Andhra HC (Pre-Telangana)
Commissioner Of Income-Tax vs Sait Khubchand Perumal on 2 April, 1987
Equivalent citations: [1988]169ITR278(AP)
Author: B.P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
JUDGMENT B.P. Jeevan Reddy, J.
1. The following two questions are referred for the opinion of this court under section 256(1) of the Income-tax Act, 1961 :
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the penalty levied under section 271(1) (c) of the Income-tax Act, 1961, could not be sustained for the assessment year 1979-71 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justifies in law in holding that the Inspecting Assistant Commissioner did not lose jurisdiction to levy penalty in spite of the subsequently changes in law ?"
So far as the second question is concerned, it has to be answered in favour of the Revenue and against the assessee, following the judgments of this court in Addl. CIT v. Dr. Khaja Khutabuddinkhan and Uma Maheswari and Company v. CIT . Answered accordingly. We shall, therefore, state the facts in so far as they are relevant to the first question.
2. The assessee is an individual carrying on money-lending business. The assessment year concerned is 1970-71. Assessment was made for this assessment year on February 4, 1971, on a total income of Rs. 71,400. In view of the material brought to light during the survey of the assessee's premises some time in October, 1970, by the departmental authorities, the assessments were reopened for the assessment years 1967-68 to 1970-71 under section 147(a) of the Act. In the course of survey operations, the departmental authorities came across a number of bank pass books standing in the names of the wife and children of the assessee, including his married daughter. They disclosed several deposits made on different dates, in different years, in their names. During the reassessment proceedings, the Income-tax Officer called upon the assessee to state why the bank deposits in the accounts of his wife and children should not be treated as his income from undisclosed sources. The explanation offered by the assessee was that the said amounts represented gifts received by his wife and children from close relatives on various religious and other festive occasions. The Income-tax Officer rejected the said explanation and included the same in the income of the assessee. The income so added for the assessment year 1970-71 came to Rs. 29,298. An appeal preferred by the assessee against the said reassessment order failed. The income-tax Officer also initiated proceedings under section 271(1) (c) and referred the matter to the Inspecting Assistant Commissioner for further action. Notice was served by the Inspecting Assistant Commissioner upon the assessee's fixing the date of hearing as March 10, 1978. On that date, the assessee's authorised representative requested for an adjournment which was granted and the matter posted to April 22, 1978. On this date too, the authorised representative sent another adjournment application on the ground of some domestic reasons. The Inspecting Assistant Commissioner, however, refused to great any adjournment and proceeded to dispose of the matter ex parte, particularly because the proceedings were likely to get barred by limitation shortly. On merits, the Inspecting Assistant Commissioner held that the statements of the wife and children of the assessee recorded during the assessment proceedings by the Income-tax Officer do not merit acceptance. He first referred to the reasons for which the Income-tax Officer rejected the said statements and observed :
"Even I also feel in the same way in the absence of any proof to show that these amounts came in the form of cash gifts in the hands of the assessee's wife and children on certain festival occasions and birthdays from relatives. As can be seen from the nature of accounts, these amounts were received so frequently and also in big amounts ranging between Rs. 200 to Rs. 1,200. I do not think there can be so many festivals and birthdays and even if they are there, there cannot be so many gifts totaling these big amounts. I am, therefore, of the opinion that the assessee had intentionally disguised these amounts as cash gifts from relatives in the names of the wife and children though in fact these amounts have flown from the assessee's undisclosed sources of income. The total of these undisclosed amounts as finally upheld by the Appellate Assistant Commissioner stood at Rs. 21,731 and this should be treated as concealed income for the purpose of penalty proceedings. I would, therefore, levy a minimum penalty of Rs. 21,731 (Rupees twenty-one thousand seven hundred and thirty-one only) and direct the income-tax Officer to issue demand notice and challan for the said amount and collect the same...."
3. The order of the Inspecting Assistant Commissioner was challenged by the assessee by way of an appeal before the Income-tax Appellate Tribunal. The Tribunal referred to the relevant provisions of law and a decision of the Gujarat High Court and observed :
"In the present case, the explanation given by the assessee is corroborated by the statements of his wife and children recorded by the Income-tax Officer in the assessment proceedings. The Department has not brought on record any positive evidence to contradict the testimony of the assessee, his wife and children. It may be that in the assessment proceedings the testimony of the wife and children of the assessee is not considered sufficient to discharge the burden of proof cast upon the assessee under section 69. But, in penalty proceedings, their evidence is sufficient, in our opinion, for holding that the presumption enacted in the Explanation under section 271(1) (c) stands rebutted by preponderance of probabilities..."
