Allahabad High Court
Londu Lal Raghubir Prasad vs The Commissioner Of Income Tax on 30 August, 2006
Equivalent citations: [2008]298ITR37(ALL)
Author: R.K. Agrawal
Bench: R.K. Agrawal, Vikram Nath
JUDGMENT R.K. Agrawal, J.
1. The Income Tax Appellate Tribunal, Allahabad has referred the following questions of law under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) for opinion of this Court:
(1) Whether on the facts and circumstances of the case the Tribunal was justified in sustaining the penalty under Section 271(1)(c) for the addition of Rs. 19,000/-?
(2) Whether in view of the fact that the matter related to the addition of Rs. 5,000/- was set aside the Tribunal was justified in sustaining the penalty under Section 271(1)(c)?
(3) Whether the finding of the Tribunal was based on the material placed before it?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in treating the unexplained amount as concealed income and consequently in sustaining the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 ?
2. Briefly stated the facts giving rise of the present reference are as follows:
The applicant is a partnership firm carrying on business of Sarrafa and money lending/pawning. In the course of business of money lending, the applicant advanced loans to various parties and took deposits from various persons. During the Assessment Year 1980-81 the applicant had taken certain deposits. Except for a deposit of Rs. 19,000/- in the name of one Bahadur Lal all other deposits were accepted by the Assessing Authority in the course of regular assessment proceedings. He, however, had added a sum of Rs. 19,000/- under Section 68 of the Act on account of unexplained cash credit. The addition was confirmed by the Commissioner of Income Tax(Appeals) as also by the Tribunal in appeal filed against the regular assessment order. The Income Tax Officer initiated penalty proceedings 'under Section 271(1)(c) of the Act in the course of assessment itself. He imposed a sum of Rs. 17,280/- as penalty. Feeling aggrieved the applicant preferred an appeal before the Commissioner of Income Tax (Appeals) Lucknow. The appeal was dismissed. Still feeling aggrieved the applicant preferred a second appeal before the Income Tax Appellate Tribunal, Allahabad. The Tribunal while partly allowing the appeal had upheld the order of penalty so far as it related to the addition of Rs. 19,000/- towards unexplained cash credit. It, however, remanded the matter in respect of the charge of concealment of income on account of transactions in silver ornaments on the ground that quantum of addition on this account has not yet become final and it would depend after ascertaining as to what was the correct amount of concealed income on account of transactions outside the books of account.
3. We have heard Sri Krishna Agarwal, learned Counsel for the applicant and Sri R.K. Upadhyaya, learned standing counsel appearing for the Revenue.
4. Learned Counsel for the applicant submitted that the creditor had come forward and had owned up the lending of the said amount to the applicant and, therefore, it cannot be treated as income of the applicant or in any event the applicant cannot be considered to have concealed part of income for that amount. He further submitted that mere non acceptance of the explanation, offered by the applicant, would not lead to the conclusion that it had concealed the income of Rs. 19,000/- in the regular assessment proceedings. According to him the Tribunal as also the authorities below have acted illegally and contrary to law in upholding the penalty under Section 271(1)(c) of the Act. In support of his various pleas, he has relied upon the following decisions:
1. Commissioner of Income Tax v. V. Ramaswamy Naidu ;
2. National Textiles v. Commissioner of Income Tax (2001) 249 ITR 125(Gujrat);
3. Shivlal Tak v. Commissioner of Income Tax (2001) 251 ITR 373(Rajasthan);
4. K.C. Builders and Anr. v. The Assistant Commissioner of Income Tax ;
5. Commissioner of Income Tax v. Smt. Shashi Agarwal, Aligarh and Ors. ;
6. Bharat Rice Mill v. Commissioner of Income Tax .
5. Sri R.K. Upadhyaya, learned Counsel appearing for the Revenue, however, submitted that addition of Rs. 19,000/- which has been treated as income by way of unexplained cash credit has been upheld upto the stage of the Tribunal. The explanation given by the applicant was found to be false. The statement of Bahadur Lal and that of the applicant conclusively proved that the alleged deposit was bogus and was only to cover up the advances made by the applicant. According to him once the explanation was found to be false and the assessing authority has come to conclusion that the applicant has concealed the income, the penalty has rightly been imposed. According to him the decision of the Apex Court in the case K.C.Builders (Supra) would not be applicable in the present case as it was in respect of the prosecution launched by the Revenue under Section 276 of the Act. Likewise the applicant cannot take any advantage by the decision of this Court in case of Smt. Shashi Aggarwal, (supra) wherein the Tribunal had accepted the explanation offered by the assessees that they were under the honest belief that agricultural income was to be disclosed in the assessment year 1975-76 and there was neither any fraud nor any gross or willful neglect and the burden which was placed upon the assessees by the explanation had been discharged. In support of his various pleas he has relied upon the following decisions:
