Income Tax Appellate Tribunal - Madras
M. Ethurajan vs Assistant Commissioner Of Income-Tax on 3 July, 1997
Equivalent citations: [1998]65ITD87(MAD)
ORDER
Kalsian, A.M.
1. This appeal by the assessee relates to asst. year 1984-85 and arises out of the order of the CIT (Appeals) II, Madras dated 3-1-1991 sustaining the levy of penalty under section 271(1)(c) in respect of additions to the extent of Rs. 5,73,044.
2. The Assessing Officer imposed a penalty of Rs. 10,44,016 under section 271(1)(c) in respect of the asst. year 1984-85 on the ground of concealing the particulars of income or furnishing of inaccurate particulars of income by the assessee of Rs. 15,54,194. The CIT (Appeals) held that the amount of Rs. 9,66,150 disclosed in the assessee's petition under section 273A and Rs. 15,000 being agricultural income disclosed in the return of income by the assessee should be excluded from the amount of Rs. 15,54,194 considered by the Assessing Officer as concealed income. The CIT (Appeals), therefore, confirmed the levy of penalty in respect of the concealed income of Rs. 5,73,044. The CIT (Appeals) also relied on the decisions of the Supreme Court in the cases of Chuharmal v. CIT [1988] 172 ITR 250/38 Taxman 190, CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14/30 Taxman 546A and the Madras High Court decision in the case of CIT v. Bala I. M. Rao [1989] 177 ITR 114/43 Taxman 204. The assessee felt aggrieved and has filed the present appeal before the Tribunal.
3. Before us the learned counsel for the assessee argued that the CIT (Appeals) failed to appreciate that the additions in the assessment on agreed basis to the extent of Rs. 5,73,004 were made under the deeming provisions of sections 68,69,69A etc. and that the deeming effect of these provisions cannot have automatic application to the penalty proceedings. According to the learned counsel in view of the decision of the Hon'ble Supreme Court in the case of Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 706/33 Taxman 460A no penalty could be levied when the additions to the total income are made on agreed basis. It is stated by the learned counsel that the loan taken from marwari bankers have been surrendered for addition to the total income in the case of M.G. Enterprises. The assessee also agreed to the addition because the loan is from the same source as in the case of M.G. Enterprises. It was argued that the Assessing Officer had not applied his mind while levying the penalty because the additions were made on agreed basis. The learned counsel referred to the order imposing penalty and stated that in para 4 of the said order the Assessing Officer has mentioned : "... without prejudice to a decision that may be taken by the Commissioner of Income-tax, Central-II, Madras on the petition filed by the assessee under section 273-A ....". In view of these observations of the Assessing Officer, it is argued by the learned counsel that the Assessing Officer was influenced by the petition filed by the assessee before the Commissioner of Income-tax, Central-II, Madras, and, therefore, penalty cannot be imposed. According to the learned counsel if the explanation of the assessee is found to be false or wrong about the investment then the same may be taken as its income but for the purpose of levy of penalty the situation is different. The ITO should be satisfied that the particulars were concealed or it resulted in concealment of income or furnishing of inaccurate particulars of income by the assessee. The learned counsel referred to the decision of the Supreme Court in the case of Sirpur Paper Mills Ltd. v. CWT [1970] 77 ITR 6 and stated that the ITO cannot be influenced by any authority, but in the present case the ITO was influenced by the Commissioner of Income-tax, Central-II, Madras because the petition under section 273-A filed by the assessee was pending before the Commissioner. The learned counsel submitted that the Assessing Officer did not invoke the Explanation 1 to section 271(1)(c) in the present case and therefore, penalty under section 271(1)(c) cannot be imposed. Reliance was placed on the decision of the Madras High Court in the case of CIT v. A. C. Paul [1983] 142 ITR 811. According to the learned counsel since the Assessing Officer has not invoked the said Explanation, levy of penalty is not correct. The learned counsel referred the following decisions in support of his arguments :
CIT v. Narang & Co. [1975] 98 ITR 462 (Delhi);
Viswakarma Industries v. CIT [1982] 135 ITR 652 (Punj. & Har.);
CIT v. Nathulal Agarwala & Sons [1985] 153 ITR 292/22 Taxman 199 (Pat.);
CIT v. Om Prakash Behl [1981] 132 ITR 342/[1980] 3 Taxman 58 (Punj. & Har.);
Kantilal Manilal v. CIT [1982] 130 ITR 411/4 Taxman 548 (Guj.);
CIT v. Jagabandhu Prasanna Kumar Ruplal Sen Poddar [1982] 133 ITR 156 (Cal.);
V. P. Samtani v. CIT [1983] 140 ITR 693/[1982] 9 Taxman 184 (Cal.);
Kantilal Chandulal & Co. v. CIT [1982] 136 ITR 889 (Cal.);
CIT v. Agency Hamdard Waqf Ltd. [1987] 166 ITR 698/31 Taxman 495 (All.);
CIT v. Rupabani Theatres (P.) Ltd. [1981] 130 ITR 747/6 Taxman 265 (Cal.);
CIT v. Reliable Trading Agency [1982] 138 ITR 505/[1981] 7 Taxman 315 (Cal.); and CIT v. M. B. Engg. Works (P.) Ltd. [1986] 158 ITR 509/[1985] 22 Taxman 173 (Cal.).
It is further stated by the learned counsel for the assessee that while confirming the penalty under section 271(1)(c) to the extent of Rs. 5,73,044, the written submissions filed by the assessee have not been considered by the first appellate authority, and reliance was placed upon the written submissions filed before the CIT (Appeals). According to the learned counsel, the Assessing Officer has not given any specific finding about the concealment of income.
