Madhya Pradesh High Court
Commissioner Of Income-Tax vs Harlal Mannulal on 26 September, 1987
Equivalent citations: [1989]178ITR284(MP)
Author: N.D. Ojha
Bench: N.D. Ojha
JUDGMENT N.D. Ojha, C.J.
1. The Tribunal, Indore Bench, Indore, has referred the following two questions to this court for its opinion :
"(1) Whether, on the facts and in the circumstances of the case, the deemed income of Rs. 20,000 added to the total income of the assessee in the assessment year in question could be considered for the purpose of levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961 ?
(2) If the answer to the above question is in the affirmative, whether the levy of penalty could be justified in terms of the Explanation to Section 271(1)(c) of the Income-tax Act, notwithstanding the fact that the said Explanation was not invoked by the Department while levying the penalty in question ?"
2. The facts in a nutshell which are necessary for answering the aforesaid two questions are that during the assessment year 1973-74, the asses-see filed a return declaring a total income of Rs. 4,678. However, the assessment was completed on a total income of Rs. 49, 403. The explanation given by the assessee except with regard to Rs. 20,000 was accepted. With regard to the sum of Rs. 20,000, the finding of the Tribunal in the assessment proceedings was that the assessee has not explained satisfactorily the non-disclosure of the said amount in the return. Proceedings for imposition of penalty were also initiated against the assessee and the Inspecting Assistant Commissioner, vide his order dated February 3, 1978, imposed a sum of Rs. 20,000 as penalty on the assessee on the finding that he was guilty of concealment of income as contemplated by Section 271(1)(c) of the Income-tax Act, 1961 ("the Act"). This order , however, was reversed by the Tribunal. In reversing the order of the Inspecting Assistant Commissioner, the relevant finding which was recorded by the Tribunal, reads as hereunder :
"But in order to hold an assessee liable for penalty, the mere fact that the explanation given by the assessee about the cash available with him is disbelieved, is not sufficient. Reference may be made in this behalf to the famous decisions of the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696 and CIT v. Khoday Eswarsa and Sons [1972] 83 ITR 369 and the decision of the Punjab High Court in Addl. CIT v. Karnail Singh V. Kaleran [1974] 94 ITR 505, and other decisions after the amendment in the Income-tax Act and the addition of an Explanation to Section 271(1)(c) according to which the onus of proof is placed upon the assessee under certain circumstances. Some more authorities may be noticed which are CIT v. Punjabhai Shah [1968] 67 ITR 337 (MP), CIT v. Satish Churn Law [1969] 71 ITR 275 (Cal), State of Orissa v. Maharaja Shri B.P. Singh Deo [1970] 76 ITR 690 (SC), Gumani Ram Siri Ram v. CIT [1972] 85 ITR 67 (P&H) and 56 ITR 799 (M) (sic.).".
3. The Tribunal also pointed out that the unexplained cash in the possession of the assessee cannot, in all cases, be said to be his income. It is only a deemed income which may be brought to tax and unless the Department shows that this amount was actually earned by the assessee during the accounting year in question, it would not be proper to levy penalty on the ground of alleged concealment. It is thus apparent that the Tribunal, in allowing the appeal filed by the assessee and setting aside the penalty, was of the view that the burden lay on the Department to prove that the amount was actually earned by the assessee during the accounting year in question. At the instance of the Commissioner, however, the aforesaid two questions were referred by the Tribunal to this court for its opinion.
4. It has been urged by learned counsel for the Department that the Tribunal, in allowing the appeal and reversing the finding of the Inspecting Assistant Commissioner, has failed to consider the import of the amendment made in Section 271 with effect from April 1, 1964, by the Finance Act, 1964, and, consequently, the conclusion reached by the Tribunal was not correct. According to learned counsel for the Department, the two questions referred to us, therefore, deserve to be answered in favour of the Department.
5. Having heard learned counsel for the parties, we are of the opinion that there is substance in the submission made by counsel for the Department. The amendment which was made in Section 271 by the Finance Act, 1964, may be stated. In Clause (c) the word "deliberately" occurring after the words "particulars of his income or" was omitted. The following Explanation to Sub-section (1) was inserted :
''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 sub-section."
6. The Explanation so added by the Finance Act, 1964, remained operative till March 31, 1976, when the Taxation Laws (Amendment) Act, 1975, came into force. Explanations 1 to 4 were substituted with effect from April 1, 1976, for the Explanation as originally enacted by the Finance Act, 1964. Since the assessment year in the instant case was 1973-74, Section 271 as it stood after its amendment by the Finance Act, 1964, and before its amendment by the Taxation Laws (Amendment) Act, 1975, would be applicable.