1. Commissioner of Income Tax v. Mussadilal Ram Bharose ;
2. Commissioner of Income Tax v. C. Ananthan Chettiar and
3. Balwant Rai and Co. v. Commissioner of Income Tax .
6. Having given our anxious consideration to the various pleas raised by the learned Counsel for the parties, we find that in the assessment for the assessment year 1980-81 which forms part of the statement of case prepared and sent by the Tribunal, the applicant has shown a deposit of Rs. 19,000/- in the name of Bahadur Lal in the month of May, 1979, which was paid back after two months and the account had been squared up. The applicant has not claimed payment of any interest to the depositor. Sri Bahadur Lal, the depositor who was examined had stated that his father owned about 9 acres of land and on this land his parent as well as his 4 brothers and families of two brothers were dependant and on an average agricultural produce worth about Rs. 2,000/- was sold every year which money was spent in the house hold expenses. The Income Tax Officer came to the conclusion that the family could not save any amount from the agricultural income which fact was also admitted by the depositor. Sri Bahadur Lal had also stated that he had been paid interest at the rate of 9% on his deposit which was paid every month and he himself had come to take the interest. He also claimed that he brought the Sarkahati with him whenever he came to receive the interest. The Income Tax Officer further came to the conclusion that this part of the statement of Sri Bahadur Lal was clearly incorrect as the applicant firm had not paid any interest to the alleged depositor, and therefore, his statement is full of inconsistency and could not be accepted. The aforesaid findings have remained undisturbed/confirmed upto the stage of the Tribunal. The applicant had not been able to give any satisfactory explanation regarding the deposit of Rs. 19,000/- in the penalty proceedings under Section 271(1)(c) of the Act. The Commissioner of Income Tax (Appeals) in paragraph 3, 4 and 5 of the order dated 9th May, 1986 has held as follows:
3. I have carefully considered these submissions but find no merit in the same, so far as the deposit of Rs. 19,000/- in the name of Sri Bahadur Lal is concerned, in the assessment proceedings he was produced and he had confirmed having advanced the loan but his statement was found to be false in all respect. He had claimed savings out of agricultural produce when as per his own statement his income from such source was not even sufficient for meeting the daily needs. In respect of sale of land, again his statement did not tally and the main clinching part of his statement was that he was receiving the interest from the appellant and that he was personally going and collecting the same.
4. On the one hand, the appellant had been claiming that no interest was paid as the amount had been with drawn within 3 months. When this statement was being given, the appellant's counsel was present who did not challenge the correctness of the same. In other words, they accepted this fact. All these things taken together amply show that the appellant had been giving explanations which were not substantiated by any cogent material or evidence. Rather, his explanations had been found to be completely false. The provisions of Section 271(1)(c) read with explanation-B were operative with full force and the imposition of penalty justified.
5. It was under similar circumstances that the Punjab High Court in the case of C.I.T. v. Sardar Stores reported in Tax Law Revenue 1986 Volume 20 at page 22 held that the penalty was exisible. In the said case, certain cash credits were found in the books of the assessee. One of the creditors was produced in the penalty proceedings and his statement was found to be contradictory and false. On these facts, it was held that the penalty was exisible.
7. On further appeal the Tribunal in paragraph 4 has upheld the findings of the Commissioner of Income Tax (Appeals), which reads as under:
4. After taking into account the facts as stated above the submission of rival sides, we are of the opinion that the penalty was rightly sustained by the Ld. C.I.T. (Appeals). We find no merit in the assessee's submissions that the penalty should have been deleted by the C.I.T. (Appeals) merely because the depositor has accepted the loan in question. The Ld. C.I.T. (Appeals) has demonstrated without any manner of doubt that the creditors word as not reliable and therefore it was wrong to allege that the assessee had been able to show that the explanation given by it was bonafide. It is true that the deposit from Shri Bahadur Chand was not the only deposit in the books on account of the assessee, and that the other deposits are found to be correct. That the several deposits were genuine had not ipso facto become evidence of the fact that the deposit of Shri Bahadur Lal was also genuine. Sri Bahadur Lal has been shown to be a man who neither had the capacity to lend the money nor was his word worth credence. To say, therefore that the explanation of the assessee with regard to the aforesaid sum was bonalide would not be correct.