According to the learned counsel, in order to avoid unnecessary and protracted litigation and also to buy peace from the Department, the assessee had made full and true disclosure of income based on the investments made by him within a period of fifteen days from the date of the search. Accordingly, the assessee came forward to disclose a total sum of Rs. 25.8 lakhs spread over to various years starting from the assessment year 1984-85. It is stated that the assessee had made certain borrowings in cash for making such investments, etc., and it was feared that the respective money lenders might not be willing to disclose their identity before the Income-tax Department. The assessee after inspection of the seized documents admitted to make a full and complete disclosure of all his investments/outgoings. The learned counsel stated that it may be possible, that owing to paucity of time certain matters reflected in the seized documents might not stand covered by the aforesaid disclosure, and if at all any such discrepancy is revealed, then the same is wholly unintentional and caused by circumstances beyond the control of the assessee.
It was also explained by the assessee that if any discrepancy is brought to his notice, the assessee would either render suitable explanation or include the same in the amounts being offered for assessment. As regards unexplained deposits of Rs. 53,000, Rs. 2,10,100 and Rs. 3,918 it was submitted that the assessee had requested in the petition under section 273A to make necessary modifications on the inspection of seized documents and also discussions with the Assessing Officer during the course of assessment proceedings and, therefore, the levy of penalty was not justified. As regards the investment in Mira Papers amounting to Rs. 1.50 lakh, it was stated that the addition was made on agreed basis and no penalty could be levied on this. It was stated that similar was the position with regard to investment made in Appu Hotels Ltd. in the name of minor daughter Ms. S. Valli amounting to Rs. 20,000. The assessee therefore offered an income of Rs. 5,88,044 and it was a valid compliance of section 273A and merely because the assessee did not file the revised petition under section 273A, the levy of penalty is not justified especially when the assessee had made full disclosure during the course of assessment proceedings. In the written submissions the assessee made a reference to Explanation 1 to section 271(1)(c) and contended that when the Explanation is not specifically invoked by the Assessing Officer the penalty order is not sustainable. It is also submitted that the proviso to the Explanation 1 is applicable to the facts of the assessee's case as the additions were made as a result of rejection of the assessee's explanation and the explanation was bona fide and all the facts relating to the same and material to the computation of the total income had been disclosed by the assessee. It is, therefore, contended that the penalty sustained by the CIT (Appeals) is excessive and unreasonable.
4. The learned Departmental Representative, on the other hand, submitted that the order of the CIT (Appeals) sustaining the penalty for concealment under section 271(1)(c) to the extent of Rs. 5,73,044 should be confirmed. The learned D.R. filed written submissions and argued the Assessing Officer levied a penalty of Rs. 10,44,016 under section 271(1)(c) on the ground that the assessee concealed the particulars of income/furnished inaccurate particulars of his income in respect of the addition of Rs. 15,54,194 to the total income. The CIT (Appeals) has reduced the quantum of penalty in respect of the following amounts :
(a) Personal drawings not included in the sum of Rs. 2,02,173 : Rs. 20,000
(b) Investments in minors' names in Usman Road Property :
Valli - Investment Rs. 3,25,000
Stamp, etc. Rs. 45,000 Rs. 3,70,575
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Shanmugham - investment Rs. 2,75,000 (sic)
Stamp, etc. Rs. 52,575 Rs. 4,27,575
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(c) Jewellery Rs. 1,48,000
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Rs. 9,66,150 (sic)
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However, the CIT (Appeals) has confirmed the penalty in respect of
the addition of Rs. 5,73,044 as follows :
(a) Cash deposit in banks during the period
18-4-1983 to 28-4-1983 : Rs. 53,000
(b) Deposits in bank of Thanjavur : Rs. 2,10,000
(c) Deposits in Lakshmi Vilas Bank : Rs. 3,918
(d) Investments in Meera Papers (P.) Ltd. : Rs. 1,50,000
(e) Investments in the name of S. Valli in
Appu Hotels. : Rs. 20,000
(f) Interest claim on Marwari loans : Rs. 1,36,026
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Rs. 5,73,044 (sic)
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The Learned D.R. submitted that the assessee himself admitted before the Assessing Officer that it is not possible for him to explain the sources of acquisition of the assets to the satisfaction of the Assessing Officer. The CIT (Appeals) found that since the assessee has made a petition under section 273A indicating disclosure of a sum of Rs. 9,66,150, the penalty on this amount is not to be levied. However, in respect of the sum of Rs. 5,73,044, the details of which are mentioned above, the CIT (Appeals) held that penalty is leviable. The learned D.R. stated that search was conducted at the residential and business premises of the assessee on 29-1-1985 and during the course of the said operations, various assets, books of account, valuables, etc., were found/seized. The assessee had sufficient time to go through the seized books of account, etc., and disclose the correct income in the return of income. The search was conducted on 29-1-1985 and the return of income was filed by the assessee on 10-7-1986 declaring income of Rs. 26,400. However, the assessment was completed under section 143(3) on a total income of Rs. 17,86,860 (including agricultural income of Rs. 15,000) and the said assessment was confirmed in appeal by the CIT (Appeals). The learned D.R. therefore, argued that even after the search and seizure operations the assessee had not taken due care to disclose the correct income despite sufficient time of more than a year and six months available to him to inspect the seized books of account, etc. The learned D.R. stated that the contention of the assessee that the assessment has been completed on agreed basis is not correct. Though the assessee has made a petition to the Commissioner of Income-tax under section 273A on 12-2-1985 indicating his intention to disclose a sum of Rs. 9,66,150, the return of income filed on 16-7-1986 subsequent to the petition under section 273A, did not even disclose the income so intended to be offered under section 273A. The additions were made to the total income to the extent of Rs. 15,54,194 and that the amount of Rs. 5,88,044 (including agricultural income of Rs. 15,000) was added to the total income over and above the amount covered in the petition under section 273A. It is stated by the learned D.R. that the assessee had contested the additions before the appellate authorities but did not succeed and the mere fact that the additions have been contested in appeal indicates that there was no agreed assessment as claimed by the assessee. The learned D.R. argued that there was no full disclosure in the petition under section 273A, which covers the addition to the extent of Rs. 9,66,150 whereas the additions in respect of unexplained investments were to the extent of Rs. 15,54,194, which shows that the disclosure made by the assessee was not full and true. The learned D.R. submitted that the decision of the Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A relied on by the assessee's counsel is not applicable because the said decision relates to the assessment year 1958-59 and at the relevant time the ratio of the Supreme Court decision in CIT v. Anwar Ali [1970] 76 ITR 696 was applicable. It was pointed out that in view of the amendment in the provisions of section 271(1)(c) by the Finance Act, 1964 and the insertion of Explanation 1 by the Finance Act, 1975 the ratio of the said Supreme Court decision as well as Anwar Ali's case will not be applicable. The learned D.R. relied on the following decisions in support of his contentions :
