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K.C. Trunk and Bucket Factory Vs. Commissioner of Income-tax and ors. - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberCivil Rule No. 990 of 1969
Judge
ActsIncome Tax Act, 1961 - Sections 271(1)
AppellantK.C. Trunk and Bucket Factory
RespondentCommissioner of Income-tax and ors.
Appellant AdvocateP. Choudhuri and B.P. Saraf, Advs.
Respondent AdvocateG.K. Talukdar, Sr. Govt. Adv.
Excerpt:
.....mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. however, it is good evidence. the finding given in the assessment proceeding for determining or computing the tax cannot be said to be conclusive but it is good evidence which may be considered for arriving at the finding in the penalty proceedings. 25,000 shown in the revised return represented income of the firm from 'some business'.they, however, failed to prove the existence of that business. but the assessee failed to adduce any evidence in support of its claim that the amount was out of some business transactions of the firm. 25,000 clearly comes within the scope of section 271(1)(c) of the act and the penalty proceedings were validly..........90,611 including income from undisclosed sources at rs. 36,700. the income-tax officer initiated penalty proceedings and as the minimum penalty leviable was more than rs. 1,000 he referred the case to the inspecting assistant commissioner of income-tax, under section 274(2) of the income-tax act, 1961 (hereinafter referred to as ' the act '). the penalty notice was duly served on the assessee-petitioner who filed a written explanation and also appeared through an advocate. after hearing the assessee, the inspecting assistant commissioner levied penalty of rs. 8,500 for the assessment year 1960-61, under section 271(1)(c) of the act. the assessee-petitioner filed a revision petition before the commissioner of income-tax who after hearing the assessee-petitioner rejected the revision.....
Judgment:

M.C. Pathak, C.J.

1. By this application under article 226 of the Constitution of India the petitioner has prayed for striking down Section 297(2)(g) of the Income-tax Act, 1961, as unconstitutional being violative of articles 14 and 20(1) of the Constitution and also has prayed for a writ in the nature of certiorari and/or any other appropriate writ for quashing the order dated February 28, 1967, passed by the Inspecting Assistant Commissioner of Income-tax (annexure ' I ' to the petition) and the order dated July 15, 1969 (annexure ' III ' to the petition), passed by the Commissioner of Income-tax.

2. The facts of the case are as follows :

The petitioner assessee-firm filed a return of income for the assessment year 1960-61, on December 20, 1960, showing an income of Rs. 30,673. Later on a revised return was filed showing an additional income of Rs. 25,000 under the head ' business '. But the detailed particulars of income were not furnished. The assessment for the year 1960-61 was made on March 8, 1965, on the total income of Rs. 90,611 including income from undisclosed sources at Rs. 36,700. The Income-tax Officer initiated penalty proceedings and as the minimum penalty leviable was more than Rs. 1,000 he referred the case to the Inspecting Assistant Commissioner of Income-tax, under Section 274(2) of the Income-tax Act, 1961 (hereinafter referred to as ' the Act '). The penalty notice was duly served on the assessee-petitioner who filed a written explanation and also appeared through an advocate. After hearing the assessee, the Inspecting Assistant Commissioner levied penalty of Rs. 8,500 for the assessment year 1960-61, under Section 271(1)(c) of the Act. The assessee-petitioner filed a revision petition before the Commissioner of Income-tax who after hearing the assessee-petitioner rejected the revision petition and upheld the order of the Inspecting Assistant Commissioner and hence this application under Article 226 of the Constitution with the prayers as noted hereinabove. No appeal was filed against the order of the Inspecting Assistant Commissioner as a disclosure-petition was pending for final disposal before the Income-tax Officer.

3. In view of the decisions of the Supreme Court regarding the constitutionality of Section 297(2)(g) of the Income-tax Act, 1961, and some decisions of this court following the decisions of the Supreme Court on the point, Mr. P. Choudhuri, the learned counsel appearing for the petitioner, did not press the point regarding the constitutionality of Section 297(2)(g) of the Income-tax Act, 1961.

4. The petitioner's counsel has, however, challenged the impugned orders on the following grounds :

(1) That there was no penalty proceeding with respect to Rs. 25,000 which was shown as additional income in the revised return.

(2) That though there was penalty proceeding with respect to the alleged cash credits amounting to Rs. 11,700 there is no finding by the authorities concerned that there was deliberate concealment of the particulars of income or deliberate furnishing of inaccurate particulars of such income and as such the case did not come within the ambit of Section 271(i)(c) of the Income-tax Act, 1961.