8. In the case of V. Ramaswamy Naidu (supra) the Madras High Court was considering the case where penalty under Section 271(1)(c) was imposed for the assessment year 1967-68. It had followed the decision of the Supreme Court in the case of CIT v. Anwar Ali and Anantharam Veerasinghaiah and Co. v. CIT on the ground that the fact that the assessee's explanation regarding a cash credit or other receipt was disbelieved and the amount was assessed in his hand, did not by itself justify the Department in imposing a penalty; the circumstances of the case must be such as to lead to the reasonable and positive conclusion that the amount represents the assessee's income. The Tribunal had deleted the penalty on the ground that merely disbelieving the evidence of the creditor was no ground for the levy of penalty under Section 271(1)(c) of the Act. The Madras High Court had not considered the effect of the Explanations added under Section 271(1)(c) of the Act which are applicable during the assessment year in hand and, therefore, the aforesaid decision is of no help to the applicant.
9. In the case of National Textiles (supra) the Gujarat High Court had considered the case of imposition of penalty under Section 271(1)(c) of the Act for the assessment year 1974-75. An addition of Rs. 80,000/- and Rs. 90,000/- was made by the Assessing Authority as unexplained cash credit. The Tribunal, however, upheld the addition of Rs. 90,000/- only. Penalty proceedings were initiated. The Tribunal had deleted levy of penalty. The Gujarat High Court has held that the provisions of Section 68 permitting the Assessing Officer to treat unexplained cash credit was income are enabling provisions for making certain additions, where there is failure by the assessee to give an explanation or where the explanation is not to the satisfaction of the Assessing Officer. However, the addition made on this count would not automatically justify imposition of penalty under Section 271(1)(c) by recourse only to Explanation 1 below Section 271(1)(c). In order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income. It is not enough for the purpose of penalty that the amount has been assessed as income and (ii) the circumstances must show that there was animus, i.e. conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. The Explanation has no bearing on factor No. 1 but it has a bearing only on factor No. 2. The Explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. No penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis hat it does. If the assessee gives an explanation which is unproved but not disproved, i.e. it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false, the Explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee. The aforesaid decision is of no help to the applicant as in the present case the explanation offered by the applicant has been found to be false by the Commissioner of Income Tax as also by the Tribunal and, therefore, in view of Clause (A) of Explanation 1, the amount of Rs. 19,000/- added has rightly been treated to represent the income in respect of which the applicant has concealed the particulars.
10. In the case of Shiv Lal Tak (supra) the Rajasthan High Court was considering the case of imposition of penalty under Section 271(1)(c) of the Act in respect of the assessment year 1978-79 where assessment has been made in respect of addition made in the returned income by applying flat profit rate of gross receipt of the assessee and where the claim of deduction against the income had been disclosed in the books of account and the same has been rejected. On these facts the Rajasthan High Court has held as follows:
In this connection, the language of the statute suggests that recourse to the Explanation can be had on specific addition of income of any particular sum or disallowance of any particular deduction on account of expenses claimed against gross income. The language of the Explanation uses two expressions as independent- any amount "added" or "disallowed". It postulates addition of specific amount in the income as income not disclosed or a specific amount claimed as deductions has been disallowed. In making computation of total income where the income returned has been rejected by rejecting the trading results, finding some discrepancy in the books of account and substituting the same by an estimated figure, in the strict sense, can neither be said to be addition of any amount in the returned income nor disallowance of any amount as deductions claimed. The word "amount" of which additions made or deductions disallowed also denotes reference to specific item of amount added or disallowed as deduction in contrast to substitution of altogether a new estimated sum in place of the income returned. It is a case neither of addition or disallowance but a case of substitution.
11. The aforesaid decision is clearly distinguishable and is inapplicable on the facts of the aforesaid case.
12. In the case of K.C. Builders (supra) the Apex Court has held as follows:
15. One of the amendments made to the abovementioned provisions is the omission of the word "deliberately" from the expression "deliberately furnished inaccurate particulars of such income". It is implicit in the word "concealed" that there has been a deliberate act on the part of the assessee. The meaning of the word "concealment" as found in the Short Oxford English Distionary, 3rd Edition, Volume I is as follows:
In law, the intentional suppression of truth or fact known, to the injury or prejudice of another.
