Commissioner Of Income-Tax vs Dass Jewellers
2002 Latest Caselaw 1377 Del

JUDGMENT

S.B. Sinha, C.J.

1. At the instance of the Revenue, the Income-tax Appellate Tribunal, Delhi Bench 'C', New Delhi (hereinafter for the sake of brevity referred to as, 'the Tribunal') has sent the statement of the case of this Court for its opinion in terms of Section 256(2) of the Income Tax Act, 1961 (hereinafter for the sake of brevity referred to as, 'the said Act'), on the following question :-

"1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in canceling the penalty under Section 271(1)(c) of the Income Tax Act, 1961 to the extent it was levied by reference to the addition of Rs. 19,000/- made in the assessment?"

2. The fact of the matter, as noticed by the learned Tribunal, is as follows :-

The assessed was a registered firm carrying on the business of jewellery. The firm consisted of two partners, namely, Smt. Nand Rani Khanna and her son Shri Ramesh Chand Khanna. Penalty for a sum of Rs. 18,419/- was levied upon the assessed by the Inspecting Assistant Commissioner of Income Tax (in short, 'IAC'). Two additions of Rs. 18,419/- for unaccounted stock of precious stones and of Rs. 19,000/- for the discrepancy in the closing stock under Section 271(1)(c) of the said Act as per its books of accounts, which were seized in the course of a raid, were made.

As regard addition of Rs. 19,000/-, the explanation of the assessed before the Income Tax Officer (in short, 'ITO') was that the jewellery in question belonged to Raja Durga Singh of Solan, who allegedly appeared as a witness before the ITO and admitted the said fact ; the ITO was not justified in disbelieving his statement.

However, it was held that the discrepancy of the said amount in the value of the closing stock remaining wholly unexplained and, therefore, penalty was rightly imposed.

In appeal, the learned Tribunal set aside the said findings. The learned Tribunal was of the opinion that the addition of Rs. 19,000/- was rightly made in terms of Section 69A purported to be on the difference in the closing stock found to have been shown in the two inventories, one seized in the course of the raid and the other produced by the assessed. It was observed :-

"8..... In other words, there is no material on record ghat the discrepancy was on account of the income for assessment year under appeal, and merely because the addition was made under Section 69-A, no penalty is exigible. Even otherwise we are of the view that the assessed gave an explanation and the explanation was supported by the statements of Raja Durga Singh of Solan and a partner of the assessed firm. It is true that the explanation was found to be false, but falsity of the explanation by itself is not sufficient to attract penalty under Section 271(1)(c) in view of the decision of the Supreme Court in Anwar Ali's case (76 - ITR 696) ....."

3. Ms. Prem Lata Bansal, the learned counsel appearing on behalf of the Revenue, would submit that the learned Tribunal completely erred in arriving at the aforementioned finding insofar as it failed to take into consideration the fact that the provisions of Section 271(1)(c) of the said Act had undergone an amendment in terms whereof the burden of proof was on the assessed.

The learned counsel would contend that the decision of Commissioner of Income Tax v. Anwar Ali , 76 ITR 696, whereupon reliance has been place, is no longer good law in view of the decision of the Apex Court in Commissioner of Income Tax v. Mussadilal Ram Bharose 165 ITR 14. Furthermore, the decision in Commissioner of Income Tax, Mysore v. Jewels Paradise 101 ITR 265 is also no longer good law in view of the decision of the Apex Court in Chuharmal v. Commissioner of Income Tax, M.P. 172 ITR 250. The learned counsel appears to be correct.

4. Section 69A of the said Act is in the following terms:-

"69A. Unexplained money, etc.

Where in any financial year the assessed is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessed offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessed for such financial year."

5. The Apex Court in Mussadilal Ram Bharose's case (Supra) observed that the burden placed upon the assessed is not discharged by any fantastic explanation. Nor is it the law that any and every explanation by the assessed must be accepted. The explanation must be found to be acceptable by the fact-finding body. It was held :-

"The position therefore, in law is clear. If the returned income is less that 80% of the assessed income, the presumption is raised against the assessed that the assessed is guilty of fraud or gross of willful 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 assessed has discharged the onus, it becomes a conclusion of fact."

6. This aspect of the matter has again been considered in Commissioner of Income Tax (Addl.) v. Jeevan Lal Sah 205 ITR 244 wherein the Apex Court over-ruled its earlier judgment of Anwar Ali's case (Supra) holding that the rule regarding burden of proof enunciated therein is no longer valid. It was observed :-

"Section 271(1)(c) of the Income-tax Act, 1961, as originally enacted, was to the same effect. By the Finance Act, 1964, however, the word "deliberately" occurring in Clause (c) was omitted and the Explanation aforementioned was added. The question is whether the principles enumerated in Anwar Ali's case continue to be good law even after the aforesaid amendment affected by the Finance Act, 1964.

