Kerala High Court
Commissioner Of Income-Tax vs Shri Pawan Kumar Dalmia on 23 June, 1987
Equivalent citations: [1987]168ITR1(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. At the instance of the Commissioner of Income-tax, the Income-tax Appellate Tribunal has referred the following two questions of law, under Section 256(1) of the Income-tax Act, for the decision of this court:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the levy of penalty of Rs. 2 lakhs under the provisions of Section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1970-71 ?
(2) If the answer to the aforesaid question is in the negative, whether the Tribunal was justified in holding that the penalty, if imposable, was exigible only to the extent of Rs. 33,500 and was not exigible to the extent of the balance ?"
2. The respondent is an assessee to income-tax. He is a salaried employee of M/s. Punalur Paper Mills Ltd. A search of the person of the assessee was conducted on February 27, 1970, at the Madras airport. A sum of Rs. 1,50,000 along with certain documents were recovered from him. The documents showed that the assessee had made a remittance of Rs. 33,500 through banks by three separate drafts. Proceedings under Section 132 of the Income-tax Act were initiated. The assessee contended that the amounts belonged to his uncle. The Income-tax Officer, Quilon, rejected the said plea and passed an order on May 20, 1970, under Section 132 of the Act, estimating his income at Rs. 2,45,500. The sum of Rs. 1,50,000, recovered from the person of the assessee, was retained to meet the income-tax liability for the assessment year 1970-71. Thereafter, proceedings were initiated by issuing a notice, under Section 148 of the Income-tax Act. The assessee filed a return. He did not include in his return the sum of Rs. 1,50,000 or Rs. 33,500, nor did he claim any exemption for the same on the ground that it belonged to his uncle. In the course of assessment proceedings, the explanation about the nature and source of Rs. 1,50,000 and Rs. 33,500 was found to be unsatisfactory. So, the said amount of Rs. 1,83,500 was included as the income of the assessee for the said year. The said additions were affirmed by the Appellate Assistant Commissioner as also by the Appellate Tribunal. Proceedings under Section 271(1)(c) of the Income-tax Act were initiated. After tracing the entire history, the Inspecting Assistant Commissioner, by order dated April 22, 1976, levied a penalty of Rs. 2,00,000. In appeal, the Income-tax Appellate Tribunal held that there is no material to hold that Rs. 1,50,000 is the income of the assessee and that no penalty is exigible on that account under Section 271(1)(c) of the Act. Regarding Rs. 33,500, the Appellate Tribunal held that the matter is different. In any event, penalty will have to be restricted to the amount of Rs. 33,500. The levy of penalty of Rs. 2,00,000 was cancelled. Thereafter, the Commissioner of Income-tax moved the Income-tax Appellate Tribunal to refer certain questions of law said to arise out of the appellate order dated November 13, 1978, and that is how the Appellate Tribunal has referred the above two questions of law for the decision of this court.
3. We heard counsel for the Revenue, Mr. P.K.R. Menon, as also counsel for the assessee, Mr. K.K. Ravindranath. Mr. Menon contended that the entire approach by the Appellate Tribunal is faulty. The burden of proof has been cast by the Tribunal wrongly on the shoulders of the Revenue. In the light of the Explanation to Section 271(1)(c), the burden is on the assessee to prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on the part of the assessee. This burden cast on the assessee has not been discharged in the instant case. The reasoning and conclusion of the Appellate Tribunal for holding that the levy of penalty of Rs. 2 lakhs by the Inspecting Assistant Commissioner is illegal and unauthorised and in cancelling the same are wholly erroneous in law and unreasonably wrong. On the other hand, counsel for the assessee, Mr. Ravindranath, contended that the Appellate Tribunal, on the basis of the facts in the instant case, found that no penalty is exigible. It was submitted that there is nothing to show that the failure to return the correct income by the assessee arose from any fraud or gross or wilful neglect on the part of the assessee. The Appellate Tribunal found that there is nothing to show that the plea of the assessee is false or inherently impossible. The Appellate Tribunal positively found that no concealment was proved in this case and, if at all, this is only a case of unsatisfactory nature of the explanation or the inability of the assessee to prove to the hilt the claim made by him. On the facts of the case and bearing in mind the decisions of courts, the Appellate Tribunal held that no penalty is exigible. This is a pure finding of fact. On the basis of the facts found, the cancellation of the penalty was justified and legal.
4. Having heard the rival contentions of the parties, we are of the view that the plea of the Revenue should fail. Before we embark upon an analysis of the factual details of the case, it will be useful to bear in mind the scope of Section 271(1)(c) of the Income-tax Act, read along with the Explanation, as it existed during the assessment year 1970-71. The law has been laid down authoritatively in the recent decision of the Supreme Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14.
