Patna High Court
Addl. Commissioner Of Income-Tax vs Prasadi Sao Rajendra Prasad on 24 August, 1983
Equivalent citations: [1984]145ITR504(PATNA)
JUDGMENT
1. Pursuant to the direction of this court by order dated July 15, 1974, a reference has been made by the Income-tax Appellate Tribunal, Patna, under Section 256(2) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), for the opinion of this court on the following question of law:
"Whether, on the facts and in the circumstances of this case, the Tribunal was justified in holding that the imposition of penally on the assessee under Section 271(1)(c) of the Income-tax Act, 1961, as it stood amended at the relevant time, was not correct in law?"
2. A statement of the case has been submitted by the Tribunal which will speak out the facts on record in respect of the assessment year 1964-65. The assessee filed a return disclosing an income of Rs. 1,110 only. The ITO determined the total income at Rs. 25,610 which was reduced in appeal to Rs. 23,610. The addition was made for an amount of Rs. 22,500 which represented cash credits in the names of four partners of the assessee-firm as follows:
Rs.
5,000 on 4-1-63--Prasadi Sao 7,500 on 4-1-63--Ramdhari Sao 7,500 on 4-1-63--Thakuri Sao 2,500 on 4-1-63--Rameshwar Prasad.
3. The ITO imposed a penalty of Rs. 5,773 with reference to these additions of cash credit and he held that the assessee had knowingly furnished inaccurate particulars of his income with a clear intention of evading taxes. The order of the ITO imposing penalty has been marked annex. A to the statement of the case.
4. When the matter went up before the AAC in appeal, it was pleaded before him that the assessee had explained the source of the credit before the ITO as well as before the AAC but that explanation has not been accepted by either of the authorities. It was also submitted that the firm started its business and the partners deposited the amounts as capital and, therefore, it could not form part of the income of the firm and, if at all, it could be treated as income of the partners. The AAC found that the partners had no substantial means to own these amounts. He, therefore, held that the penalty was imposable though he reduced the quantum of penally to Rs. 2,000 only. The order of the AAC has been marked annex. B.
5. When the matter further came up in appeal before the Tribunal, it was pleaded on behalf of the assessee that even assuming the explanation as given by the assessee to be not satisfactory or acceptable, the penalty could not be imposed unless it was established by the Department that the amount in dispute constituted an income of the assessee. The Tribunal agreed with this contention and held that the Department had not brought any evidence on record to prove that the amounts in question were the income of the assessee which the assessee had concealed. The Tribunal referred to certain case law and held that the proceeding being penal in character, the burden was on the ITO to establish that the assessee had committed the offence charged against him. The Tribunal, therefore, held that penalty was not imposable and allowed the assessee's appeal.
6. We may at once state that the Tribunal has completely misdirected itself on the question of law. The law with regard to imposition of penalty for deliberate and conscious concealment of income has undergone substantial change by the insertion of the Explanation to Section 271(1)(c) of the Act. Prior to the Explanation appended to that clause, the entire burden was on the Department to prove by positive evidence that there was a conscious and deliberate concealment of income for the purpose of evading tax as was the law laid down in the case of CIT v. Anwar Ali [1970] 76 ITR 696. The insertion of the Explanation has brought about a statutory presumption that in case of a difference of more than 20% in the returned income and the income assessed, the presumption would be that the assessee has deliberately concealed his income and the initial onus is on the assessee to rebut that presumption and then only the onus shifts back to the Department and the law as laid down in Anwar Ali's case [1970J 76 ITR 696 (SC), comes into play. It is true that the initial burden of proof which has been laid on the assessee is one of a negative fact for which there can hardly be the same standard of proof as in the case of a positive fact to be proved. The law in this regard is now so well settled that we may merely quote two passages from the case, CIT v. Patna Timber Works [1977] 106 ITR 452 (Pat), which is a Bench decision of this court and has been accepted and followed by practically all the High Courts and no discordant note has been struck anywhere. In Patna Timber Works' case, at p. 459, Untwalia C.J., speaking for the Bench, stated as follows:
"But in a case which is covered by the Explanation, the burden has been thrown on the assessee to prove absence of certain ingredients; otherwise, it will be permissible to draw the presumption of fact that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. In a case where there is a difference of more than 20 per cent. in the income returned by any person and the total income as assessed under the various provisions of the Act, the Explanation is attracted. While calculating the difference of 20 per cent. between the income returned and the income assessed, from the latter has got to be deducted the amount of expenditure incurred bona fide by the assessee for the purpose of making or earning income included in the total income but which has not been allowed as a revenue expense or a permissible deduction under any provision of the Act. As soon as it is found that there was a difference of more than 20 per cent, in the income returned and the income assessed, Clause (c) comes into operation by the rule of presumption, in other words by the rule of evidence engrafted in the Explanation, and it is for the assessee to prove that the failure to return the correct income, i.e., the assessed income did not arise from any fraud or gross or wilful neglect on his part. If he succeeds in discharging that onus, even though the difference in the amount of the returned income and the assessed income was more than 20 per cent, no penalty can be imposed under Section 271(I)(c). And that, in my opinion, clearly gives a key to the interpretation of the main provisions contained in Clause (c) after its amendment in 1964."