1. CIT v. Jeewanlal Sah [1994] 205 ITR 244 (SC),
2. CIT v. Malhotra Cold Storage & Fruit Industries [1995] 130 Taxation 758 (All.),
3. CIT v. Thakur Dass [1995] 127 Taxation 51 (Delhi) and
4. CIT v. Shama Magazine [1995] 213 ITR 64/82 Taxman 614 (Delhi).
The learned D.R. then argued that in view of the change in the legal position relating to imposition of penalty, the burden of proof is on the assessee and there is no onus on the Department to establish that the additions represent the income of the assessee. It was further argued by the learned D.R. that if the unexplained investment is deemed to be the income of the assessee under section 69A, there is no further onus on the Department to prove that such amount is the assessee's income. In this connection reliance was placed on the decisions in Loknath Chowdhuri v. CIT [1985] 155 ITR 291/23 Taxman 52 (Cal.) and Rahmath Development & Engg. Corpn. v. CIT [1981] 130 ITR 602 (Cal.). The learned D.R. referred to Explanation 1 to section 271(1)(c) and argued that the said Explanation enacts the rule of evidence, and authority which imposes the penalty is competent to invoke its aid in reaching the final conclusion on the question of concealment, although it may not have been resorted to at the stage when the reference was made to the authority imposing the penalty. Reliance was placed on the Gujarat High Court decisions in the cases of Kantilal Manilal v. CIT [1981] 130 ITR 411/4 Taxman 548 and CIT v. Drapco Electric Corpn. [1980] 122 ITR 341 and the decision of the Tribunal in the case of Smt. Kalpagam in (IT Appeal No. 2878 (Mad.) of 1990, dated 4-11-1996] for the assessment year 1981-82.
5. We have carefully considered the facts of the case and material on record. We have also considered the paper book filed by the assessee's counsel, which contained the written submissions of Sri N. Meenakshisundaram, Chartered Accountant. We have perused the written submissions filed by the Sr. Departmental Representative also. It could be seen that when the Assessing Officer repeatedly asked the assessee to show cause why penalty under section 271(1)(c) should not be imposed, the assessee's representative, Sri N. Meenakshisundaram, C.A. filed a letter dated 26-10-1989, wherein it was stated that the assessee has filed a petition under section 273A before the Commissioner on 12-2-1985. It was further submitted (as stated by the Assessing Officer in the penalty order) as under :
"In such circumstances in order to avoid unnecessary and protracted litigation and also to buy peace from the Dept., the assessee had made a full and true disclosure of income based on the investments made by him within a period of 15 days from the date of search. Accordingly he came forward to disclose a total sum of Rs. 25.8 lakhs spread over to various years including the assessment year 1984-85.
In view of this position it is submitted that since the assessee has not concealed any particulars of income or furnished inaccurate particulars of such income for the assessment year 1984-85, it is requested that the penalty proceedings may be dropped."
It is perhaps on the basis of the above petition of the assessee filed before the Commissioner, that the first appellate authority came to the conclusion that penalty under section 271(1)(c) in relation to the sum of Rs. 9,66,150 is unwarranted. He also excluded the sum of Rs. 15,000 being agricultural income for purposes of levy of penalty under section 271(1)(c). Despite repeated opportunities given by the Assessing Officer, the assessee did not say anything in respect of the unexplained investments/deposits in Bank amounting to Rs. 5,73,044, and therefore, the Assessing Officer held that the assessee had concealed the particulars of his income or furnished inaccurate particulars thereof. When the assessee filed first appeal before the CIT (Appeals) against imposition of penalty under section 271(1)(c), it was contended by the assessee's counsel that the deeming provisions are to be applied to the limited field in which they operate and that the deeming effect in these provisions is applicable only to assessments of the unexplained investments, etc., and has no automatic application to the provisions for levy of penalty. While confirming the levy of penalty to the extent of Rs. 5,73,044 the CIT (Appeals) held that the assessee did not make any true and full disclosure or any voluntary endeavour to offer these amounts for assessment and, therefore, the provisions of section 271(1)(c) including the Explanation thereto could be legitimately applied. Under section 251(1)(b) the CIT (Appeals) has power to confirm or cancel or vary the penalty levied, so as to either enhance or to reduce the penalty. Therefore, the CIT (Appeals) has not only the power to confirm the penalty but to enhance the penalty also, which means that if while imposing penalty under section 271(1)(c) the Assessing Officer has not considered the legal position and facts of the case properly, the CIT (Appeals) has power to consider the legal position and facts of the case properly and in suitable cases after considering the legal position and facts of the case, could enhance the penalty imposed by the Assessing Officer. The assessee has raised the issue of applicability of Explanation 1 to section 271(1)(c) before the CIT (Appeals) and, therefore, he is not adversely affected if the said Explanation has not been mentioned by the Assessing Officer in the penalty order.