5. From the assessment order (vide annexure ' IV ' to the affidavit-in-reply of the petitioner) it is found that the original return in the case was filed on December 20, 1960. Accordingly, notice under Section 23(2) of the Indian income-tax Act, 1922, was issued and some investigations regarding a branch business in the name of M/s R. B. Industries were in progress. Subsequently, the assessee-petitioner filed a revised return on March 8, 1965, showing an additional income of Rs. 25,000 and this amount was shown under the head ' business, profession or vocation ' just below the business income of Rs. 30,673 disclosed in the original return. A fresh notice under Section 23(2) was issued to the assessee-petitioner. On receipt of that notice Bherulal Siotia, a partner of the assessee-firm, along with Shri S. P. Sarma, C.A., appeared and explained to the Income-tax Officer that the amount of Rs. 25,000 shown in the revised return represented income of the firm from ' some business '. But they failed to prove the existence of that business. This amount of Rs. 25,000 was stated to be lying in bank deposit in the name of Smt. Gayatri Devi with the Punjab National Bank, Gauhati, and the date of deposit of the amount was June 22, 1959, that is, during the financial year 1959-60. The books of accounts of both M/s. K. C. Trunk and Bucket Factory, the petitioner, and M/s. R. B. Industries were produced before the Income-tax Officer for examination. On consideration of the materials on record which have been discussed elaborately in the assessment order, the Income-tax Officer found that the business of M/s. R. B. Industries is a branch of the assessee-firm. The Income-tax Officer while discussing income from other sources observed that the sum of Rs. 25,000 was deposited in the Punjab National Bank, Gauhati, on June 22, 1959, in the name of Smt. Gayatri Devi, wife of Bherulal Siotia, who was a partner of the assessee-firm. This amount had been voluntarily disclosed by the firm in their revised return filed by it in the course of the assessment proceeding. This income has been shown under the head ' business, profession or vocation '. On receipt of notice Bherulal Siotia, a partner of the assessee-firm, along with Shri S.P. Sarma, C.A., who represented the assessee-firm, failed to adduce any evidence in support of the assessee's claim that the amount of Rs. 25,000 deposited was out of ' some business ' transactions of the firm. Therefore, the Income-tax Officer had no other alternative but to assess the sum of Rs. 25,000 under the head ' other sources '.

6. Thereafter the Income-tax Officer in the assessment order discussed about the unexplained cash credits in M/s. R.B. Industries which had been found to be a branch of the assessee-petitioner. The Income-tax Officer found cash credits of Rs. 5,000 credited on July 25, 1959, and Rs. 700 credited on January 1, 1960,, in the name of Smt. Sohani Devi, wife of partner, Kisturchand Siotia. Cash credits of Rs. 5,000 credited on July 29, 1959, and Rs. 1,000 credited on October 4, 1959, were also found in the name of Smt. Gayatri Devi, wife of Bherulal Siotia, another partner of the assessee-firm. The Income-tax Officer found M/s. R.B. Industries to be a branch of the assessee-petitioner. When the assessee was asked to explain the sources of the aforesaid cash credits, two written statements were filed stating that these amounts represented the ladies' past savings, gifts from relative and their respective husbands. For the reasons given in the assessment order the Income-tax Officer found that the amount of cash credits totalling Rs. 11,700 were income from undisclosed sources of the assessee-firm itself. Thus, the Income-tax Officer treated both the sums of Rs. 25,000 and Rs. 11,700 totalling Rs. 36,700 as income from undisclosed sources and accordingly penalty proceedings under Section 271 were drawn up against the assessee and a penalty of Rs. 8,500 was levied.

7. Against the order of assessment for the assessment year 1960-61, the assessee preferred an appeal before the Appellate Assistant Commissioner of Income-tax, Gauhati Range, Gauhati. The appellate authority set aside the finding of the Income-tax Officer that the sum of Rs. 11,700 standing in the names of Smt. Sohani Devi and Smt. Gayatri Devi was from undisclosed source. The appellate authority held that the explanation given by the assessee with regard to this amount stating that the source of these deposits was savings from past pia money and gifts received by the ladies from time to time was acceptable. That being the position, so far as Rs. 11,700 was concerned, there was no concealment of income as contemplated under Section 271(1)(c) of the Act. Therefore, no penalty could have been imposed on this count.

8. But with respect to the sum of Rs. 25,000 the appellate authority observed that the assessee had himself declared the sum of Rs. 25,000 as income from concealed sources and in that view the appellate authority confirmed the addition of Rs. 25,000 as income from concealed sources.

9. Mr. Choudhuri, the learned counsel appearing on behalf of the assessee-petitioner, vehemently submits that there were no penalty proceedings with respect to the sum of Rs. 25,000. This submission, however, is not acceptable for the following reasons:

The Inspecting Assistant Commissioner of Income-tax, Shillong Range, Shillong, had observed in the impugned order as follows :

'In the revised return filed by the assessee an additional income of Rs. 25,000 was shown under the head 'business' but the exact particulars of income was not furnished ....

In the course of hearing before me no further evidence is produced. It is merely submitted that the loans and deposits represent the genuine borrowing by the assessee but no further evidence is available. It is also found that the assessee did not disclose any business in the name of M/s. R. B. Industries in the return filed for the year. Considering the circumstances of the case, I am of the opinion that the assessee is liable to penalty under Section 271(1)(c) of the Act for concealment of the particulars of income and for furnishing inaccurate particulars of income.'

