Patna High Court
Commissioner Of Income Tax vs Gwalior Mental Industries on 4 January, 1983
Equivalent citations: 1983(31)BLJR235
Author: Nagendra Prasad Singh
Bench: Nagendra Prasad Singh
JUDGMENT Nagendra Prasad Singh, J.
1. This is a Reference under Section 256(2) of the Income Tax Act, 1961 (hereinafter to be referred to as 'the Act'. In the statement of the case submitted by the Income Tax Appellate Tribunal Patna (hereinafter to be referred to as 'the Tribunal) the following question has been referred for the opinion of this Court:
Whether on the facts and in the circumstances of the case the Income tax Appellate Tribunal was justified in deleting the penalty of Rs. 36,540 imposed under Section 271(1)(c) of the Income tax Act, 1961?
2. From the statement of the case it appears that in course of the assessment proceeding for the assessment year 1963-64 the Income-tax Officer found that a sum of Rs. 20,000 in all had been credited in the name of the partners of the assessee firm. On the failure of the assessee to produce any evidence in support of the genuineness of these cash credits the Income tax Officer added the sum of Rs. 20,000 to its income as the income from undisclosed sources. The assessee did not challenge this addition in appeal before the Appellate Assistant Commissioner. Thereafter a notice was issued to assessee as to why penalty under Section 271(1)(c) of the Act be not imposed against the assessee. A written explanation was submitted on behalf of the assessee. Ultimately the Inspecting Assistant Commissioner by his order dated 2-3-1970 held that the assessee was guilty of concealment and also of furnishing inaccurate particulars of income justifying penal action under Section 271(1)(c). He imposed a penalty of Rs. 36,450. On appeal filed on behalf of the assessee before the Tribunal the aforesaid order of the Inspecting Assistant Commissioner was set aside. When the prayer of the Department to refer the matter to this Court was rejected by the Tribunal, an application for the same was filed before this Court. This Court on 10-9-1976, directed the Tribunal to state the case and to submit the question of law aforesaid for decision of this Court. Pursuant to the said order the Tribunal has submitted the statement of the case and the question of law which has to be decided.
3. Mr. B.P. Rajgarhia appearing for the Revenue submitted that the Tribunal has set aside the order of the Inspecting Assistant Commissioner imposing penalty against the assessee by overlooking the Explanation which was added to Section 271(1)(c) by the Finance Act, 1964. According to the learned Standing Counsel for the Department after the introduction of the said Explanation the onus is on the assessee to satisfy that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on the part of the assessee. This Explanation has been subject matter of controversy in different cases and this Court had occasions to construe the scope thereof. In view of the Explanation aforesaid the initial onus to show that the failure to return the correct income did not arise from any gross or wilful neglect on the part of the assessee, is on the assessee. But it has to be borne in mind that whenever assessee is called upon to submit such an explanation he is required to prove a negative fact. It was pointed out by this Court in the case of Commissioner of Income tax Bihar v. Patna Timber Works 106 I.T.R. 459. that ordinarily and generally there cannot be any direct evidence to prove such facts. In that context it was observed as follows:
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.
It was also observed in connection with the facts of that case as follows:
On the facts of this case, therefore, the denial of the assessee or its representative at the time of the argument before the Inspecting Assistant Commissioner was sufficient and thereafter it was necessary for the department to place further materials to show that over and above the materials in the assessment order, there were facts and circumstances on which the failure of the assessee to return the correct income could be attributed to its act or fraud or gross or wilful neglect.
As such if the assessee discharges the initial onus then the Department has to place further materials to show that the failure of the assessee to return the correct income could be attributed to its act of fraud or gross or wilful neglect. It cannot be urged that after insertion of the Explanation aforesaid the burden never shifts on the Department. The same view was reiterated by this Court in the cases of Commissioner of Income tax Bihar v. Gopal Vastralaya 122 I.T.R. 527. and Commissioner of Income tax Bihar v. Binod Co. 122 I.T.R. 832.
4. Coming to the facts of the present case, from the order of the Inspecting Assistant Commissioner. It appears that the assessee had filed a written explanation pursuant to the notice regarding imposition of penalty. The Inspecting Assistant Commissioner has neither accepted the said explanation nor rejected in so many words. He has imposed penalty only on the ground that the assessee had not contested the cash creditions before the A. A. C." Thereafter he has observed:
In the circumstances, I am led to the irresistible conclusion that the assessee is guilty of concealment and also of furnishing inaccurate particulars of income.
This fact was taken note of by the Tribunal while allowing the appeal of the assessee. The Tribunal has observed as follows:
The I.A.C in this case has come to the conclusion against the assessee only for the reason that he had not challenged the addition of the cash credit amount in the assessment. This by no means is proof of the fact that the amount represented the assessee income or that in respect thereof he had effected any concealment or deliberately furnished inaccurate particulars. In this view that we take, the penalty imposed in this cannot be sustained and we accordingly cancel the same.
5. Mr. Rajgarhia appearing for the Department attacked the order of the Tribunal on the ground that the Tribunal had observed that the Department before levying penalty must have before it cogent material or evidence from which it could be inferred that the assessee had consciously concealed the particulars of his income or has deliberately furnished inaccurate particulars in respect of the same. According to Mr. Rajgarhia, even if it is assumed that the Department has to produce cogent materials and circumstances to prove fraud, gross or wilful neglect on the part of the assessee after the initial burden is discharged by the assessee, in the instant case the Tribunal has not found that the assessee had discharged the initial burden. I have already pointed out that the Inspecting Assistant Commissioner has simply mentioned about the written explanation of the assessee in his order. He has not rejected the said explanation. As such, it is difficult to hold in the facts and circumstances of the present case that the assessee has not discharged the initial onus placed on it. Once the Inspecting Assistant Commissioner has not rejected the sain explanation, the Tribunal was justified in assuming that the assessee had discharged the initial onus and, thereafter it was for the Department to produce materials or to show circumstances on basis of which it could have been held that incorrect return was filed by the assessee as a result of fraud gross or wilful neglect. The Inspecting Assistant Commissioner has come to the conclusion against the assessee only for the reason that he had not challenged the addition of the cash credit amount in the assessment. In our opinion merely on this circumstance a fraud or gross or wilful neglect on the part of the assessee cannot be inferred. A Bench of this Court in the case of Commissioner of Income tax Bihar v. Binod Co. (supra) expressed a similar opinion. The facts of that case were very similar to the facts of the present case. The Tribunal therefore, in our view has rightly deleted on the facts and circumstances of the instant case the penalty imposed on the assessee by the Inspecting Assistant Commissioner.
6. In the result we must answer the question referred in affirmative and hold that the Tribunal was correct in deleting the penalty imposed under Section 271(1)(c) of the Act. In the circumstances of the case however, we shall make on order as to costs.