6. In the case of CIT v. Prathi Hardware Stores [1993] 203 ITR 641 (Ori.), the facts of the case were that the cash credits of Rs. 20,000 were found in the assessee's accounts. It claimed that a loan of Rs. 20,000 was obtained from one Sri R. V. P. Ganapathi Rao on different occasions. The ITO examined the said Ganapathi Rao who admitted to have advanced the loan and explained that this amount was saved out of commission which he had earned as commission agent. According to Sri Ganapathi Rao, the amount was not kept in the bank because of an apprehension that, if the fact of his having the amount was known to his brother, he would have been forced to use the amount in the business of his brother, which he did not want to do. The ITO did not accept the explanation and treated the amount as assessee's income from undisclosed sources by the application of section 68 of the Act. Proceedings under section 271(1)(c) were initiated in respect of the said addition. The addition made by the ITO was sustained by the AAC. The ITO imposed penalty of Rs. 10,000 under section 271(1)(c) after rejecting the assessee's explanation. It was claimed by the assessee before the ITO that the creditor having admitted the advance of loan, the burden placed on it has been discharged and, therefore, no case for imposition of penalty was made out. The matter was carried in appeal before the AAC, who held that imposition of penalty was not in order. The Revenue appealed to the Tribunal and the Tribunal disposed of the appeal concurring with the conclusion of the AAC. The AAC had held that the notice did not specifically mention whether there was concealment or whether inaccurate particulars of income had been furnished by the assessee and that invalidated the notice. It was also held by the AAC that the assessee had discharged the primary onus laid upon it and in the absence of any proof contrary to the probabilities raised by the assessee, penalty cannot be imposed. In further appeal before the Tribunal by the Revenue, it was observed by the Tribunal that the assessee did not go further in appeal when the AAC confirmed the addition of Rs. 20,000 and one does not know whether the said addition would have been confirmed before the Tribunal. It was further observed that disbelieving the explanation does not prove concealment. At the instance of the Revenue the Tribunal made a reference to the Orissa High Court. After considering the legislative history insofar as section 271(1)(c) is concerned and further amendments brought by the Taxation Laws (Amendment) Act, 1975 as well as Explanation introduced by Finance Act, 1964, the Hon'ble Orissa High Court at page 647 (203 ITR) held as under :
".... The position of law on or after April 1, 1976 is that where, in respect of any item of credit, (a) the assessee fails to offer an explanation, or (b) the assessee offers an explanation which the taxing officer considers to be false, or (c) the assessee offers an explanation but no material or evidence to substantiate it, he shall be deemed to have concealed such income within the meaning of section 271(1)(c). What sections 68, 69, 69A and 69C deem for the purpose of assessment was injected for the purpose of penalty by operation of a deemed provision. A proviso was added to the new Explanation. It concerns cases where the assessee offers an explanation which he is not able to substantiate. Consequently, the provision intended to save such amount from imposition of penalty, although the same had been added to the assessee's income in the assessment, if the assessee's explanation is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him."
Their Lordships further held at pages 648 to 650 as under :
"A conspectus of the Explanation added by the Finance Act, 1964, and the subsequent substituted Explanation makes it clear that the statute visualised the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. In essence, the Explanation (both after 1964 and 1976) is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. The rationale behind this view is that the basic facts are within the special knowledge of the assessee. Section 106 of the Indian Evidence Act, 1872, gives statutory recognition to this universally accepted rule of evidence. There is no discretion conferred on the Assessing Officer as to whether he can invoke the Explanation or not. Explanation 1, which primarily concerns the case at hand, automatically comes into operation when, in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the Assessing Officer or the first appellate authority, or an explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which particulars have been concealed. As per the provision of Explanation 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same and material to the computation of his income have been disclosed by him will be on the person charged with concealment. Mere failure to substantiate the explanation is not enough to warrant penalty. The Revenue has to establish that the explanation offered was not substantiated. The provision of Explanation 1 is concerned only with cases coming under clause (B) of the Explanation, where the assessee offered an explanation which he was not able to substantiate. The explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation, it should not be a fantastic or fanciful one. As indicated above, the consequence follows as a matter of law. The burden is on the assessee. If he fails to discharge that burden, the presumption that he had concealed the income or furnished inaccurate particulars thereof is available to be drawn.
The principal logical import of the explanation is to shift the burden of proof from the Revenue on to the assessee. 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, and no question of law arises. As observed earlier, the initial burden is on the assessee. Once the initial burden is discharged, the assessee would be out of the mischief unless further evidence is adduced. It is plain on principle that it is not the law that the moment any fantastic or unacceptable explanation is offered, the burden placed would be discharged and the presumption rebutted. As pointed out by the Apex Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14/30 Taxman 546A, the burden placed upon the assessee is not discharged by any fantastic explanation. It must be an explanation acceptable to the fact-finding body.
