Gujarat High Court
Jumabhai Premchand (Huf) vs Commissioner Of Income-Tax on 22 June, 1998
Equivalent citations: [2000]243ITR812(GUJ)
Author: C.K. Thakker
Bench: M.C. Patel, C.K. Thakker
JUDGMENT C.K. Thakker, J.
1. The following question was referred for the opinion of this Court by the Tribunal :
"Whether, on the facts and circumstances of the case, the IT Department had discharged the onus in establishing that the appellant had met his household expenses for asst. yr. 1968-69 and 1969-70 from income from undisclosed sources ?"
2. The assessee is the Karta of HUF. For asst. yrs. 1968-69 and 1969-70, he had drawn amount of Rs. 4,315 and Rs. 5,033 on account of household expenses. A search was carried out at the premises of the assessee on 29th September, 1975. Certain golden and silver ornaments were found. It was also noticed that there were immovable properties in the name of Smt. Manguben, Karta's wife. The assessee subsequently made voluntary disclosure of his income. Fresh returns were also filed by him. Proceedings were initiated against the assessee in respect of asst. yrs. 1968-69 to 1973-74. In the present proceedings, we are concerned with household expenses of the assessee for two years; 1968-69 and 1969-70.
3. There were nine members in the family of the assessee. Considering the large family of the assessee, his social status, the fact that three daughters were studying and further that three daughters got married between 1968-69 and 1974-75, the ITO held that the household expenses shown by the assessee was extremely low. He, therefore, estimated such expenses at Rs. 11,000 adding Rs. 6,685 for the asst. yr. 1968-69 and at Rs. 12,000 adding Rs. 6,967 for the asst. yr. 1969-70. By an order dt. 28th March, 1977, the ITO also directed to issue notice to the assessee to show cause as to why penalty should not be imposed on him under s. 271(1)(c) r/w Explanation and for late submission of return.
4. Pursuant to the above orders, show-cause notices appear to have been issued to the assessee on 2nd August, 1979 under s. 271(1)(c) as to why penalty should not be imposed as he had deliberately concealed particulars of his income. The assessee sent a reply on 16th August, 1979, wherein he stated :
"The facts are clear and borne out from the records are that an addition of Rs. 6,685 was made to the total income your honour (predecessor in office) and this has been reduced to Rs. 4,685 by the learned AAC in appeal. The addition is on account of estimated household expenses on account of lower withdrawals for the same. There is no finding that the same amount was earned and not disclosed. There is also no basis for such an estimate as it has not been supported by any material. The discrepancy which is alleged has also estimated by the ITO who passed the order. Nothing cogent has been shown to the petitioner to keep an idea of the amount. The burden in penalty matter is on the Department and even if the addition may be justified for purposes of assessment, the penalty cannot be levied if there is no direct material and dishonest and guilt is not established. As this is not the case, we request your honour to kindly drop action."
5. A similar reply was-submitted for the asst. yr. 1969-70.
6. The ITO, by orders dt. 17th September,1979 held that the household expenses shown by the assessee were ridiculously low. Taking into account overall facts, he held that there was enough material on record to draw an inference of concealment of income. He, accordingly, imposed penalty on the assessee.
7. The orders were taken in appeals before the appellate authority at the instance of the assessee but the orders passed by the ITO were affirmed. The matters were further taken before the Tribunal and the Tribunal was also pleased to reject them. Applications for reference were filed under s. 256(1) of the Act. Three questions were sought to be referred for the opinion of this Court but as stated above, only one question was referred for our opinion by the Tribunal.
8. We have heard Mr. M. M. Talati, learned counsel for the assessee, and Mr. B. B. Nayak i/b by Mr. M. R. Bhatt, learned counsel for the Revenue. Mr. Talati submitted that the entire proceedings were conducted and findings were recorded on the basis of the orders passed in assessment proceedings. He submitted that two proceedings are entirely different i.e., assessment proceedings and proceedings for imposition of penalty on assessee. Even if in assessment proceedings, the authorities were not satisfied regarding the quantum of household expenses for the asst. yrs. 1968-69 and 1969-70 and orders were passed increasing the said amount, an order of imposition of penalty could not have been passed by the authority on that basis. It was submitted that the burden which was on the Department to prove concealment of income on the part of the assessee under s. 271(1)(c) of the Act had not been discharged and the orders were, therefore, unlawful. It was submitted that reasonable explanation was submitted by the assessee in the form of an affidavit which is at Annexure G. It was stated that the assessee was an orthodox man and the family was also living in a simple way and the yearly expenses was very meagre. According to the counsel, even if the said explanation was not accepted in assessment proceedings and the income was revised, it would not ipso facto result in reaching a conclusion that there was concealment of income on the part of the assessee and the case was covered under s. 271(1)(c) of the Act. Reliance was also placed on certain decisions of Hon'ble Supreme Court as well as of this Court.
