Patna High Court
Commissioner Of Income-Tax vs Nipani Tobacco Stores on 4 December, 1982
Equivalent citations: [1984]145ITR128(PATNA)
JUDGMENT
1. As directed by this court a statement of the case has been submitted by the Income-tax Appellate Tribunal, Patna Bench-B, Patna, on a reference under Section 256(2) of the I.T. Act, 1961, and the following question of law has been referred to this court for opinion :
" Whether, on the facts and in the circumstances of the case, the cancellation of the penalty of Rs. 13,565 imposed on the assessee is legal and proper ? "
The assessment year in question is 1964-65. As is to be found from the statement of the case, on a scrutiny of the account books of the asses-see, the TTO noticed cash credits to the tune of Rs. 94,000 appearing in the account books. The ITO called upon the assessee to explain the nature and source of these cash credits. The assessee could not produce any satisfactory explanation regarding the cash credits and the ITO treated the cash credits of Rs. 94,000 as the income of the assessee from undisclosed sources. The ITO also initiated a proceeding under Section 271(1)(c) for imposition of penalty and referred the matter to the IAC under Section 274(2) of the I.T. Act, 1961 (hereinafter referred to as "the Act").
2. During the penalty proceeding it was urged on behalf of the assessee that in the quantum appeal (meaning thereby the appeal from the assessment order) the AAC had reduced the addition of cash credit by Rs. 44,000 and had sustained the addition of Rs. 50,000 only. The IAC held that the assessee had concealed the property income by way of cash credits and had committed default under Section 271(1)(c) of the Act. He, therefore, imposed a penalty of Rs. 13,565, Aggrieved by the order of the IAC the assessee went up in appeal before the Tribunal and it was submitted that the assessee had not concealed any income as the addition was made simply on account of non-acceptance of the explanation of the assessee. In the alternative, it was argued that the penalty imposed was excessive, We are, however, not concerned in this case with this alternative limb of the argument put forth on behalf of the assessee before the Tribunal. The learned counsel for the assessee placed before the Tribunal a copy of the order of the Tribunal itself in the quantum appeal (the appeal against the order of the AAC in the assessment proceeding). The Tribunal had discussed the cash credits of Rs. 50,000 and disallowed the interest paid thereon. There was a credit of Rs. 25,000 in the name of Sri Shanti Bhai Patel and the other credit of Rs. 25,000 in the name of Sri Birendra Narain Singh. In support of the genuineness of the first credit the assessee had filed an affidavit from the creditor who was an employee of the assessee and was earning Rs. 4,000 per annum. The said creditor also owned 8 1/2 bighas of land and his statement about the source of income was that the amount in credit was the income from his land. The explanation of his credit was not accepted. The other creditor, Shri Birendra Narain Singh, was also examined. He had stated that he had made the deposit out of his agricultural income. His statement was also not believed in the assessment proceeding and both the cash credits ultimately were treated even by the Tribunal as the income of the assessee from undisclosed sources. The Tribunal was the view that the cash credits remained unexplained and thus the addition of Rs. 50,000 was upheld. The Tribunal also noticed that in the quantum appeal an addition of Rs. 20,000 made by the ITO had wrongly been deleted by the AAC and in that regard the order of the assessing officer was restored.
3. With regard to the penalty matter the Tribunal was of the view that the provisions of the Explanation appended to Section 271(1)(c) of the Act by virtue of the 1964 amendment could be displaced by the assessee by proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect and that the quantum of proof necessary would be that required in a civil case, i.e., the preponderance of probabilities. The Tribunal further observed that what was to be seen was whether the assessee had succeeded in pleading and placing a probable case relating to the cash credits. The Tribunal, having regard to the probabilities, ultimately held, relying upon the decision in the case of CIT v. Anwar Ali, [1970] 76 ITR 696 (SC), that the burden was on the Department to establish that the receipt of the amount in dispute constituted income of the assessee and that if there was no evidence on the record except the explanation given by the assessee, which explanation had been found to be not satisfactory, it did not follow that the receipt constituted his taxable income and that the penalty should be imposed for concealment of income. The Tribunal also considered that even in the case of surrender there could be one hundred and one reasons for doing so and that the mere act of surrender did not amount to an admission of concealment of income. Considering the facts and circumstances of the case as well as some authorities, the Tribunal ultimately came to the conclusion that no penalty could be imposed for the cash credit which the assessee failed to prove to be genuine and the same could not be said to be concealed income. The Tribunal, therefore, cancelled the order imposing penalty passed by the IAC. Copies of the orders of the IAC and the Tribunal have been marked as annexs. A and B respectively forming part of the statement of the case.