10. It is quite clear from the impugned order of the Inspecting Assistant Commissioner of Income-tax that the assessee showed a sum of Rs. 25,000 in his revised return under the head ' business ' but the particulars of the income of Rs. 25,000 were not furnished. It was not shown in the return filed for the year in question that the assessee had any business in the name of M/s. R. B. Industries. That being so, it cannot be said that this income of Rs. 25,000, the particulars of which were not shown, was not taken into consideration in the penalty proceedings. The inspecting Assistant Commissioner found two items, that is, the sum of Rs. 25,000 and the sum of Rs. 11,700 as being incomes from undisclosed sources. So far as the sum of Rs. 11,700 is concerned the appellate authority, on appeal against the assessment, found that the source of this sum was satisfactorily explained. But the appellate authority categorically found that the assessee admitted that the sum of Rs. 25,000 was from undisclosed source.

11. On consideration of the returns filed by the assessee as well as the materials produced by the assessee at the time of hearing before the Inspecting Assistant Commissioner, it is found that the assessee while filing the return and showing the income of Rs. 25,000 from business concealed the particulars of this income. From the facts and circumstances of the case and the findings of the Inspecting Assistant Commissioner of Income-tax as well as the findings of the appellate authority in the appeal against the assessment order, it is quite clear that though the assessee showed the sum of Rs. 25,000 in his return under the head 'business', it concealed particulars of the income of Rs. 25,000.

12. It has been observed by the Supreme Court in Commissioner of Income-lax v. Anwar Ali : [1970]76ITR696(SC) as follows :

'It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings (Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) --Civil Appeals Nos. 883-892 of 1966, dated 4-8-1969). In England also it has never been doubted that such proceedings are penal in character : Fattorini (Thomas) (Lancashire) Ltd. v. Inland Revenue Commissioners [1943] 11 ITR 50 .

The next question is that when proceedings under Section 28 are penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable to payment of penalty. As has been rightly observed by Chagla C.J. in Commissioner of Income-tax v. Gokuldas Harivalldbhdas : [1958]34ITR98(Bom) the gist of the offence under Section 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and, therefore, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee which explanation has been found to be false it does not follow that the receipt constitutes his taxable income.

13. Another point is whether a finding given in the assessment proceedings that a particular receipt is income after rejecting the explanation given by the assessee as false would prima facie be sufficient for establishing in proceedings under Section 28 that the disputed amount was the assessee's income. It must be remembered that the proceedings under Section 28 are of a penal nature and the burden is on the department to prove that a particular amount is a revenue receipt. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.' From the above observations of the Supreme Court it is found that penalty proceedings are penal in character and such proceedings may be said to be quasi-criminal proceedings. Since the character of the proceedings is penal it is the burden of the department to establish that the assessee is liable to payment of penalty. The department must establish that the receipt of the amount in dispute constitutes income of the assessee and that the assessee has concealed the particulars of such income. The finding given in the assessment proceeding for determining or computing the tax cannot be said to be conclusive but it is good evidence which may be considered for arriving at the finding in the penalty proceedings. Before a penalty can be imposed the entirety of circumstances must reasonably point that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.

14. In the instant case the assessee filed a revised return showing an additional income of Rs. 25,000 and this amount was shown under the head 'business, profession or vocation' just below the business income of Rs. 30,673 disclosed in the original return. Notice was issued to the assessee and one of the partners, namely, Bherulal Siotia, and their representative, Shri S.P. Sarma, C.A., appeared and explained to the Income-tax Officer that the amount of Rs. 25,000 shown in the revised return represented income of the firm from 'some business'. They, however, failed to prove the existence of that business.

15. This amount of Rs. 25,000 has been voluntarily disclosed by the firm as its income. But the assessee failed to adduce any evidence in support of its claim that the amount was out of some business transactions of the firm. Thus, in the instant case, it is an admitted position that the sum of Rs. 25,000 represented the income of the assessee from 'some business'. But the assessee concealed the particulars of this income. This concealment of the particulars of income of Rs. 25,000 cannot but be held to be conscious concealment on the part of the assessee on consideration of the entire facts and circumstances in the instant case. In the circumstances, we hold that the present case so far as it relates to the sum of Rs. 25,000 clearly comes within the scope of Section 271(1)(c) of the Act and the penalty proceedings were validly initiated regarding this income of Rs. 25,000.

16. But, since the appellate authority has found that the source of income of Rs. 11,700 has been satisfactorily explained by the assessee, the final order in levying the penalty of Rs. 8,500 which was made in consideration of the two items of income as from undisclosed sources has to be revised.

17. In the result the impugned order of penalty of Rs. 8,500 is set aside and the case is remanded to the Inspecting Assistant Commissioner of Income-tax, Shillong Range, Shillong, for disposal of the penalty proceedings in the light of the observations made hereinabove and in accordance with law. In the facts and circumstances of the case, we make no order as to costs.

D. Pathak, J.

I agree.

D.M. Sen, J.

I agree.


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