The position on and after April 1, 1976 is clear that where, in respect of any item of credit, the assessee has offered an explanation which the taxing officer has considered to be false or the assessee has offered an explanation but no material or evidence to substantiate it, he shall be deemed to have concealed such income within the meaning of section 271(1)(c). A further condition was imposed with effect from September 10, 1986, with which we are not concerned. In the case at hand, the explanation of the assessee so far as the genuineness of credit of the lender was concerned was not accepted. The assessee's appeal before the AAC failed. It was observed that the assessee offered an explanation but no material or evidence to substantiate the same. The Tribunal came to a presumptuous conclusion that the assessee may have succeeded in the appeal had it come before the Tribunal against the addition. No basis or reason has been indicated for such conclusion. A narration of facts would go to show that the AAC and the Tribunal did not consider the case of the assessee keeping in view the new Explanation 1 applicable on and after April 1, 1976. By operation of the Explanation, the onus lay on the assessee and findings given at the time of assessment are relevant and have probative value where the assessee offered nothing beyond the explanation offered at the assessment stage. In such cases, it cannot be said that the assessee had discharged the onus even by a preponderance of probabilities. The initial burden which lay on the assessee was not discharged. There was total absence of material to rebut the presumption. The assessee's plea does not stand the test of preponderance of probabilities."
Therefore, in the above case the Hon'ble Orissa High Court had laid down the following proposition of law :
1. Explanation to section 271(1)(c) is the rule of evidence. Presumptions which are rebuttable in nature are available to be drawn.
2. The initial burden of rebuttal is on the assessee because the basic facts are within the special knowledge of the assessee. Section 106 of the Indian Evidence Act, 1872 gives statutory recognition to this universally accepted rule of evidence.
3. There is no discretion conferred on the Assessing Officer as to whether he can invoke the Explanation or not.
Similarly in the case of CIT v. Shama Magazine [1995] 213 ITR 64/82 Taxman 614, relied upon by the learned D.R., it was held by the Hon'ble Delhi High Court that whenever there was a failure on the part of the assessee in the circumstances referred to in the Explanation to section 271(1)(c), the statutory presumption automatically followed and it had to be deemed that the assessee had concealed the particulars of his income. Though the said decision of the Delhi High Court relates to the assessment year 1964-65, the proposition of law and the ratio laid down in that case is equally applicable to Explanation 1 to section 271(1)(c) inserted by Taxation Laws (Amendment) Act, 1975 w.e.f. 1-4-1976.
7. In the case of Kantilal Manilal v. CIT [1981] 130 ITR 411/4 Taxman 548 the Gujarat High Court held as under :
"The Explanation to section 271(1)(c) of the Income-tax Act, 1961, enacts a rule of evidence and the authority which imposes penalty is competent to invoke its aid in reaching the final conclusion on the question of concealment, although it may not have been resorted to at the stage when the reference was made to the authority imposing the penalty. Therefore, merely because the Explanation has not been referred to in the show-cause notices, there is no legal bar invoking the Explanation during the course of the penalty proceedings."
8. Similarly, the Division Bench of the Gujarat High Court in the case of CIT v. Drapco Electric Corpn. [1980] 122 ITR 341 held (headnote at p. 344) as under :-
"Since the Explanation enacts merely a rule of evidence, it is competent to the authority which imposes the penalty to invoke its aid in reaching the final conclusion on the question of concealment, although the ITO may not have resorted to it at the stage when he made the reference to the authority."
9. In the case of CIT v. Rajeshwar Singh [1986] 162 ITR 173 (Punj. & Har.) the ITO did not invoke Explanation to section 271(1)(c) while imposing penalty for the assessment year 1970-71. The AAC also did not refer to the Explanation when he deleted the penalty. The Court held that the Revenue for the first time before the Tribunal could invoke the Explanation to seek reversal of the AAC's order deleting the penalty and the Tribunal cannot rule out of consideration a plea of presumption based on the Explanation when the income returned was less than 80 per cent. of the assessed income, and the Explanation was attracted. Their Lordships of the P&H High Court further held that the Explanation was not taken support of by the ITO and was not pleaded before the AAC.
9.1 In the case of CIT v. Lal Chand Tirth Ram [1997] 225 ITR 675/92 Taxman 320, decided by the Punjab & Haryana High Court, the facts of the case were that the Assessing Officer found that some stock of goods had also been kept by the assessee in the Central Warehousing Corporation and from the information collected from them he found that there was a difference between the stock kept in the warehouse and the stock shown by the assessee in its books of account. The Assessing Officer also found that goods (94 bags of barley) have been sold by the assessee on own account and not in his commission agency. Since stock of 94 bags of barley had not been shown by the assessee in his closing stock as on 31-3-1976, its value, which worked out at Rs. 6,440, was added to the assessee's income treating it as undisclosed income. The Assessing Officer also imposed penalty of Rs. 4,959 under section 271(1)(c) after rejecting the assessee's explanation. It was explained by the assessee that the stock of 94 bags of barley had been kept by one Sardul Singh and a valid explanation had also been offered by him and adequate evidence had been produced in support of the explanation of the assessee. During the course of appeal proceedings before the CIT (Appeals), some evidence was produced and Sardul Singh was also examined by the Assessing Officer and report was sent to the CIT (Appeals). The CIT (Appeals) accepted the assessee's explanation and cancelled the penalty. The Tribunal upheld the order of the CIT (Appeals). On a reference, the Hon'ble Punjab & Haryana High Court held that there was no evidence on record to show that Sardul Singh had brought for storage the stock of 94 bags of barley. The statement of Sardul Singh contained in the confirmatory letter as well as in his examination by the Assessing Officer did not make the explanation reliable. Their Lordships found that the legal fiction or the presumption created by the Explanation had not been rebutted by the assessee by producing sufficient and reliable evidence and that the assessee failed to produce the material facts on record, which would be sufficient to displace the legal presumption. It was held that the onus of proof for rebutting the presumption lay squarely on the assessee which he failed to discharge. Therefore, the Hon'ble High Court held that the levy of penalty on the assessee was valid under clause (B) of Explanation 1 to section 271(1)(c) of the Act.
