Bombay High Court
Commissioner Of Income-Tax vs Yusuf Abdulla Patel on 7 March, 1994
Equivalent citations: [1994]208ITR202(BOM)
Author: Sujata Manohar
Bench: Sujata V. Manohar
JUDGMENT Mrs. Sujata Manohar, C.J.
1. This income-tax reference pertains to the assessment years 1967-68, 1968-69 and 1969-70. The following common question of law are referred to us under section 256(1) of the Income-tax Act, 1961 :
"(1) Whether, on the facts and in the circumstances of the case and in law the Tribunal was justified in holding that it could not be conclusively said that the assessee had concealed the particulars of income and as such penalty of Rs. 9,40,000, Rs. 2,33,000 and Rs. 13,50,000 for the assessment years 1967-68, 1968-69 and 1969-70, respectively, levied under section 271(1)(c) could not be sustained ?
2. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in cancelling the penalty of Rs. 9,40,000, Rs. 2,33,000 and Rs. 13,50,000 for the assessment years 1967-68, 1968-69 and 1969-70, respectively, levied under section 271(1)(c) in spite of the fact that the income returned by the assessee is less than 80 per cent. of total income finally assessed ?"
2. The assessee has been assessed in the status of an "individual". The relevant previous years are the financial years ending on March 31, 1967, March 31, 1968, and March 31, 1969. The assessee filed his returns of income for the assessment years 1967-68, 1968-69 and 1969-70 declaring his income at Rs. 72,856, Rs. 79,628 and Rs. 50,000, respectively. No copies of the trading, profit and loss accounts or balance-sheets were filed with the returns. The Income-tax Officer issued several notices to the assessee under section 142(1) of the Act calling for the same. The assessee, however, did not file them on the ground that no complete books were kept by him and whatever books were there, they were seized by the customs authorities on February 17, 1967. The assessee was informed that the books which were seized could have been made available to him and he could have taken inspection thereof to file the copies of the profit and loss accounts or balance-sheets. But the assessee neither filed copies of his trading or profit and loss accounts or balance-sheets nor did he given any basis showing how the returned income for these assessment years should be accepted.
3. The Income-tax Officer completed the assessment for these assessment years by speaking orders. He stated that from the inspection of the seized accounts it was found that no ledgers were available and the books of accounts seized in 1967 were incomplete. He also noted the fact that the assessee had not filed his trading accounts, profit and loss accounts or balance-sheets. He also observed that the assessee was carrying on business in imported nylon and synthetic and smuggled yarn. The Income-tax Officer also made enquiries with the local Sales Tax Officer which showed that the assessee had filed quarterly sales tax returns only for three quarters up to December, 1966, showing the sales and purchases at Rs. 2,04,94,044 and Rs. 2,03,86,188, respectively. The Income-tax Officer in his order for the assessment year 1967-68 mentioned that the Department has seized certain account books of one Abdul Sattar Abubaker, who, in his statement dated September 27, 1971, said that he was carrying on business of "havalas" by issuing bogus sales bills to enable other parties to inflate their purchases. He stated that one main party who was given these havalas and bogus sales bills was the present assessee.
4. The Income-tax Officer in his order for the assessment year 1967-68 also observed that the assessee had come under adverse notice and was suspected to be carrying on smuggling business and there were searches by the customs authorities who had seized seventy-five ingots of silver, ownership of which was admitted by the assessee. The total value of the silver was given by the assessee himself at Rs. 14 lakhs in his settlement petition dated February 10, 1970. The statement of the case refers to various statements made by the assessee in his settlement petition which need not be examined. But on the basis of various facts which are set out in the statement of the case, the Income-tax Officer estimated the income of the assessee for the assessment years 1967-68, 1968-69 and 1969-70 at Rs. 7,00,000, Rs. 8,50,000 and Rs. 9,50,000, respectively. The Inspecting Assistant Commissioner made certain changes in this estimate. The Tribunal has also come to the conclusion that there was no alternative but to estimate the income of the assessee for these assessment years. The Tribunal was of the opinion that the most reasonable mode of determining the income of the assessee would be to adopt the basis on which the income of the associates of the assessee had been assessed by the lower authorities for the three assessment years under consideration taken together as all the associates of the assessee has accepted the estimates made on them and it was the case of the assessee in his settlement petition that he had given certain percentage of share to his four associates. The Tribunal ultimately held that the income of the assessee for the assessment years 1967-68, 1968-69 and 1969-70 was Rs. 7,00,000, Rs. 2,35,000 and Rs. 9,50,000, respectively. The relevant particulars in this regard are set out in tabulated form as follows :
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Assessment Total income Total income determined by the
year returned ITO AAC ITAT
Rs. Rs. Rs. Rs.