The section has been quoted verbatim on page 19 of the report. The Supreme Court held at page 19 as follows :
"Before the amendment, difficulty arose and it is not necessary to trace the history. Under the law as it stood prior to the amendment of 1964, the onus was on the Revenue to prove that the assessee had furnished inaccurate particulars or had concealed the income. Difficulties were found in proving the positive element required for concealment under the law prior to amendment and this had to be established by the Revenue. To obviate that difficulty, the Explanation was added. The effect of the Explanation was that where the total income returned by any person was less than 80% of the total income assessed, the onus was on such person to prove that the failure to rile the correct income did not arise from any fraud or any gross or wilful neglect on his part and unless he did so, he should be deemed to have concealed the particulars of his income or furnished inaccurate particulars for the purpose of Section 271(1). The position is that the moment the stipulated difference was there, the onus to prove that it was not the failure of the assessee or fraud of the assessee or neglect of the assessee that caused the difference shifted to the assessee but it has to be borne in mind that though the onus shifted, the onus that was shifted was rebuttable. If in an appropriate case, the Tribunal or the fact-finding body was satisfied by the evidence on the record and inference drawn from the record that the assessee was not guilty of fraud or any gross or wilful neglect and if the Revenue had not adduced any further evidence, then, in such a case, the assessee cannot come within the mischief of the section and suffer the imposition of penalty. That is the effect of the provision."
5. On page 21 of the report, the Supreme Court proceeded to state as follows :
"Once the Explanation is held to be applicable to the case of an assessee, it straightaway raises three legal presumptions, viz., (i) that the amount of the assessed income is the correct income and it is in fact the income of the assessee himself; (ii) that the failure of the assessee to return the correct assessed income was due to fraud; or (iii) that the failure of the assessee to return the correct assessed income was due to gross or wilful neglect on his part. But it must be emphasised that these are presumptions and become a rule of evidence but the presumptions raised are not conclusive presumptions and are rebuttable."
6. The conclusion is stated on page 21 as follows :
"We are of the opinion that the view of the Full Bench of the Punjab and Haryana High Court is the correct view when it states that it only makes a presumption but the presumption is a rebuttable one and if the fact-finding body on relevant and cogent materials comes to the conclusion that in spite of the presumption the assessee was not guilty, such conclusion does not raise any question of law."
7. Summing up, the Supreme Court held on page 22 to the following effect:
"The position, therefore, in law is clear. If the returned income is less than 80% of the assessed income, the presumption is raised against the assessee that the assessee is guilty of fraud or gross or wilful neglect as a result of which he has concealed the income but this presumption can be rebutted. The rebuttal must be on materials relevant and cogent. 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. No question of law arises. In this case, the Tribunal has borne in mind the relevant principles of law and has also judged the facts on record. It is not a case that there was no evidence or there was such evidence on which no reasonable man could have accepted the explanation of the assessee."
8. In CIT v. Saraf Trading Corporation [1987] 167 ITR 909 (Ker), this Bench had occasion to review the entire position and state to the following effect on page 915 of the report :
"Penalty proceedings are penal in nature. The elementary principles of criminal law will apply. It is a quasi-criminal proceeding. There should be conscious concealment. The provisions should be construed strictly. Penalty proceedings are distinct and different from assessment proceedings. The findings in the assessment proceedings are not conclusive but are relevant. The entire materials available should be considered afresh by the authorities before imposing the penalty. Even after the addition of the Explanation to Section 271(1)(c), conscious concealment is necessary. The Explanation provides only a rule of evidence raising a rebuttable presumption in certain circumstances. No substantive right is created or annulled thereby. The substantive law relating to levy of penalty is preserved. The initial burden of proof is cast on the assessee to displace the presumption arising in certain cases. The assessee can discharge the onus either by direct evidence or circumstantial evidence, or both. The cumulative effect of all the facts should be taken into consideration. The assessee is entitled to show and establish by the material and relevant facts which may go to affect his liability or the quantum of penalty. As to whether there is concealment to make the penalty exigible is normally a question of fact. Whether the burden of proof in a given case has been discharged on a set of facts is also a question of fact. Similarly, the question as to whether the presumption under the Explanation to Section 271(1)(c) has been rebutted, in a particular case, by evidence, is a question of fact.
Section 271(1)(c) of the Act as it stood then, before the Taxation Law Amendment Act of 1975, but after the insertion of the Explanation by the Finance Act of 1964 with effect from April 1, 1964, specified that in cases where the total income returned by any person is less than 80% of the total income as assessed, such person 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, he will be deemed to have concealed the particulars of such income or furnished inaccurate particulars of such income. Proceeding on the basis that the income returned by the assessee is less than 80% of the total income as assessed, it should be stated that the assessee should initially prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. Unless it is so shown, the assessee shall be deemed to have concealed the particulars of the income or furnished inaccurate particulars of such income. It is only a presumption. The burden is cast on the assessee to prove a negative fact. This can be discharged either by independent evidence led during the penalty proceedings or by a closer scrutiny or appraisal of the existing facts and data available. This will take in even the materials available at assessment stage. The presumption under the Explanation to Section 271(1)(c) 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 the quantum of proof necessary would be that required in a civil case, namely, preponderance of probabilities--CIT v. Sankarsons [1972] 85 ITR 623 (Ker)."