What is significant in the aforementioned decision is that it appeared from the facts of the case that Explanation 1 to section 271(1)(c) was not referred either by the Assessing Officer or by the CIT (Appeals), or by the Tribunal. But the Hon'ble Punjab & Haryana High Court referred to the said Explanation even for the first time in order to consider whether the assessee had concealed the particulars of his income, or furnished inaccurate particulars of income, within the meaning of section 271(1)(c) read with Explanation 1 thereto.
10. From the above decision of the Punjab & Haryana High Court it is clear that even if the Explanation 1 to section 271(1)(c) is not referred to by the Assessing Officer or by the CIT (Appeals) or even by the Tribunal, still the said Explanation 1 to section 271(1)(c) could be considered by the High Court for considering whether the assessee had concealed the particulars of his income or furnished inaccurate particulars of his income. Under section 271(1)(c) penalty is imposable for concealment or for furnishing inaccurate particulars of income. Explanation 1 to section 271(1)(c) explains the concept of "concealment of income, or furnishing of inaccurate particulars of income". Therefore, the said Explanation is the integral part of section 271(1)(c) and is not separate from it because it explains the concept of "concealment of income, or furnishing of inaccurate particulars of income", for which penalty is leviable under section 271(1)(c). Before the insertion of Explanation 1 to section 271(1)(c) by the Finance Act, 1964 and the Taxation Laws (Amendment) Act, 1975, the burden of establishing concealment of income was on the Revenue. But after the Explanations were inserted by the Finance Act, 1964 and Taxation Laws (Amendment) Act, 1975, the onus was shifted to the assessee from the Revenue. The nature of Explanation inserted by the Finance Act, 1964 and the nature of Explanation inserted by the Taxation Laws (Amendment) Act, 1975, is different but the effect of the amendment made by the Finance Act, 1964 and Taxation Laws (Amendment) Act, 1975 by inserting Explanation 1 to section 271(1)(c) is the same. The effect of insertion of the said Explanation by the Taxation Laws (Amendment) Act, 1975, with which we are concerned, is that where, in respect of facts material to the computation of total income of an assessee, he furnishes no explanation, or he cannot substantiate the explanation offered by him, or the explanation offered by him is false, then the relevant income shall be deemed to be the assessee's concealed income. Therefore, the argument of the assessee's counsel that the burden lies on the Revenue to prove that the unexplained investment was income of the assessee, has no merit. Rather the burden lies on the assessee to rebut the presumption under Explanation 1 to section 271(1)(c), and the said Explanation 1 applicable to the assessee's case is a rule of evidence. Presumptions which are rebuttable in nature are available to be withdrawn. The initial burden of discharging the onus of rebuttable is on the assessee.
11. In the assessee's case before us the Assessing Officer detected certain bank deposits and other investments to the tune of Rs. 5,73,044. The assessee has given no explanation about the source and nature of such investments in banks and in Meera Papers (P.) Ltd., and also investments made in minors' names. In the absence of any explanation by the assessee it has to be held that the assessee did not discharge the onus which lay on him.
12. Explanation 1 to section 271(1)(c), which has been considered by the CIT (Appeals) in the present case, is reproduced below :
"Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act -
(A) such person fails to offer an explanation or offers an explanation which is found by the ITO or the AAC [or the Commissioner (Appeals)] to be false, or (B) such person offers an explanation which he is not able to substantiate, then the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."
13. It is seen that what sections 68, 69, 69A, 69B and 69C deem for the purpose of assessment, the new Explanation 1 injects the deeming for the purpose of penalty also. If the assessee gives no explanation at all or explanation is found to be false, then the addition or disallowance in the assessment arising out of such facts shall be deemed to be concealed income. In the case of CIT v. Ganpatrai Gajanand [1977] 108 ITR 403 (Ori.), the Assessing Officer added a sum found credited in the books of the assessee to his income by rejecting the assessee's explanation as unsatisfactory. The Assessing Officer also imposed penalty under section 271(1)(c). The Orissa High Court held that there is no distinction between the income arising on account of section 68 and income earned otherwise. Section 68 essentially dwells on deeming provision which applies when the assessee's explanation is rejected as unsatisfactory. The amount which is deemed to be income by operation of law is also income to which provisions of section 271(1)(c) will apply. Now this statutory principle has been recognised by Explanation 1 to section 271(1)(c) of the Act introduced by Taxation Laws (Amendment) Act, 1975 w.e.f. 1-4-1976.
14. In the case of S. S. Ratanchand Bholanath v. CIT [1994] 210 ITR 682 (MP), the assessee admitted before the Assessing Officer that a particular amount was liable to be included in its total income. The Madhya Pradesh High Court held that the assessee itself told the Assessing Officer that there was a suppression of income to the extent of Rs. 11,027. This was also verified by the Assessing Officer. Hence the question of the authority in penal proceedings coming to any conclusion different from that arrived at in the assessment proceedings did not arise. Their Lordships further held that if the assessment order or reassessment order become final, it was binding on both the parties and neither party could seek reopening in penalty proceedings.
15. In the case of Chuharmal v. CIT [1988] 172 ITR 250 (SC), the facts of the case were that wrist watches of foreign make were seized from the assessee's bedroom. No explanation was given at the time of seizure. The assessee's returned income was less than 80 per cent. of the income assessed. Deemed income comprising of value of unexplained articles was added to the disclosed income, and penalty under section 271(1)(c) was imposed by the Assessing Officer. The Hon'ble Supreme Court held that the expression "income" as used in section 69A of the Income-tax Act, 1961, had a wide meaning which meant anything which came in or resulted in gain. The Apex Court also held that, on the facts, a legitimate inference could be drawn that the assessee had income which he had invested in purchasing the wrist watches and could be held to be the owner of the watches and their value could be deemed to be his income by virtue of section 69A. Since in the assessee's case before us, no explanation had been given about the deposits in bank and other investments made by him, the ratio laid down by the Hon'ble Supreme Court in the case of Chuharmal v. CIT [1988] 172 ITR 250 is squarely applicable.