The following principles were enunciated in Anwar Ali's case :

(a) the proceedings under Section 28 are penal in character.

(b) It is for the Department to establish that the receipt of the amount in dispute constitutes income of the assessed and that the assessed has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. If there is no evidence on record except the explanation given by the assessed, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income.

(c) The finding recorded in the assessment proceedings that the particular receipt is his income after rejecting the explanation given by the assessed as false, would (not ?) prima facie be sufficient for establishing in proceedings under Section 28 that the disputed amount was the assessed's income. The finding recorded in the assessment proceedings may be good evidence but is not conclusive.

(d) Before penalty can be imposed, the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessed had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.

That was a case where an undisclosed cash deposit was discovered and the explanation offered by the assessed in that behalf was rejected but the Revenue did not adduce any further material from which it could be inferred that the assessed had concealed the particulars of his income or had deliberately furnished inadequate particulars in respect of the same of that the disputed amount was a revenue receipt. In that situation, this court agreed with the High Court that the levy of penalty was not warranted. Indeed, this court approved the approach and tests evolved by Chagla C.J. in CIT v. Gokuldas Harivallabhdas . Certain other High Courts including Gujarat and Patna had also taken the same view."

7. The parliament amended the said provision as it earlier stood by consciously deleting the word 'deliberately' in Clause (c) of Section 271(1) of the said Act and by raising a presumption in terms of the explanation appended thereto. On the said premise, it was held :-

"Evidently, with a view to making the task of the Revenue in such matters less difficult, Parliament effected the said amendments by the Finance Act, 1964. Not only the word "deliberately" was omitted in Clause (c), but the Explanation aforestated was added. The Explanation creates a presumption of law - which is no doubt rebuttable. The presumption of law created by the Explanation is to the following effect : where the total income returned by any person is less than 80 per cent. of his total assessed income, such person shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) 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. The Explanation, thus, shifts the burden of proof to the assessed in the situation covered by it. Once the returned income is shown to be less than 80 per cent. of the total income assessed, the presumption comes into play and then the burden shifts to the assessed to establish that his failure to return the correct income was not on account of any fraud or gross or willful neglect on his part. If he fails to establish the same, the presumption will become a finding - and it would be open to the authority to levy the penalty. But if the assessed establishes that his failure to return the correct income was not on account of any fraud or any gross or willful neglect on his part, it is evident, no penalty can be levied.

Even after the amendment of 1964, the penalty proceedings, it is evident, continue to be penal proceedings. Similarly, the question whether the assessed has concealed the particulars of his income or has furnished inaccurate particulars of his income continues to remain a question of fact. Where the Explanation has made a difference is - while deciding the said question of fact the presumption created by it has to be applied, which has the effect to shifting the burden of proof. The entire material on record has to be considered keeping in mind the said presumption and a finding recorded. The rule regarding burden of proof enunciated in Anwar Ali's case is no longer valid."

8. Yet again in Chuharmal's case (Supra) , the Apex Court considered the meaning of the word 'income' as contained in Section 69A of the said Act holding that it has a wide meaning which meant anything which came in or resulted in gain. It was held :-

"As regards the second question, the Explanation to Section 271(1)(c) of the Act was inserted by the Finance Act, 1964, which 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 purpose of Clause (c) of this sub-section."

From the fact found by the Revenue, the assessed had shown only a total income of Rs. 3,113 and subsequently the raiding party seized wrist-watches worth Rs. 87,455. Thus the value of that income (watches) was included in the assessable income of the assessed. Therefore, the total assessable income of the assessed came to Rs. 90,568 whereas the returned income was only Rs. 3,113 which was certainly less than 80% of the assessed income and, as such, the Explanation applied. Accordingly, the Revenue has discharged the onus of proving concealment of income. This view was expressed by a Full Bench of the Punjab and Haryana High Court in Vishwakarma Industries v. CIT (1982) 135 ITR 652, where all the relevant authorities have been discussed.

In that view of the matter and in view of the principles behind the purpose of the Explanation , the assessed, in the instant case, has failed to discharge his onus of proof. The aforesaid Explanation was amended by the Taxation Laws (Amendment) Act, 1975, with effect from 1st April, 1976. The amendment was prospective in effect and in the year under reference, the amendment was not in force. Though the penalty proceedings as penal in nature, in the facts of this case, the onus on the Revenue has been duly discharged. This was also the view of the Bench decision of the Madhya Pradesh High Court in CIT v. Bherulal Shrikishan (1984) 145 ITR 805."

9. In view of the aforementioned authoritative pronouncements, the question involved herein is answered in the negative, i.e., in favor of the Revenue and against the assessed.

This reference is answered and disposed of accordingly without any order as to costs.