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1967-68 72,856 7,00,000 6,00,000 7,00,000 1968-69 79,628 8,50,000 1,00,000 2,35,000 1969-70 50,000 9,50,000 3,05,000 9,50,000
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Total 2,02,484 25,00,000 10,05,000 18,85,000
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5. The Income-tax Officer, while making the assessments, was satisfied that the assessee had concealed the particulars of his income within the meaning of section 271(1)(c) of the Income-tax Act, 1961. He had, therefore, referred the question relating to the imposition of penalty to the Inspecting Assistant Commissioner under the provisions of section 274(2) of the Act. The Inspecting Assistant Commissioner came to the conclusion that the assessee was liable to pay the penalty in respect of these assessment years under the provisions of section 271(1)(c) read with the Explanation thereto. For the assessment years 1967-68, 1968-69 and 1969-70, penalty of Rs. 9,40,000, Rs. 2,33,000 and Rs. 13,50,000, respectively, was imposed.
6. Being aggrieved, the assessee came up in appeal before the Tribunal. The Tribunal held that, at worst, the explanation of the assessee in regard to the loans obtained by him could be treated as a false explanation but was not sufficient to sustain the imposition of penalty. It also held that the determination of the income of the assessee on the basis of certain estimate would not be sufficient to support the stand of the Revenue that the assessee had concealed the particulars of his income. From these findings of the Tribunal, the present reference has been filed.
7. The Explanation which has been inserted in section 271 of the Act with effect from April 1, 1964, and which was in existence during the assessment years in question states that where the total income returned by any person is less than eighty per cent. of the total 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 incorrect particulars of such income for the purposes of clause (c) of this sub-section.
8. This Explanation has been interpreted by the Supreme Court in the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14. The Supreme Court has held that the Explanation to section 271(1)(c) of the Income-tax Act, 1961, shifts the burden to the assessee to show that the difference was not owing to fraud or gross or wilful neglect on his part. This onus is rebuttable. The burden placed on the assessee is not discharged by any fantastic explanation. Nor is it the law that any and every explanation offered by the assessee must be accepted. It must be an explanation acceptable to the fact-finding body. In the present case, the Tribunal found the explanation given by the assessee to be false. Nevertheless it has come to the conclusion that the explanation cannot be used for the purpose of levying penalty. This conclusion is not warranted in view of the decision of the Supreme Court in the above case. The same position has been reiterated by the Supreme Court in the case of CIT v. K. R. Sadayappan [1990] 185 ITR 49, where the Supreme Court has reiterated that when the returned income is less than eighty per cent. of the assessed income, there is a rebuttable presumption that the assessee has concealed income and the onus is on the assessee to rebut the presumption by cogent and reliable evidence. In the case reported, the Tribunal held that the assessee's explanation was false, but the Tribunal had cancelled the order of penalty. The Supreme Court held that the Tribunal was not justified in cancelling the order of penalty. The same is the position in the present case before us. This decision has been followed by our High Court in the case of CIT v. Lunidaram Tulsidas Panjabi [1993] 204 ITR 674, to which decision one of us (Dr. Saraf J.) was a party. In the premises, the Tribunal was not justified in cancelling the order imposing penalty.
9. The questions referred to us are, therefore, answered as follows :
Question No. 1 : In the negative and in favour of the Revenue.
Question No. 2 : In the negative and in favour of the Revenue.
10. We make on order as to costs.