15.1 In the case of CIT v. Krishna & Co. [1979] 120 ITR 144 (Mad.), the facts of the case were that the books of the assessee showed certain borrowings and repayments from certain bankers. The ITO found that the transaction in question was bogus. The assessee thereafter readily agreed to the inclusion of the amount as his income. The Hon'ble Madras High Court held that in a case where the assessee himself has admitted that the amount represented his own income, no further evidence would be necessary to show that it was the amount which represented his income and it represented his concealed income. It was further held by their Lordships that the assessee having agreed to the addition of the amount as his income, the levy of penalty was justified.
In the assessee's case before us, the facts are more or less similar. When the Assessing Officer found that there were undisclosed deposits in banks etc. and brought the same to the assessee's notice, the assessee admitted and agreed to the addition of Rs. 5,73,044 to his total income. In view of the decision of the Hon'ble Madras High Court in the case of CIT v. Krishna & Co. [1979] 120 ITR 144, no further evidence is necessary to show that the amount added by the Assessing Officer represented the assessee's concealed income. When the Assessing Officer detected the undisclosed deposits in the bank and other investments made by the assessee to the tune of Rs. 5,73,004 the assessee agreed to the said addition and hence, the levy of penalty under section 271(1)(c) is justified.
16. Similarly, in the case of CIT v. K. Govindarajulu Naidu [1991] 190 ITR 318/56 Taxman 117 (Mad.), the assessment for the assessment year 1964-65 was originally completed accepting the return filed by the assessee. Subsequently, the assessment was reopened in response to which the assessee filed a return disclosing additional sum of Rs. 33,100 as income from other sources and explained that the same had been borrowed by him from multani bankers for the purpose of contributing his share of capital in the firm in which he was a partner, and as the whereabouts of the multani bankers were not known, he was offering the amount covered by the borrowings for assessment under the head "other sources". Ultimately the IAC levied penalty of Rs. 4,688 under section 271(1)(c) of the Act. The Tribunal, however, deleted the penalty levied on the ground that the assessee had discharged the onus under the Explanation to section 271(1)(c) and hence the levy of penalty was not proper. On a reference, the Hon'ble Madras High Court held that the Tribunal had not considered the question of the propriety of the levy of penalty on the assessee adverting to the presumptions arising from the Explanation to section 271(1)(c) and the disclosing of those presumptions by materials placed by the assessee. Their Lordships further held that apart from merely stating that the stand of the assessee was that the borrowals were true and that there were no other circumstances which would prima facie indicate that the version of the assessee could not be true, the Tribunal had not adverted to any material placed by the assessee to dislodge the presumption. It was therefore, held by the Hon'ble Madras High Court that the levy of penalty was valid and the Tribunal was not justified in cancelling it.
16.1 Applying the ratio laid down by the Hon'ble Madras High Court in the case of CIT v. K. Govindarajulu Naidu [1991] 190 ITR 318/56 Taxman 117 in the present assessee's case, we hold that the assessee has not given any explanation about the nature and source of deposits in bank and other investments which were detected by the Assessing Officer and therefore, there is no reason why penalty under section 271(1)(c) should not be imposed on the assessee.
17. The learned counsel for the assessee relied on the decision of the Madras High Court in the case of CIT v. A. C. Paul [1983] 142 ITR 811. In that case the facts were as follows :
"The Assessing Officer imposed penalty under section 271(1)(c) because the assessee has made investments in his name as well as in the name of his wife and sons in the assessment year 1964-65. Investments were made to the extent of Rs. 1,05,850. The assessment was followed by penalty proceedings on the ground that the assessee had concealed particulars of his income to the extent that he was not able to explain satisfactorily his investments to the extent of Rs. 60,889. The penalty proceedings were subsequently taken over by the IAC. Before this authority the assessee submitted that the ITO had not properly judged the resources which the assessee had, from out of which the investments must be regarded as having been fully and properly explained. After considering the assessee's explanation the IAC arrived at a figure of Rs. 30,000 as the value of the investments for which the assessee's explanation fell short. On this basis he levied a penalty of Rs. 20,000 under section 271(1)(c). In further appeal before the Tribunal, the assessee was not present either in person or by authorised representative. The Tribunal referred to and followed the decision of the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696 and held that it was for the Revenue to establish that the falsity of the explanation of the assessee as to the sources of investments really represented taxable income which was concealed from the view of the Department. The Tribunal held that, in the instant case, the Department had not established that the explanation offered by the assessee was either false or was unacceptable. On a reference at the instance of the Revenue the following question of law was referred for the esteemed opinion of the Hon'ble Madras High Court :
'Whether, on the facts and in the circumstances of the case, and the Tribunal not having referred to and relied on any evidence to prove the existence of the source of income for the assessee's wife and son in Ceylon, the Tribunal was right in cancelling the penalty under section 271(1)(c) in the case of the assessee ?'"