9. Mr. Nayak, on the other hand, supported the order passed by the authorities and confirmed by the Tribunal. He submitted that after appreciating facts and circumstances of the case, the ITO imposed penalty which was confirmed in first appeal as well as by the Tribunal and there is no reason to interfere with the same. He also submitted that the authorities had rightly relied upon a decision of High Court of Punjab & Haryana in Vidya Sagar Oswal vs. CIT (1977) 108 ITR 861 (P&H) : TC 50R.158.
10. Now looking to the orders passed by the authorities, it is clear that the proceedings were initiated against the assessee on the allegation that the assessee had 'deliberately concealed' particulars of his income. He was, therefore, asked to show-cause as to why penalty under s. 271(1)(c) should not be imposed on him. The assessee submitted his explanation to a letter dt. 2nd August, 1979, vide his letter dt. 16th August, 1979, wherein it was stated that the addition was made to his total income on the basis of estimated household expenses though nothing cogent was found. There was no finding that real income was not disclosed. Burden of proof in imposing penalty was on the Department and even it if was justified that for the purposes of assessment the orders passed were in consonance with law, penalty could not be levied in absence of proof and finding of dishonest intention. A prayer was, therefore, made by the assessee to drop the proceedings.
11. The ITO after considering the relevant record and explanation submitted by the assessee, stated in para 5 :
"In these days of high prices, even an ordinary family and that two comprising of nine members cannot make both ends of paltry sum of Rs. 4,315 and accordingly the ITO is justified in making a reasonable estimate of such expenses and at the same time drawing an inference of concealment. [The case cited-Vidyasagar Oswal vs. CIT (1977) 108 ITR 861 (P&H) : TC 50R.158]."
12. A similar finding was recorded regarding inference of concealment of income for the asst. yr. 1969-70.
13. The appellate authority vide his order dt. 14th July,1981, dismissed the appeals holding that he was satisfied that the domestic expenses disclosed were totally inadequate and the assessee had undisclosed income from other sources from which he supplemented the disclosed drawings. Accordingly, the orders passed by the ITO were confirmed. When the matters reached Tribunal, the Tribunal vide its order dt. 29th October, 1982, observed in para 4 as under :
"All these explanations may be true but even then the withdrawal for household expenses appears to be unbelievably low."
14. The Tribunal proceeded to observe :
"They are too low that not only third persons cannot believe them but we cannot accept that the assessee himself could have stated them with any genuine belief. Although in this case the addition has been made in such circumstances that it can be said that the assessee did have the income which was ultimately upheld by the Tribunal and which he knew he had."
15. Looking to all the orders passed by the authorities, it is clear that the assessee was called upon the show cause as to why penalty should not be imposed on him on the ground that he had "deliberately concealed" the particulars of his income. It was, not a case in which the assessee was called upon to show-cause why penalty should not be imposed on him on the ground that the amount added in computing the total income in assessment year should be "deemed to represent the income" in respect of which particulars have been concealed as the case was covered by Expln. 1 of s. 271(1)(c). Mr. Talati rightly submitted that none of the authorities had passed an order relying on Expln. 1 to s. 271(1)(c) and penalty was not imposed on that basis. The authorities considered the case under clause (c), sub-s. (1) of s. 271. Even letters dt. 2nd August, 1979 mention that the assessee had "deliberately disclosed" the particulars of his income.
16. Mr. Talati submitted that the case is directly covered by a decision of the Hon'ble Supreme Court in CIT & Ors. vs. Anwar Ali (1970) 76 ITR 696 (SC) : TC 50R.276. In that case, proceedings were initiated under s. 8 of the IT Act, 1922. Interpreting the section, their Lordships observed that the gist of evidence under s. 8 was that the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. It was held that the burden of proof of concealment of income or deliberately furnishing fake or inaccurate particulars was on the Department. If there is no evidence on record except the explanation given by the assessee which had been found to be false, it could not be said that the case was made out for imposing penalty on the assessee. It was further observed that the finding given in assessment proceedings for determining or computing the tax may be relevant but before penalty could be imposed, the entirety of circumstances must reasonably point to one conclusion that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. Until such finding is recorded by the authority in penalty proceedings, no penalty could be imposed on the assessee. In that case, it was held that in absence of cogent material evidence, apart from the falsity of the assessee's explanation from which it could be inferred that the assessee had concealed particulars of his income or had deliberately furnished inaccurate particulars in respect of his income, no penalty could be imposed.