7. With regard to the question of proof necessary for the assessee to displace the onus, it has been laid down that the question of proof would be that required in a civil case, namely, preponderance of probability. In that regard, Untwalia C.J. has said at p. 462:
"It is always to be remembered that the standard of proof applicable to prove a positive fact and the one which is required to prove a negative fact cannot be the same. A high standard is always applied for the proof of a positive fact while the standard of preponderance of probability is sufficient to prove a negative fact. The assessee, within the meaning of the Explanation, is required to prove that the failure to return correct income did not arise from any fraud or gross or wilful neglect on his part, that means, there is absence of fraud or gross or wilful neglect. Ordinarily and generally there cannot be any direct evidence to prove such a fact. The assessee merely has to place materials of the primary facts or the circumstances which in all reasonable probability would show that he was not guilty of any fraud or gross or wilful neglect. He may discharge this onus by placing the facts found in the assessment order to show that the facts found therein had not in the least given an inkling of fraud or gross or wilful neglect on the part of the assessee and, therefore, it must be held without proof of any other fact that there was no fraud committed by the assessee in his failure to return the correct income nor was he acting grossly or wilfully negligently."
8. So far as the last part of this question is concerned, we are not concerned, because that relates to the special facts of that case but the general principle has been thus laid down. The Tribunal seems to have been oblivious of these well-settled principles of law. All that the Tribunal has said is that even if the explanation offered by the assessee has been found to be unsatisfactory or false, the onus is on the Department to prove that it was the income of the assessee. That, in its turn, will also indicate that the Tribunal had not applied its mind to Section 68 of the Act, which raises another statutory presumption. Section 68 reads thus:
"Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
9. This Section makes no exception as to whether the business was started for the first time or the assessee was an old one. This we have emphasised merely on account of the fact that in the instant case the business was started on 4th January, 1963, and the assessment year in question is 1964-65 relating to the accounting year 1963-64.
10. We are, therefore, constrained to take a view that the case has to go back to the Tribunal for a reappraisal of the evidence and the materials on the record and to find out as to whether the initial onus placed on the assessee by the insertion of the Explanation to Section 271(1)(c) of the Act has been discharged or not and then only can the onus shift to the Department. With regard to the standard of proof, we have already said what is the law laid down and well settled.
11. Mr. K. N. Jain, learned counsel for the assessee, submitted that the assessee had also offered explanation that it had income from agricultural sources which has not been taken notice of either by the ITO or by the AAC or by the Tribunal. It will be for the Tribunal while hearing the parties afresh in the matter to examine this question and to see whether there is any merit in this case or not and if it is a fact that through oversight or inadvertence such an explanation has not been taken notice of. The assessing and the appellate authorities shall always bear in mind in all future cases that all the explanations offered by the assessee should be taken notice of and none of them for whatsoever reason be left out. In this connection, Mr. B. P. Rajgarhia, learned senior standing counsel on behalf of the Revenue, placed reliance on the case of CIT v. M. Habibullah [1982] 136 ITR 716 (All), which says that where the circumstances under which the penalty could not be levied on the assessee were considered in the assessment proceeding and were not believed, a different interpretation could not be put on these circumstances in penalty proceedings. Where the assessee produces no fresh evidence and presents no additional or fresh circumstances in the penalty proceedings, he would be deemed to have failed to discharge the onus placed on him and the levy of penalty on the assessee would be valid. It will also be open to the Tribunal to have this aspect of the law in view while dealing with the matter afresh.
12. We, accordingly, are of the opinion that the question referred to us must be answered in the affirmative and we hold that, on the facts and in the circumstances of this case, the Tribunal was not correct in law in deleting the penalty imposed on the assessee under Section 271(1)(c) of the Act as it stood amended at the relevant time. The case is accordingly sent back to the Tribunal. There shall be no order as to costs on the facts and in the circumstances of the case.