It was argued before the High Court that the Tribunal ought to have properly invoked the Explanation to section 271(1)(c) of the Act as it stood in the relevant assessment year. The Hon'ble High Court found that in the penalty order, there was not a word said about the applicability of the Explanation to section 271(1)(c). When the matter went before the Tribunal, the assessee was absent, but the Tribunal went into the merits of the appeal in the presence of the Departmental Representative. The High Court further found that in the order of the Tribunal there was nothing to show that at the time of hearing the D.R. invoked the Explanation to section 271(1)(c) in an effort to sustain the order of penalty. In this context, the Hon'ble Madras High Court held that with regard to application of Explanation to section 271(1)(c) the Tribunal has not gone into it and this Explanation was not invoked by the IAC in the order levying penalty nor was it raised by the Department before the Tribunal. Accordingly the Department could not raise the issue regarding Explanation to section 271(1)(c) before the High Court and the Tribunal was justified in not considering it. But the facts and circumstances of the assessee's case before us are totally different. Explanation 1 to section 271(1)(c) has been argued by the assessee's counsel before the CIT (Appeals) and the same issue was argued by the learned D.R. before the Tribunal. Therefore, when Explanation 1 to section 271(1)(c) has been argued and the relevant case laws are cited by the learned D.R. we are bound to consider the said Explanation. Therefore, the decision of the Madras High Court in the case of CIT v. A. C. Paul [1983] 142 ITR 811 relied on by the assessee's counsel is not at all relevant in the present assessee's case.
18. The Supreme Court has held in the case of CIT v. Jeewan Lal Sah [1994] 205 ITR 244 that the rule regarding burden of proof enunciated in the case of CIT v. Anwar Ali [1971] 76 ITR 696 (SC) is not legally valid after the insertion of Explanation to section 271(1)(c). The learned counsel for the assessee also relied on the decision of the Delhi High Court in the case of CIT v. Narang & Co. [1975] 98 ITR 462 and the decision of the Allahabad High Court in the case of CIT v. G. L. Textiles [1977] 109 ITR 37. The facts in these cases are totally different from the facts in the present assessee's case and hence, it is not necessary even to refer to those decisions. Similarly the assessee's counsel also relied on certain other decisions, but in view of the decisions of the Supreme Court in the cases of Chuharmal v. CIT [1988] 172 ITR 250/38 Taxman 190, CIT v. Jeewan Lal Sah [1994] 205 ITR 244 and CIT v. K. R. Sadayappan [1990] 185 ITR 49 and Punjab & Haryana High Court's decision in the case of CIT v. Lal Chand Tirth Ram [1997] 225 ITR 675/92 Taxman 320 the ratio laid down in the cases relied on by the assessee is not at all applicable. Under Explanation 1 to section 271(1)(c) the presumption of concealment was rebuttable by cogent, reliable and relevant material. In the present case the assessee has not given any explanation about the nature and source of deposits in bank and other investments.
19. The assessee declared income of Rs. 26,440 in the return of income filed much after the search and seizure operations. He even did not declare the income of Rs. 9,66,150 which was disclosed in the petition under section 273A before the Commissioner, in the return of income filed after the search. The assessee also did not disclose the bank deposits and other investments made in M/s. Meera Papers (P.) Ltd. and in the name of S. Valli in Appu Hotels. No details of marwari loans were submitted on which interest of Rs. 1,36,026 was claimed, either in the return of income or during the course of assessment proceedings. The total income of the assessee was assessed by the Assessing Officer at Rs. 17,86,860, which reveals staggering difference between the returned income and the assessed income. Considering the facts and circumstances of the assessee's case we are satisfied that the assessee has concealed the particulars of his income and also had furnished inaccurate particulars of his total income. The fact that the assessee had agreed for addition after the Assessing Officer detected the deposits in bank, investments made by the assessee, etc., would prove that the assessee had made no effort to declare correct taxable income in his return. If the return of income filed by the assessee had been accepted under section 143(1) without scrutiny, then it would have resulted in evasion of taxes legitimately due to the State. Agreeing to the addition to the total income on account of deposits, investments, etc., made by the assessee, when such deposits, investments, etc., were detected by the Assessing Officer, could not be a reason for absolving the assessee from the penalty. When the assessee himself had agreed to the addition of concealed income on account of deposits, etc. no further evidence is necessary to prove concealment in view of Explanation 1 to section 271(1)(c), because the assessee has not discharged the onus by rebutting the presumption which lay on him. Merely because penalty proceedings are independent of assessment proceedings, it does not mean that the Assessing Officer should ignore all the materials collected at the time of assessment - See : H. V. Venugopal Chettiar v. CIT [1985] 153 ITR 376 (Mad.). By virtue of Explanation 1 to section 271(1)(c) assessment proceedings and penalty proceedings are closely connected. The CIT (Appeals) has confirmed the penalty under section 271(1)(c) only in respect of additions of Rs. 5,73,044 made to the assessee's total income which were neither disclosed by the assessee in his petition under section 273A filed before the Commissioner nor in the return of income, but the same were detected by the Assessing Officer. The assessee's disclosure of income of Rs. 9,66,150 in the petition under section 273A before the Commissioner has no relevance to the income of Rs. 5,73,044 detected by the Assessing Officer even after the disclosure of income of Rs. 9.66 lakhs in his petition under section 273A before the Commissioner, the assessee concealed the particulars of his income of Rs. 5,73,044. The deposits in the bank and other investments totalling to Rs. 5,73,044 were not disclosed by the assessee but were detected by the Assessing Officer.
20. In the cases of Chuharmal v. CIT [1988] 172 ITR 250/38 Taxman 190 (SC), CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14/30 Taxman 546A (SC) and CIT v. Bala I. M. Rao [1987] 177 ITR 114/43 Taxman 204 (Mad.) and other cases mentioned earlier, the statutory presumption automatically followed and it has to be deemed that the assessee has concealed the particulars of his income. The assessee has not discharged the burden which lay upon him by virtue of Explanation 1 to section 271(1)(c). The assessee has not given any explanation about the nature and source of deposits in the bank and other investments as well as details about loan taken from marwari bankers and the presumption of concealment has not been rebutted by the assessee. Under the circumstances, we confirm the order of the CIT (Appeals) and reject the grounds raised by the assessee.
21. In the result, the appeal is dismissed.