Patna High Court
Addl. Commissioner Of Income-Tax vs Jankidas Mohanlal on 11 April, 1984
Equivalent citations: [1984]150ITR588(PATNA)
JUDGMENT
1. This is a reference under Section 256(2) of the I.T. Act, 1961 (hereinafter to be referred to as " the Act" for the sake of brevity). Pursuant to this court's order/direction dated July 9, 1974, the Income-tax Appellate Tribunal, Patna, has submitted a case and referred the following question of law for our opinion :
" Whether, on the facts and in the circumstances of this case, the Income-tax Appellate Tribunal was justified in taking the view that imposition of penalty upon the assesses under Section 271(1)(c) of the Income-tax Act, 1961, as it stood at the relevant time, read with the Explanation appended thereto was bad in law ? "
2. The facts relevant for disposal of this case are set out in the statement of the case as submitted by the Tribunal. The assessee is a registered firm carrying on business in milling, arhat, film distribution and jute. The assessment year involved is 1964-65. The ITO made certain additions to the book results shown as he found that the commercial taxes authorities had seized a khata and a cash book from the assessee's business premises. Besides various additions made in the trading account, the ITO added Rs. 3,66,000 as income from undisclosed sources and the total income was determined at Rs. 9,38,292. This was later on enhanced by a sum of Rs. 1 lakh under Section 154 of the Act. A copy of the assessment order of the asses-see has been marked annexure "A" to the statement of the case. The ITO then initiated proceedings under Section 271(1)(c) and the IAC imposed a penalty of Rs. 1,14,360 by making a reference to the additions made by the ITO. This order of the IAC was passed before the appeals in the matter of quantum of assessment had been decided by the AAG or the Appellate Tribunal. The order of the IAC has been marked annexure "B" to the statement of the case.
3. The assessee then appealed against the reassessment order and the AAC allowed substantial relief to the assessee and the total income was reduced to Rs. 2,96,840 only as a result of the order of the AAC. On the assessee's further appeal to the Tribunal, the Tribunal reduced the total income to Rs. 2,46,840 only. The Tribunal found that the income has been considerably reduced in appeal and the cash credit of Rs. 3,66,000 had been fully deleted by the AAC himself. The Tribunal noted the provision of the Explanation to Section 271(1)(c) of the Act and held that the Explanation governed the field even after the reduction granted in appeal preferred by the assessee. The Tribunal considered that the additions, which still formed part of the total income, were on the basis of estimate and disallowances. According to the Tribunal, a case of concealment had never been made out and the bona fide of the expenses claimed but disallowed had not been doubted. It further held that there was no finding by the Department about the additions which had been retained that there was any concealment of income or filing of inaccurate particulars. The Tribunal was of the view that penalty could not be imposed unless metis rea was established and even if the Explanation to Section 271(1)(c) of the Act was applicable, concealment had to be established and it had to be found that there was furnishing of inaccurate particulars of income by the assessee. It accordingly cancelled the penalty order.
4. The Revenue's application under Section 256(1) of the Act for reference having been rejected, the Department came to this court and, as already stated earlier, this court under Section 256(2) of the Act directed the statement of the case to be submitted by the Tribunal.
5. Learned senior counsel on behalf of the Revenue vehemently urged that the application of the principle laid down by the Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696 and other cases was an erroneous approach in law. Learned counsel for the Revenue further submitted that no question of mens rea arises once the Explanation to Section 271(1)(c) of the Act was attracted. It was contended that the Explanation had been inserted in the statute having a far reaching consequence and whenever there is a difference of more than 20% between the income returned and the income actually assessed to tax, the onus, by virtue of the Explanation, lay on the assessee to show that there was no gross or wilful concealment on his/its part. Baldly stated, the proposition is sound in law. Therefore, the only question to be gone into in this case is as to whether the Tribunal was alive to and conscious of the provision of the Explanation to Section 271(1)(c) of the Act and as to whether the Tribunal has held either expressly or by necessary implication that the assessee had discharged its initial onus which lay on it. If we answer this question posed by us in favour of the assessee, then the case of the Department must fail, for it is settled law that once initially the onus is discharged by the assessee, the burden shifts back on the Revenue and the principle laid down by the Supreme Court in Anwar Ali's case [1970] 76 1TR 696 (SC) shall still hold the field.