4. From a perusal of the appellate order of the Tribunal, annex. B, paras. 6 and 7, which need to be quoted here in extenso, it would clearly appear that the Tribunal was absolutely correct in applying the principles of law on the facts as discussed in these two paragraphs:
" 6. In this case the assessee has not cared to file either the assessment order or the order of the Appellate Assistant Commissioner. The learned counsel for the assessee has filed copy of the order of the I T. Appellate Tribunal, Patna Bench, Patna, dated 21-10-71 in I.T.A. No. 283-Pat. of 1969-70 relating to the assessment year 1964-65 which was filed by the assessee. The Tribunal disposed of the appeal by the assessee along with the appeal filed by the Department. While discussing I.T.A. No. 283-Pat. of 1969-70 the learned members have discussed the position of cash credits at Rs. 50,000 and the disallowance of interest paid thereon. From the order of the Tribunal, paras. 4 to 6, it is evident that there was cash credit of Rs. 25,000 on 7-5-63 in the name of Sri Shanti Bhai Patel and another credit of Rs. 25,000 on 3-11-62 in the name of Shri Birendra Narain Singh. From the order of the Tribunal, it appears that the assessee filed an affidavit of Shri Shanti Bhai Patel who was an employee of the assessee and was earning about Rs. 4,000 per annum. It was explained by Shri Shanti Bhai Patel that he owned 8 1/2 bighas of land in Gujarat from which he was getting substantial crop and the money deposited with the assessee came from sale proceeds of the produce from the land. The assessee produced no evidence to substantiate the ground stated in the affidavit and accordingly the ITO rejected the contention. As regards the cash credit in the name of Shri Birendra Narain Singh, he was produced and examined and he stated that Rs. 25,000 was deposited with the assessee out of the agricultural income but his statement was disbelieved and so the Income-tax Officer added both the cash credits as income from undisclosed sources and consequently disallowed interest payment thereon. The assessee did not produce any evidence before the AAC and only relied upon the affidavit and statement led before the Income-tax Officer and so the Appellate Assistant Commissioner confirmed the order of the ITO. From paragraph 6 of the order, it appears that the Tribunal held that in the obsence of evidence, the deposit which were found duly credited in the books of the assessee could not be accepted which remained unexplained and so the Tribunal confirmed the additions and the disallowance of the interest relating to this cash credit of Rs. 50,000. As the Inspecting Assistant Commissioner has imposed the penalty relating to this addition of Rs. 50,000 as sustained by the AAC and the Appellate Tribunal, we have to see whether the penalty relating to the cash credit of Rs. 50,000 can be sustained.
7. It cannot be doubted that the Explanation to Section 271(1)(c) will be applicable in this case as the assessment year involved is 1964-65. The IAC has pointed out that the assessee filed the return showing loss of Rs. 15,942. From the order of the Appellate Tribunal it is evident that the cash credit of Rs. 50,000, which was sustained by the AAC, was upheld. Not only this but even the amount of Rs. 20,000 which had been deleted by the AAC was restored by the Appellate Tribunal, vide order in the departmental appeal which was disposed of by the said order of the Tribunal. Thus, it cannot be doubted that the Explanation to Section 271(1)(c) is applicable in this case. But the question is whether, on the basis of addition in the cash credits, penalty can be imposed. "
After taking into consideration the facts that the assessee had filed an affidavit of Shri Shanti Bhai Patel at the assessment stage which had not been accepted and the statement of Shri Birendra Narain Singh, the other alleged creditor, which also had not been accepted, were the only materials on account of which the assessee had been subjected to the assessment with regard to these amounts from undisclosed sources. From a perusal of para. 7, extracted above, it can very well be seen that the Tribunal was very much conscious of and alive to the legal position that it could not be doubted that the Explanation to Section 271(1)(c) of the Act was applicable to the facts of the case. The Tribunal was again correct in observing that the question was whether, on the basis of addition in the cash credits during the assessment proceeding, any penalty could be imposed under Section 271(1)(c) read with the Explanation appended thereto. Being alive to such legal position and being very much conscious of the fact that the Explanation inserted in the year 1964 was very much attracted to the facts of this case the Tribunal has further gone to say in para. 9 as follows:
" 9. It has been held in the case of CIT v. Sankarsons and Company, [1972] 85 ITR 627 (Ker), that the presumption under the Explanation to Section 271(1)(c) of the Income-tax Act, 1961, can be displaced by the assessee proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect and that the quantum of proof necessary would be that required in a civil case, namely, preponderance of probability. Thus, we have only to see that the assessee had succeeded in placing a probable case relating to the cash credits. "
Having noticed the entire materials on record on the basis of which the penalty proceeding had been initiated and a penalty imposed on the assessee by the IAC, the Tribunal did apply the correct principle of law by holding that in spite of the attraction of the Explanation inserted in the Act in 1964 to initiate a penal proceeding onus was rightly placed upon the assessee for placing a probable case relating to the cash credits which by itself was sufficient to discharge the initial onus which the Explanation had placed upon the assessee by the law of presumption.