4. The Tribunal then observed that once the assessee discharged the initial burden of rebutting the said presumption, the burden shifts to the Department to prove by cogent evidence that the disputed amount represents the assessee's income of the relevant year, and that he has concealed the same, as explained by the Supreme Court in Anwar Ali's case and in the case of CIT v. Khoday Eswarsa and Sons . The Tribunal also observed :
"In the present case, the Department has not brought on record any positive material to show that the disputed amount represents the concealed income of the assessee,"
"Except the fact that the statements of the assessee, his wife and children, as regards the source of the band deposits are disbelieved, there is no other material on record. It is now well settled that levy of penalty under section 271(1) (c) cannot be based on mere rejection of the assessee's explanation or of the evidence adduced by the assessee in support of the explanation. Since we hold that the assessee has discharged the burden of rebutting the presumption enacted in the Explanation under section 271(1) (c) and that the Department has not discharged the burden of proof resting upon it under the main paragraph of section 271(1) (c), the penalty levied is unsustainable and we accordingly cancel the same..."
Thereupon, the Revenue applies for referring two questions for the opinion of this court, viz. :
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the assessee discharged the burden of proof placed on him by the Explanation under section 271(1) (c) of the Income-tax Act ?
(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the penalty levied under section 271(1) (c) is unsustainable ?"
The Tribunal, however, thought that the first question need not be referred "as it raises a pure question of fact". It referred only the second question. We are referring to this aspect for the reason that an argument was urged before us by Sri Y. Ratnakar, learned counsel for the assessee, that inasmuch as the Tribunal has refused to refer the first question, the correctness of the finding of the Tribunal that the assessee has discharged the burden of proof placed upon him by the Explanation to section 271(1) (c), cannot be gone into by us in this reference. We must say that it is not possible to agree with the said submission. Question No. 2 as referred does take in question No. 1. Of question No. 1 is not held to be implicit within question No. 2 and both are treated as distinct and independent questions, then the referring of question No. 2 alone becomes wholly meaningless and an exercise in futility. Once the finding of the Tribunal referred to in question No. 1 (of the two questions which were asked to be referred by the Department is taken as final, there is no point in going into question No. 2; its answer can be only one way, i.e., in the affirmative - in favour of the assessee and against the Revenue. We do not think that the Tribunal would have indulged in such an exercise in futility, though some of its observations in the statement of case tend to support the contention of Sri Ratnakar. To make the questions referred to us meaningful and applying the test of reasonable interpretation to order of the Tribunal, we are inclined to hold that question No. 2 of the two question No. 1 and, therefore, it is open to us to go into the correctness of the finding of the Tribunal that the assessee has discharged the burden placed upon him by the said Explanation. We may reiterate that question No. 2 asked by the Department to be referred to this court now constitutes question No. 1 of the two questions actually referred.
5. Before preceding further, we may state that the assessment year concerned herein, being the assessment year 1970-71, the Explanation to section 271(1) (c), as it stood then, governs the case, and not the Explanation as it was amended in 1976, or as it obtains now. Section 271(1) (c) and the relevant Explanation, as obtaining at the relevant time, reads thus :
"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, he may direct that such person shall pay by way of penalty.....
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 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 willful 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."
There has been a good amount of case law upon this provision. For the purpose of the present reference, however, it is unnecessary to refer to all of them, except two recent decisions - one a Full Bench of this court in CIT v. Abdul Bakshi and Brothers [1986] 160 ITR 94 and the other of the Supreme Court in CIT v. Mussadilal Ram Bharose .
6. In CIT v. Abdul Bakshi and Brothers [FB], a Full Bench of this court considered the effect of the Explanation in the context of section 271(1) (c). The assessment year concerned therein was 1967-68. (It may be noticed that the Explanation we are now considering was introduced by the Finance Act, 1964, with effect from April 1, 1964). The Full Bench held : once the income returned is less than 80% of the assessed income, the Explanation applies and two presumptions follow therefrom, viz., (a) that the amount of assessed income is the correct income and is in fact the income of the assessee; and (b) that the failure of the assessee to return the correct assessed income was due to feud or gross or willful neglect on the part of the assessee; the presumptions raised by the Explanation are not conclusive but are rebuttable; the initial burden of discharging the onus of rebuttal lies upon the assessee; once the initial burden is discharged, the assessee would be out of the mischief of the Explanation until land unless the Revenue is able to establish that the assessee in fact concealed the particulars of his income or furnished inaccurate particulars thereof; if the assessee fails to discharge the said onus, penalty can be levied straight-away without anything further. In case, however, he discharges the said initial burden, the onus shifts to the Revenue to establish that the assessee concealed his income; the assessee can discharge the onus lying upon him either with the help of the material already on record or by adducing such fresh evidence during the penalty proceedings as he may choose. It is, of course, open to him to seek to discharge the said onus even without adducing fresh evidence or fresh material, as the case may be; penalty proceedings are distinct from assessment proceeding; the findings recorded in the assessment proceedings are relevant, but not conclusive; merely because certain evidence was disbelieved in the assessment proceedings, it cannot automatically be held in the penalty proceedings that the assessee has failed to discharge the aforesaid onus.