7. Before adverting to the submissions made by counsel for the Department and the decisions relied on by him, it may be pointed out that all the decisions which have been relied upon by the Tribunal in its appellate order and which have been referred to above were in regard to the assessment years prior to Section 271 being amended by the Finance Act 1964, except the Division Bench decision of the Punjab and Haryana High Court in the case of Addl. CIT v. Karnail Singh V. Kaleran [1974] 94 ITR 505. As regards this case, it may be pointed out at this very place that the said decision has subsequently been overruled by a Full Bench of the same court in Vishwakarma Industries v. CIT [1982] 135 ITR 652. The decision in the case of Gumani Ram Siri Ram v. CIT [1972] 85 ITR 67 (P & H) which too has been relied upon by the Tribunal related to the assessment year 1964-65. Two questions were referred in that case. The second question was (at p. 68) ; "Whether, on the facts and in the circumstances of the case, the Explanation to Section 271(1) will apply particularly when the said Explanation came into force with effect from April 1, 1964, while the alleged fictitious entry was made on February 25, 1964 ?" In regard to this question, it has been pointed out that it was conceded that the second question was only of an academic nature particularly when the Tribunal did not rely on the Explanation in support of the order upholding the levy of penalty by the Appellate Assistant Commissioner. It is thus clear that even in this case, reliance was not placed on the Explanation added in Section 271 by the Finance Act, 1964. It is, therefore, apparent that virtually, the Tribunal, in its appellate order, placed reliance on the decision of the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696 and other cases which interpreted the law as it stood prior to the Explanation being added to Section 271(1) by the Finance Act, 1964. The effect of the aforesaid Explanation being added to Section 271(1) as also the effect of the word "deliberately" being omitted from Clause (c) of Section 271(1) were specifically considered by a Full Bench of the Punjab and Haryana High Court in the case of Vishwakarma Industries [1982] 135 ITR 652. After considering the relevant provisions of the Indian Income-tax Act, 1922, as well as of the 1961 Act as also the various authorities on the point including the decision of the Supreme Court in Anwar Ali's case [1970] 76 ITR 696, it was held (at p. 671) :
"To conclude, it must be held that the patent intent of the Legislature in amending Section 271(1)(c) and in inserting the Explanation thereto by the Finance Act of 1964, was to bring about a change in the existing law. Consequently, the ratio of Anwar Ali's case [1970] 76 ITR 696 (SC), which had considered the earlier provision of Section 1 28(1) of the 1922 Act, is no longer attracted. The true legal import of the Explanation is to shift the burden of proof from the Department on to the shoulders of the assessee in the class of cases where the returned income was less than 80 per cent. of the income assessed by the Department. In this category of cases, the Explanation raises three rebuttable presumptions against the assessee as spelt out in detail above in para 16 of this judgment. The onus of proof for rebutting these presumptions lies on the assessee. This burden, however, can be discharged (as in civil cases) by preponderance of evidence. Equally, it would be permissible in the penalty proceedings for the assessee to show and prove that on the existing material itself, the presumption raised by the Explanation stands rebutted. On these points, Karnail Singh's case [1974] 94 ITR 505 (P & H) does not lay down the law correctly."
8. A similar view in regard to the effect and import of the Explanation added in Section 271(1) by the Finance Act, 1964, has been taken: by a Division Bench of the Allahabad High Court in the case of Addl. CIT v. Mangalsen Mohanlal [1982] 136 ITR 905. A Division Bench of the Patna High Court also took a similar view in Addl. CIT v. Prasadi Sao Rajendra Prasad [1984] 145 ITR 504, and the same view was taken even by this court in CIT v. Bherulal Shrikishan [1984] 145 ITR 805. The view taken by the Pull Bench of the Punjab and Haryana High Court in the case of Vishwakarma Industries [1982] 135 ITR 652 has been approved by the Supreme Court in the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14. The Supreme Court has pointed out that the Explanation added to Section 271(1) by the Finance Act, 1964, permits a presumption to be raised, but the said presumption was a rebuttable one. In the instant case, in view of the facts already indicated above that the returned income of the assessee was Rs. 4,678 whereas the assessment had been completed on a total income of Rs. 49,403, it is apparent that the Explanation aforesaid was attracted. Consequently, the Tribunal should have proceeded on the basis that there was a presumption against the assessee as contemplated by the, said Explanation. It is only if after raising the said presumption and considering the explanation given by the assessee and such other material as may have been produced by it, that the Tribunal had held that the said presumption had been rebutted, it would have been justified in reversing the order of the Inspecting Assistant Commissioner imposing penalty, on the assessee. The Tribunal had failed to appreciate the real import of the Explanation referred to above. In our opinion, therefore, the ends of justice require that in the instant case, after receiving our opinion, in regard to the questions referred to us, the Tribunal, while deciding the appeal afresh, should proceed on the basis that there was a presumption against the assessee as contemplated by the Explanation aforesaid, and decide the appeal after granting the assessee an opportunity to produce such material as it considers necessary.
9. Our answer to the questions referred to us, therefore, is that oh the facts and in the circumstances of the case and in view of the Explanation added to Section 271(1) by the Finance Act, 1964, and the deletion of the word "deliberately" from Clause (c) of Section 271(1)(c), the deemed income of Rs. 20,000 added to the total income of the assessee in the assessment year in question could be considered for the purposes of levy of penalty in view of the presumption which was to be drawn by virtue of the said Explanation unless the Tribunal was of the opinion that the said presumption had been rebutted by the assessee as contemplated by the said Explanation. In the circumstances of the case, however, there shall be no order as to costs.