16. The word "concealment" inherently carried with it the element oi" incus rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if it takes out the case from the purview of nondisclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under Section 271(1)(c) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. Where the additions made in the assessment order, on the basis of which penalty for concealment was levied, are deleted, there remains no basis at all for levying the penalty for concealment and therefore in such a case no such penalty can survive and the same is liable to be cancelled as in the instant case. Ordinarily, penalty cannot stand if the assessment itself is set aside. Where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled as in the instant case ordered by the Tribunal and later cancellation of penalty by the authorities.
13. This decision is of no help to the applicant as the Explanation to Section 271(1) is clearly attracted in the present case.
14. The aforesaid decision of the Apex Court was followed by this Court in the case of Smt. Shashi Aggarval (supra) where the explanation offered by the assesses that they were under the honest belief that agricultural income was to be disclosed in the assessment year 1975-76 and there was neither any fraud nor any gross or willful neglect was accepted by the Tribunal and the penalty was deleted. In the present case we find that the explanation offered by the applicant regarding deposit of Rs. 19,000/- has been found to be false and it has already been treated as concealed income exigible for levy of penalty.
15. In the case of Bharat Rice Mill (supra) this Court has held as follows:
Therefore, the word "concealment" inherently carries with it the element of mens rea. The explanation offered by the applicant in the present case is bona fide and also stands substantiated specially when the closing stock of Ghuta rice and Kinki rice though omitted to have been disclosed in the previous year relevant to the assessment year in question have been voluntarily disclosed in the revised return filed by the applicant and which stocks have been bona fide disclosed by the applicant in the subsequent assessment year, i.e. 1982-83, and had also been subjected to tax in that year also apart from being subjected to tax in the assessment year 1981-82 by the reassessment order. Thus, in our considered opinion, the Tribunal was not justified in upholding the levy of penalty.
16. In the aforesaid case, on the peculiar facts of that case, this Court had found the explanation offered by the assessee to be bonafide and, therefore, had held that penalty was not leviable. However, in the present case the explanation offered by the applicant regarding the alleged deposit of Rs. 19,000 - has been found to be false by all the authorities and, therefore, the ratio of Bharat Rice Mills (supra) case would not be applicable.
17. In the case of Mussadilal Ram Bharose (supra) the Apex Court has held that the rebuttal must be on materials relevant and cogent and it is for the fact-finding body to judge the relevancy and sufficiency of the materials. If such a fact finding body, bearing the aforesaid principles in mind, comes to the conclusion that the assessee has discharged the onus, it becomes a conclusion of fact.
18. In the case of C. Ananthan Chettiar (supra), the Madras High Court has held that in the case of K.P.Madhusudhanan v. Commissioner of Income Tax it was held that the law declared by the Court in the case of Sir Shadilal Sugar and General Mills Ltd. v. Commissioner of Income Tax was no longer applicable by reason of addition of the Explanation to Section 271 which explanation casts a burden on the assessee to show that the additional income that had not been disclosed was not due to fraud or neglect. In the case before the Madras High Court the assessee had not offered any explanation at all except to assert that he disclosed the income only to buy peace with the Department and what was disclosed, in fact, was additional income. The penalty was held to be exigible.
19. In the case of Balwant Rai & Co. (supra) this Court has held that where the assessee does not offer any explanation regarding the source of deposit neither in the assessment proceedings nor in the penalty proceedings Clause (A) of Explanation 1 to Section 271(1) gets attracted and penalty is leviable.
20. Thus from the aforesaid discussions, we are of considered opinion that in view of the fact that the authorities as also the Tribunal has found the explanation of the applicant regarding deposit of Rs. 19,000/- to be false and it had failed to discharge the burden and in view of Explanation 1 it would be deemed that the applicant had concealed a part of his income to the extent of Rs. 19,000/- and penalty was rightly imposed. So far as the question regarding sustaining the penalty in respect of Rs. 5,000/- is concerned, the Tribunal has remitted (he matter to the assessing authority to impose penalty on the quantum of income finally quantified and assessed in respect of transactions of silver ornaments outside the books of account which was the correct approach adopted by the Tribunal.
21. In view of the foregoing discussions we answer all the four questions referred to us in affirmative, i.e. in favour of the Revenue and against the assessee. There shall, however, be no order as to costs.