Commissioner Of Income-Tax vs Shama Magazine
1994 Latest Caselaw 646 Del

JUDGMENT

K. Shivashankar Bhat, J.

1. In respect of the penalty proceedings for the assessment year 1964-65, the following question has been referred by the Income-tax Appellate Tribunal under section 256(2) of the Income-tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalty of Rs. 38,994 under section 271(1)(c) read together with the Explanation to the said section ?"

2. The petitioner filed a return for the year relevant to the assessment year 1964-65 declaring a total income of Rs. 7,883. It is unnecessary to refer to various details of the income except to state that the Income-tax Officer added a sum of Rs. 25,000 shown as credited in the name of one Nawab Ahmed. The assessed never produced any evidence in support of his explanation that the amount was deposited by the said Nawab Ahmed in spite of several opportunities. The amount was shown as deposited by cash. The said Nawab Ahmed was also not assessed to any tax nor any interest was paid to him. In the circumstances, the Income-tax Officer found that this deposit of Rs. 25,000 in the name of Nawab Ahmed was the income of the assessed from undisclosed sources. It was accordingly added to the income of the assessed. The Income-tax Officer also initiated proceedings under section 271(1)(c) of the Act proposing to levy penalty. Even when the said proceedings reached the Appellate Tribunal, the subject of assessment was still pending before the Appellate Assistant Commissioner. However, it is clear that as of today the addition of this amount has been affirmed. The Appellate Tribunal accepted the appeal of the assessed against the levy of penalty. The relevant observations of the Appellate Tribunal in this regard are as follows :

"We have heard the submissions of the parties and also perused the records. The penalty has been levied only with reference to an alleged concealment in respect of a cash credit of Rs. 25,000. The assessed submitted an explanation that the amount came from Nawab Ahmed. But the assessed was not able to prove the same to the hilt or to produce Nawab Ahmed in support of his explanation. But that by itself does not prove Rs. 25,000 was the income of the assessed. The ratio laid down by the Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696 will squarely apply. The inability of the assessed to prove a credit does not mean that there is any fraud or gross or willful neglect on the part of the assessed. Respectfully following the above decision of the supreme Court, we hold that no penalty is leviable and accordingly vacate the same."

3. Learned counsel for the Revenue submitted that the entire approach of the Appellate Tribunal is erroneous in view of the Explanation added to section 271(1)(c) in the year 1964. Learned counsel also referred to a recent decision of the Supreme Court in CIT (Addl.) v. Jeevan Lal Sah [1994] 205 ITR 244, where according to learned counsel for the Revenue, the earlier decision in CIT v. Anwar Ali [1970] 76 ITR 696 was held no longer good law.

4. Learned counsel for the assessed, on the other hand, contended that the finding of the Appellate Tribunal was essentially one of fact and the Tribunal has given an independent finding that the explanation offered by the assessed was acceptable and that he was not guilty of any fraud or gross or willful neglect and the reference to Anwar Ali's case was only incidental to this finding. In view of this submission of Mr. Aggarwal for the assessed, we have quoted the relevant part of the Appellate Tribunal's order. We find it not possible to accept the submission of Mr. Aggarwal. Nowhere does the Appellate Tribunal give a specific finding that the explanation of the assessed by itself could be accepted. All that the Tribunal observes is that failure of the assessed to prove the explanation to the hilt by itself does not prove that Rs. 25,000 was the income of the assessed. Immediately thereafter the Tribunal relies upon the observations of the Supreme court in Anwar Ali's case [1970] 76 ITR 696. The very next sentence says that the said decision will squarely apply. The further sentence is that the inability of the assessed to prove a credit does not mean that there is any fraud or gross or willful neglect on the part of the assessed. This is nothing but an offshoot of the Appellate Tribunal's inference that the decision in Anwar Ali's case would squarely apply. The Appellate tribunal has nowhere referred to the Explanation introduced to section 271(1)(c) in the year 1964. The Appellate Tribunal does not say that the failure of the assessed to produce any evidence apart from his own statement by itself is sufficient in the circumstances of this case to dislodge the presumption arising in view of the aforesaid Explanation.