7. In CIT v. Mussadilal Ram Bharose , the Supreme Court had occasion to deal with the said provisions. The assessment year concerned therein was 1965-66. It was held that once it is shown that the income returned is less than 80% of the income assessed, the Explanation comes into operation and shifts the burden to the assessee to show that the difference was not owing to fraud or gross or wilful neglect on his part. It was held further that in a case where the Tribunal is satisfied on relevant and cogent material on record and draws an inference therefrom that the assessee was not guilt of gross or willful neglect or fraud, then the assessee cannot come within the mischief of the section and cannot suffer penalty. The conclusion of the Tribunal, it was held, is a conclusion of fact and no question of law can be said to arise therefrom. It was, however, explained that the burden placed upon the assessee is not discharged by any fantastic explanation; the law does not say that any and every explanation acceptable to a reasonable man.
8. Applying the principles of the above two decisions, let us consider the facts of this case. In this case, the income returned is less than 80% of the income assessed. Therefor, the Explanation is attracted and it will be presumed that the failure of the assessee to return the correct income was due to fraud or gross or willful neglect on his part. He had to rebut this presumption. That could be done either by relying upon the material already on record in the assessment proceedings or by adducing such fresh evidence in the penalty proceedings as he might have chosen. The assessee did not choose to produce any fresh material or evidence in the penalty proceedings. Indeed, his representative did not even participate in the proceedings. On both the dates of hearing fixed, he merely sent an application for adjournment. His application on the second date of hearing was refused and the said refusal has been held to be justified and proper by the Tribunal, which finding is not open or canvassed before us. Therefore, the only material before the Inspecting Assistant Commissioner was the material which was adduced by the assessee during the assessment proceedings. In those proceedings, the statements of the wife and daughters of the assessee were recorded. Those statements were disbelieved by the Income-tax Officer and the deposits were added to the assessee's income. Now, this is not a case where the Inspecting Assistant Commissioner merely referred to the finding of the Income-tax Officer for rejecting the said evidence and considered that very same material over again and for the reasons recorded by him afresh, he disbelieved the said statements and levied penalty. In other words, the Inspecting Assistant Commissioner was of the clear opinion that the material on record is not sufficient to rebut the presumption arising against the assessee by virtue of the Explanation. The order of the Inspecting Assistant Commissioner was challenged in appeal before the Tribunal. It was open to the Appellate Tribunal to refer to the said material and, on a proper discussion, either to accept it or reject it - of course, for reasons to be recorded by it. But, in this case, we find on a perusal of the Tribunal's order that the Tribunal has not at all discussed the said evidence, nor haws it given any reasons for accepting the same. It has also not given any reasons for overseeing the finding of the Inspecting Assistant Commissioner, nor has it taken care to say why, land for what reasons, the finding of the Inspecting Assistant Commissioner is wrong. Without any discussion of the said material, the Tribunal abruptly accepted the said evidence (statements of the wife and daughters of the assessee). The only reason the Tribunal appears to have given is that the said evidence is in accord with the explanation of the assessee. The explanation of the assessee can hardly be called a corroboration. Corroboration must be by other evidence and not by the explanation of the assessee. The said material is evidence in support of the assessee and in such a case, the explanation which is in the nature of a pleading in civil case, cannot be used as corroborative evidence of the said material. The Tribunal placed great reliance upon the fact that the Department has not bought on record any positive evidence to contradict the testimony of the assessee and his wife and children, land then concluded that the material already on record is sufficient to rebut the presumption arising from the Explanation. We are of the opinion that the judgment of the Tribunal is wholly defective unsustainable in law. The Tribunal is the final court of fact. As pointed out by the Supreme Court, if the Tribunal records a finding on cogent and relevant material and applies a reasonable standard and test, its finding is not open to question under section 256. But, this finality can be accorded to the finding of the Tribunal only when it is based upon no only relevant and cogent evidence, but is also supported by reasons therefor. The minimum that is expected of the Tribunal is that it discusses the evidence and gives reasons for its conclusion. It cannot merely state its conclusion and ask it to be accepted by this court. In this case, in particular, the Tribunal was reversing the finding of the Inspecting Assistant Commissioner is not correct and for what reasons the said evidence is liable to be accepted as sufficient to rebut the presumption arising against the assessee from the Explanation. The Tribunal ought not to have treated this matter in a cavalier fashion or as a summary proceeding, more particularly when it was reversing the finding of the authority below. Until and unless the assessee succeeded in rebutting the presumption arising from the Explanation, no occasion could have arisen for the Tribunal to see whether and what material the Department has brought on record to sustain the penalty.
9. For the above reasons, we decline to answer the first question and call upon the Tribunal to re-hear the appeal only to the extent of the first question and pass orders afresh in accordance with law and in light of the observations contained herein. We make it clear that it shall be open to the Tribunal to hear the counsel/representatives of the parties over again, but it shall not be open to it to receive any fresh material or evidence on the part of either the assessee or the Revenue.
10. Reference is answered in the above terms. No costs.