We see no infirmity in the judgment of the Tribunal.
5. Mr. Rajgarhia, learned senior standing counsel for the Revenue, has contended very strenuously that after the deletion of the word " deliberately " in the second part of Clause (c) of Section 271(1) of the Act the mere furnishing of inaccurate particulars would be sufficient to fasten the liability of discharging the onus on the assessee and the onus was no longer upon the Department. This is not a correct exposition of law. It has been repeatedly held, not only by this court but by several other courts, that after the insertion of the Explanation there has been some change in the law which could not be doubted but what was important, was the magnitude of the change brought about and the sort of proof that was warranted or demanded from the assessee to discharge the initial onus placed by the explanation upon him,
6. Without multiplying the cases we may refer here to two Bench decisions of this court itself which have been never dissented from and rather have been accepted in principle as laying down the correct proposition of law. In this connection reference may first be made to the case of CIT v. Patna Timber Works, [1977] 106 ITR 452 (Pat.) In that case, this court was considering the effect of the insertion of the Explanation specially in view of the fact that the term "deliberately" have been omitted consciously by the Legislature by the 1964 amendment before the word " furnishing inaccurate particulars ", only some excerpts from that judgment need be quoted here in extenso in this context. Untwalia C. J., speaking for the Bench, observed thus [to which one of us (S.K. Jha J.) was also a party] (p. 458):
" The word ' deliberately ' was omitted from Clause (c) and it cannot be assumed that the Legislature did it without any purpose ; there must be a purpose behind it. The first part of Clause (c) was left intact. If the charge of concealment of the particulars of the income of the assessee has got to be proved, it goes without saying that there cannot be any concealment without any conscious act on the part of the assessee. To bring the case under the first part, it has got to be established by the Department that the income in respect of which the charge is levelled is the income of the assessee and that by a conscious act he had concealed such income. When the word 'deliberately ' was in the second part of Clause (c), cases had not drawn any appreciable distinction between the two parts. Both the expressions were more or less kept at par and equated. If it were necessary to scan and dissect the matter any further, perhaps, it may be possible to find out the subtle distinction between the two phrases. But I do not propose to embark upon this useless exercise. Now, of course, when the word ' deliberately' has been omitted from the second part of Clause (c), the difference in the two parts has assumed some significance. What is the meaning of the expression ' furnished inaccurate particulars of such income ' now ? Does it mean that merely because the particulars of income furnished by the assessee in his return were found by the Department to be inaccurate, imposition of penalty is warranted ? Has the law been watered down to this extent by the omission of the word ' deliberately ' ? Or, has it still got a specific and different content in the expression which remains after the omission of the word ' deliberately ' ? The cue to the interpretation of the amended second part of Clause (c) is to be found in the Explanation appended to it by the same amending Act. I shall, therefore, first proceed to find out what is the meaning of the Explanation. If a case is not covered by the Explanation, the burden to prove facts to attract the imposition of penalty under Section 271(1)(c) is still on the Department. 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 the 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(1)(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. If a case is not covered by the Explanation then charge of furnishing inaccurate particulars of such income can be founded by recording a finding that the assessee had furnished such particulars due to his fraud, that means, deliberately or consciously, or such furnishing was a result of gross or wilful neglect on his part. The word ' furnished' also imports some positive act on the part of the assessee. The dictionary meaning of the word 'furnish', according to the Chambers Dictionary, is ' to fit up or supply completely or with what is necessary : to supply, provide : to equip '. If, therefore, the assesses while supplying the particulars of his income gives inaccurate particulars as a result of his fraud or gross or wilful neglect then and then only he can be subjected to the imposition of penalty under the second part of Clause (c)--otherwise not. Unless such ingredients are found, on the finding of a mere difference in the particulars of the income given and the figure of the income assessed, it cannot be said that the assessee furnished inaccurate particulars of such income. "
It will thus be seen that apart from the fact that the act of concealment itself involves some amount of positive and conscious act on the part of the assessee even the word " furnished" after the deletion of the word "deliberately" was held also to import some positive act on the part of the assessee. While accepting the legal position that wherever Explanation was attracted the initial burden of proof was cast upon the assessee, the decision further goes on to say as to how the initial onus can be discharged and in that connection we may again quote a few sentences from that judgment. At. p. 462 it had been said :
" I shall proceed to consider the facts of the instant case after pointing out one more matter and that is this. 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. In a given case it may be necessary for the assessee to prove certain more facts because the materials in the assessment order give some inkling of the commission of fraud or the assessee being grossly or wilfully negligent and in such a situation it will be necessary for the assessee, if his case is covered by the Explanation, to place some more materials in the shape of oral or documentary evidence or otherwise to prove the negative fact of absence of fraud or gross or wilful negligence. If he succeeds in doing so, the onus will shift back on the Department to prove the positive fact that failure to return the correct income on the part of the assessee was as a result of his fraud or gross or wilful neglect. "
The only next case which we may need refer to in this connection is that of the case of CIT v. Gopal Vastralaya, [1980] 122 ITR 527 (Pat). The principle laid down in the earlier case has not only been accepted in this decision but has been further elaborated. It was held in that case that 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 by the assessee 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. The facts of the case of Gopal Vastralaya were more or less akin to the case at hand before us.
