the same time, it is apparent that the burden which is cast on the assessee remains undischarged when one applies the principles laid own by the apex court. As observed, the explanation has to be one which is not fantastic or unacceptable. It is not the law that any and every explanation by the assessee must be accepted. The facts which have come on record go to show that the assessee was not in a position to tender the names of its lenders at a period of four years from the date of payment during the accounting period, the assessee was not in a position to establish that it had issued any direction to its accountant. If this was the situation at a length of the period of four years, in the normal course of conduct of human affairs it is not believable that the assessee would be in a position to give the names of its lenders or establish that it had issued any instructions to its accountant after a period of 27 years or more.
14. In these circumstances, we do not find this to be a fit case whereby the applicant-assessee must be granted a second innings. As laid down by this court in the case of CIT v. Harikishan Jethalal Patel [1987] 168 ITR 472, it is necessary that foundational facts exist so as to raise even a remote doubt which would permit a party to seek a second innings as otherwise it would result in a situation whereby the case which is covered by a decision of the apex court would require to be reopened at any length of time. As already seen hereinbefore, there are no facts which would prima facie go to show that the assessee deserves a second innings.
15. In the light of what is stated hereinbefore the question referred to this court is answered in the affirmative, i.e., against the assessee and in favour of the Revenue. There shall be no order as to costs.