5. Before proceeding further, it will be useful to refer to section 271(1)(c) along with its Explanation. As per the main section 271(1)(c) when the concerned authority in the course of any proceedings under the Act is satisfied that any person "has concealed the particulars of his income or furnished inaccurate particulars of such income, the authority may direct that such person shall pay by way of a penalty......." The Explanation which is relevant here reads as follows :

"Explanation. - Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this explanation referred to as 'the correct income') as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or willful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section."

6. Under section 271(1)(c) penalty is attracted when there is concealment of particulars of the assessed's income (other portion is unnecessary for the present purpose). The Explanation referred to above states that when there is a particular difference in the total income and the income returned by the assessed, unless the assessed proves that the failure to return the correct income did not arise from any fraud or any gross or willful neglect on his part, he shall be deemed to have concealed the particulars of his income, etc. A fiction is created by this Explanation that the assessed has concealed the particulars of his income unless he discharges the earlier burden imposed on hi to prove that the income returned was not for the reasons stated therein. Therefore, whenever there is a failure on the part of the assessed in the circumstances referred to in the Explanation to section 271(1)(c), the statutory presumption automatically follows and it shall have to be deemed that the assessed had concealed the particulars of his income. No doubt the presumption could be rebutted. The main section 271(1)(c) by itself does not refer to any fraud or gross or willful neglect. The penalty is attracted as already noted as and when there has been a concealment of the particulars of income and if the Explanation compels the authorities to draw a particular presumption, such a presumption shall have to be drawn and the burden will be certainly on the assessed to have the presumption rebutted.

7. In CIT (Addl.) v. Jeevan Lal Sah [1994] 205 ITR 244, the Supreme Court pointed out that the law has undergone a change after the introduction of the Explanation to section 271(1)(c) in the year 1964 and the rule regarding burden of proof enunciated in Anwar Ali's case is no longer valid. The Supreme Court quoted its earlier decision in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, wherein it had pointed out that if there is a presumption of concealment of income, such presumption can be rebutted and 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. Further it is stated that if such a fact-finding body, bearing the aforesaid principles in mind, comes to the conclusion that the assessed has discharged the onus, it becomes a conclusion of fact and no question of law arises.

8. In the instant case, it is clear that the Appellate Tribunal had not placed before it the correct principles; instead it applied the ratio of Anwar Ali's case , which is no longer good law.

9. In the aforesaid decision in Jeevan Lal Sah's case [1994] 205 ITR 244, the Supreme Court also made the following observations (at page 250) :

"The question referred to the High Court in this case speaks of cash deposits. Whether it is a case of undisclosed or unexplained cash deposit or any other concealment, the standard is the same. The principle enunciated in Anwar Ali's case , that mere rejection of the explanation of the assessed is not sufficient for levying penalty and that the Revenue must go further and establish that there has been a conscious concealment of particulars of income or a deliberate failure to furnish accurate particulars, is no linger necessary."

10. The above observations highlight that the ratio of Anwar Ali's case no longer holds the filed.

11. Mr. Aggarwal then relied strongly upon the decision of the Calcutta High Court in CIT v. Rupabani Theatres P. Ltd. [1981] 130 ITR 747. With utmost respect, we are not able to agree with the following observations in the aforesaid decision found (at page 758) :

"From the narration of the dates as to the state of law, it is abundantly clear that it could not be said that the Explanation, with which we are concerned, to section 271(1)(c) of the Income-tax Act, 1961, was introduced to nullify the effect of the judicial decision in the case of CIT v. Anwar Ali because, as we have mentioned before, the Explanation was added with effect from 1964 and the decision of the Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696 was rendered in 1970. This is a point which is important to bear in mind."

12. It is unnecessary to refer to the said decision in greater detail having regard to the recent decision of the Supreme Court in Jeevan Lal Sah's case [1994] 205 ITR 244.

13. In view of the above, we have no hesitation to conclude that the question referred to us shall have to be answered in the negative and in favor of the Revenue. Ordered accordingly.

14. No order as to costs.