7. The only contention of Mr. Rajgarhia, appearing for the Revenue, has been that there is no clear finding that the initial onus placed by the Explanation upon the assessee had been discharged in this case. We are afraid, the argument is entirely misconceived in law. We have already extracted para. 9 of the appellate order of the Tribunal wherein the Tribunal, after being alive to and conscious of the applicability of the Explanation to Section 271(1)(c) of the Act, has proceeded rightly upon the principle of law that what had to be seen in the case was whether the assessee had succeeded, in placing a probable case relating to the cash credits. And the facts relating to the Explanation offered by the assessee with regard to the cash credits in question and the evidence adduced in that behalf were all considered by the Tribunal in para. 6 of the appellate judgment. The Tribunal was, therefore, very much alive to all the facts and materials which were on the record. The Tribunal was very much consious of the legal position that the Explanation to Section 271(1)(c) of the Act was attracted. It was not oblivious of the fact that the initial burden of proof lay upon the assessee to prove a negative fact. It was very much alive to the legal position that the proof of such negative fact could be said to have been discharged by merely placing a preponderance of probabilities by the assessee and if that had been done then the onus shifted back on the Revenue to prove the positive fact of either fraud or gross or wilful neglect on the part of the assessee or furnishing by the assessee of inaccurate particulars. All the principles of law have been correctly applied. All the materials on the record have been duly taken notice of. The mere technicality put forward by Mr. Rajgarhia with regard to the lacking of one sentence in para. 9, namely, to the effect that the initial onus placed upon the assessee of the proving of negative fact was, therefore, discharged was too hair-splitting an argument to be entertained, it would be piling unreason upon technicality. An identical argument had been advanced by the learned counsel in Gopal Vastralaya's case, [1980] 122 ITR 527 (Pat), where the contention was repelled by this court at p. 538 of the judgment. The learned standing counsel invited our attention to a number of decisions of some courts to, wit, Gumani Ram Siri Ram v. CIT, [1972] 85 ITR 67 (P & H), Addl. CIT v. Karnail Singh V. Kaleran, [1974] 94 ITR 505 (P & H), CIT v. Gujarat Travancore Agency, [1976] 103 ITR 149 (Ker) [FB], CIT v. K.C. Behera, [1976] 103 ITR 479 (Orissa), Vishwakarma Industries v. CIT, [1982] 135 ITR 652 (P & H) [FB], CIT v. M. Habibullah, [1982] 136 ITR 716 (All), CIT v. Swamp Cold Storage and General Mills, [1982] 136 ITR 435 (All) and CIT v. Parmanand Advani, [1979] 119 ITR 464 (Pat). We do not see any principle of law discussed in these cases which go, in any way, to shake the validity and legality of the two judgments of this court. As a matter of fact the Full Bench of the Punjab High Court in the case of Viswakarma Industries v. CIT, has quoted with approval what has been said in Patna Timber Works' case and so far as Addl. CIT v. Karnail Singh V. Kaleram, [1974] 94 ITR 505 (Punjab) is concerned, that has already been discussed in Patna Timber Works' case, [1977] 106 ITR 452 (Pat). There is no conflict on principles of law amongst any of these cases and there is no case holding contrary to the view taken by this court in the aforementioned two Bench decisions.
8. We, accordingly, do not find any infirmity much less any legal infirmity in the order of the Tribunal. We, accordingly, answer the question, referred to this court, in the affirmative, in favour of the assessee and against the Revenue. The Tribunal, on the facts and in the circumstances of the case, must be held to have acted legally in cancelling the penalty imposed upon the assessee. The assessee is entitled to the costs. Hearing fee is assessed at Rs. 250 only.