6. In the case of CIT v. Sardar Bhagat Singh [1983] 142 ITR 836 (Pat), on a review of the relevant decisions on the point, held that though before the insertion of the Explanation to Section 271(1)(c) of the Act, the onus to prove all the ingredients for levying penalty was on the Department, as soon as it is found that there was a difference of more than 20 per cent, between the income returned and the income assessed, the presumption embodied in the Explanation is attracted and it is for the assessee to prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. What will amount to furnishing of inaccurate particulars with an element of fraud or gross or wilful neglect on the part of the assessee will depend upon the facts and circumstances of each case. A high standard is always applied for the proof of a positive fact while the standard of preponderance of probabilities is sufficient to prove a negative fact. What the Explanation requires of the assessee is the discharge of the onus of proof of a negative fact, namely, that there has been no active concealment or fraud or wilful neglect on the part of the assessee. Where the onus is on one to prove a negative fact, direct evidence, generally and ordinarily, may be hardly possible. It is, however, too well settled that circumstances of mere suspicion will not warrant the conclusion of fraud. If the broad probabilities of the explanation offered are such as may be believed, though not sufficient for conclusive proof, the onus to prove such a negative fact can well be said to have been discharged by the assessee. In the instant case, the Tribunal was fully conscious of, and alive to, the provision of the Explanation to Section 271(1)(c) of the Act. The Tribunal took into consideration the argument advanced on behalf of the assessee that the additions and disallowances were made just on estimate and it was never proved with cogent materials by the Department that these additions and disallowances were either earned by the assessee or were not spent for the purpose of business and thereby the assessee concealed income and furnished inaccurate particulars. Since there was no finding on this issue by the revenue authorities below, the Tribunal held that the penalty could not be sustained. While deleting the penalty, the Tribunal recorded a finding on the materials on record that the additions and disallowances were made by the Department just on estimate and the Department never proved that though the assessee earned a higher income, it did not disclose it and, therefore, the Department took additional income. The additional income was taken only just on estimate though the assessee might not have earned this income and similar was the position about the disallowances of the expenses. The Tribunal further recorded a finding that the bona fides of the expenses was never in doubt.
7. The main attack of the Revenue on the order of the Tribunal is that it was oblivious of the provision engrafted in the Explanation. This argument is wholly misconceived. It will bear repetition to say that the Tribunal more than once referred to the provision of the Explanation and in that light considered the submissions made on behalf of the assessee and accepted the proposition that the additions to the income and disallowances of the expenditure in the assessment proceeding of the assessee was based on bare estimate. In other words, the alleged imposition of penalty was more as a result of suspicion than on any material on the record to contradict the assessee's stand. Keeping the well-settled principle of law with regard to the true purport and meaning of the Explanation to Section 271(1)(c) of the Act, the Tribunal has for all practical purposes accepted the explanation furnished by the assessee that the preponderance of probabilities was in favour of the assessee which could very easily be accepted. Though the Tribunal may not have said so in so many words, the entire tenor of the Tribunal's order is a pointer to such an inference.
8. For the reasons given above, we answer the question referred to this court for opinion in the affirmative and hold that, on the facts and in the circumstances of this case, the Income-tax Appellate Tribunal was justified in taking the view that the imposition of penalty under Section 271(1)(c) of the Act read with the Explanation appended thereto at the relevant time was bad in law. The question is thus answered in favour of the assessee and against the Revenue. Since, however, the law with regard to the true interpretation of the Explanation to Section 271(1)(c) of the Act was still in a fluid stage at the time when this court called for a reference under Section 256(2) of the Act, we shall make no order as to costs.