9. Let us advert to the salient features in this case. A search of the person was made on February 27, 1970, at Madras Airport. A sum of Rs. 1,50,000 was recovered besides documents for Rs. 33,500. Proceedings under Section 132 of the Income-tax Act, estimating the income of the assessee at Rs. 2,45,500, were taken. An order was passed on May 20, 1970. The sum of Rs. 1,50,000, recovered from the person of the assessee, was retained to meet the income-tax liability of the person for the assessment year 1970-71. The Inspecting Assistant Commissioner totally ignored these salient features in imposing the penalty. The order, under Section 132 of the Income-tax Act, was passed after contest. It is important to note that the said order was passed before the date of filing of the income-tax return. Bearing this in mind, the Appellate Tribunal held that there was nothing to be concealed in the return submitted by the assessee. Material about the two items of Rs. 1,50,000 and Rs. 33,500 were made known to the Income-tax Officer long before the income-tax return was filed. The assessee was claiming openly to the knowledge of the Income-tax Officer that the amounts belonged to his uncle. The Income-tax Officer rejected the said plea. This is a case of a claim made by the assessee which was resisted by the Income-tax Officer. It is not as if the Income-tax Officer unearthed or found out an item of income concealed in the return or in the statement of accounts furnished by the assessee. The Income-tax Officer was, long before the income-tax return was furnished, in possession of the entire materials relating to Rs. 1,50,000 and Rs. 33,500 and was also in possession of Rs. 1,50,000. On these premises, the Appellate Tribunal held that concealment can be said to take place only where income would escape assessment if the return furnished by the assessee has been accepted as true and correct. In this case, even a remote possibility of such blind acceptance of the return without any enquiry did not exist because of the claim and counter-claim made long before the return was furnished. On these facts and reasoning, the Appellate Tribunal found that the assessee had not concealed income or furnished inaccurate particulars of such income. Proceeding further, the Appellate Tribunal held that as regards Rs. 1,50,000, it is only a case of unsatisfactory explanation of the nature and source of the amount. There is nothing to show that the plea of the assessee is false or inherently impossible. The Appellate Tribunal held that the Explanation to Section 271(1)(c) is also of no avail in this case because there is nothing on record to show that the failure to return the correct income did arise from any fraud or gross or wilful neglect on the part of the assessee. Considering these, facts and circumstances, it was concluded that this is only a case of unsatisfactory nature of the explanation or the inability of the assessee to prove to the hilt the claim which he made before the Income-tax Officer and there is no positive material to think that the sum of Rs. 1,50,000 is the income of the assessee. We are of the view that it will be irrational and illogical for any reasonable person to hold that the assessee should have disclosed in the return furnished by him, unmindful of the facts and circumstances, that these amounts represent his income and so by the same token it is not possible to hold that the failure to do so, is concealment of income or omission in that regard, and would amount to concealment or furnishing inaccurate particulars of such income. The word "conceal" is derived from the latin concelare which implies concelare to hide. Webster in his New International Dictionary equates its meaning "to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of ; to withhold knowledge of". The offence of concealment is thus a direct attempt to hide an item of income or a portion thereof from the knowledge of the income-tax authorities--(Chaturvedi & Pithisaria's Income-tax Law, Vol. 5, page 4883).
10. In the light of the guidelines laid down in the decision of the Supreme Court in Mussadilal Ram Bharose's case [1987] 165 ITR 14 and the principles discussed by us in I.T.R. No. 223 of 1980 (CIT v. Saraf Trading Corporation [1987] 167 ITR 909) we should say, that as to whether there is concealment to make the penalty exigible, in a given case, is a question of fact; as to whether the burden of proof in a given case has been discharged is also a question of fact and as to whether the presumption under the Explanation to Section 271(1)(c) of the Income-tax Act has been rebutted, by evidence, is also a question of fact. The Appellate. Tribunal, on the facts, has found that the assessee has not concealed any particulars of income or furnished inaccurate particulars of such income. It was also found that as regards Rs. 1,50,000, it is only a case of unsatisfactory explanation of the nature and source of the amount and that there is nothing to show that the plea of the assessee is false or inherently impossible, or that the failure to return the correct income did arise from any fraud or gross or wilful neglect on his part. These are all findings of fact. On these findings, the conclusion of the Appellate Tribunal in cancelling the penalty of Rs. 2 lakhs was justified.
11. In the light of the above, we answer question No. (1) in the affirmative, against the Revenue and in favour of the assessee., Since we have answered question No. (1) in the affirmative, no decision or answer is called for with regard to question No. (2). We decline to answer the said question.
12. The income-tax referred case is disposed of as above.
13. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Tribunal as required by law.