17. Our attention was also invited to various other decisions. In CIT vs. Vinaychand Harilal (1979) 120 ITR 75 (Guj) : TC 50R.389 and in CIT vs. Navnitlal (1994) 213 ITR 69 (Guj) : TC 50R.884 this Court following Anwar Ali held that even admission of an assessee that a particular amount belonged to him is not sufficient to entail penal consequences and an order of penalty cannot be imposed on him on the basis of such admission. It is necessary that such admission must relate to the income of the assessee and that it must have either been admitted or proved that such income was for a particular year. In absence of such admission and/or finding, no order of penalty can be imposed on the basis of order of assessment passed by the authorities [vide Vinaychand Harilal (supra)]. In Navnitlal (supra), this Court observed that on the ground that the proceedings were initiated and amount was increased, the Revenue cannot be said to have discharged its burden that the amount represented concealed income of the relevant accounting year and no penalty can be imposed on a mere finding that in assessment orders, the amount was increased.
18. In the instant case, as observed above proceedings were initiated under s. 271(1)(c) of the Act and Explanation was not pressed in service by the authorities. None of the authorities including the Tribunal had considered the Explanation and no finding has been recorded on the basis of 'deeming provision'. The case is thus, as rightly submitted by Mr. Talati covered by Anwar Ali (supra). Since the Department proceeded on the basis of 'deliberate concealment' of income by the assessee, it could not be said in absence of evidence and finding to that effect that the Department has established the case against the assessee under s. 271(1)(c) of the Act. Looking to the finding of the Tribunal. It is clear that the Tribunal has also not recorded a positive finding against the assessee. On the contrary, the Tribunal has stated that "all those explanations may be true", but as the expenses were unbelievably low, they cannot be accepted.
19. In our considered opinion, two things are different. It the household expenses were unbelievably low, the orders which were passed in assessment proceedings were proper. But in proceedings for imposition of penalty, that fact alone was not sufficient. Something more was required and as observed by the Supreme Court as well as by this Court in cases, referred to above, the burden was on the Department to prove deliberate concealment of income which was not discharged by the Department. Only on the basis of estimate of expenses, the orders of penalty were passed against the assessee which were not legal and valid.
20. It was also submitted on behalf of the assessee that there was evidence in the nature of affidavit of the assessee and in absence of cross-examination, it ought to have been believed and on that basis also, the proceedings ought to have been dropped. For that, our attention was invited by Mr. Talati to a decision of the Hon'ble Supreme Court in Mehta Parikh & Co. vs. CIT (1956) 30 ITR 181 (SC) : TC 43R.1608. In that case, the Hon'ble Supreme Court observed that when cash book entries were produced, in absence of any other evidence, they ought to have been relied upon. It was also stated that the statements made by the deponent in the form of affidavits could not be ignored. In the instant case, the affidavit on which reliance was placed was not filed in penalty proceedings but was filed in assessment proceedings. But in view of the fact that the burden is on the Department and that since that burden was not discharged, no further question arises.
21. Mr. Nayak, on doubt, placed strong reliance on the decision of the High Court of Punjab & Haryana in Vidya Sagar Oswal referred to above. In that case, the assessee was an industrialist. He had shown his total income as Rs. 86,029 and had shown his household expenses as Rs. 2,000 which amount was withdrawn and was debited to his account at the end of the year as per the accounts book. In the light of those facts, the authorities did not believe this version. In our opinion, the case was decided on its own facts and it has no application.
22. Mr. Nayak placed reliance on Expln. 1 to s. 271(1)(c). As stated herein-above, in the letter written by the ITO, it was mentioned that there was 'deliberate concealment' on the part of the assessee and none of the authorities relied upon the Explanation. Hence, no order can be passed on the basis of Expln. 1.
23. For the forgoing reasons, in our opinion the reference must be answered in the negative i.e. in favour of assessee and against the Revenue. Reference is answered accordingly. In the facts and circumstances of the case, there shall be no order as to costs.