1. The Income-tax Appellate Tribunal, Gauhati Bench (hereinafter deferred to as 'the Tribunal'), has referred tha following question of law to the High Court under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the order of penalty under Section 271(1)(c) passed by the Inspecting Assistant Commissioner of Income-tax ?'
2. The facts of the case may be briefly stated as follows:
The assessment year involved is 1963-64 and the previous year concerned is 2019 R.N. The assessee filed its return of income on September
27, 1963, declaring an income of Rs. 33,321. On January 29, 1964, the assessee filed a revised return showing an income of Rs. 37,560. The Income-tax Officer computed the total income of the assessee at Rs. 3,84,241 after making additions on account of various hundi loans and cash credits appearing in its books and the assessment was completed on March 16, 1968.
3. On appeal by the assessee the Appellate Assistant Commissioner set aside the assessment order with a direction to the Income-tax Officer to make a fresh assessment.
4. In the fresh assessment the Income-tax Officer found that the total amount of cash introduced in the books of the assessee in the form of loans and deposits up to the end of Ram Navami Year 2019 came to Rs. 1,88,050. Out of this amount Rs. 30,000 was credited in the accounts of partners in 2018 R.N. and Rs. 20,000 in 2019 R.N. These amounts had already been offered for assessment. The balance amount of deposits which require consideration was Rs. 1,38,050. The assessee did not claim these deposits as genuine loans. Instead, the assessee filed a letter dated 29th January, 1969, stating that it could not conclusively prove these credits and liked to be taxed on these amounts. The assessee further stated in the said letter that these amounts introduced in the books from time to time were profits from the business being carried on by the firm. The assessee, however, requested that necessary credit should be given on account of the intangible additions made to the income of the assessee for the Ram Navami years 2016 to 2018. The contention of the assessee was accepted and the aggregate amount of intangible additions in these three years was found to be Rs. 69,000 in round figure.
5. The Income-tax Officer found that one of the partners of the assessee-firm was married in 2019 R.N. and regarding the marriage expenses no withdrawal was found in the books of the assessee and, therefore, the Income-tax Officer held that these marriage expenses must have been made out of the amounts represented by intangible additions. Such marriage expenses were estimated at Rs. 10,000. So, the Income-tax Officer held that the amount of intangible additions that required to be considered was Rs. 69,000 minus Rs. 10,000, that is, Rs. 59,000. After deducting the sum of Rs. 59,000 from the balance amount of deposits to be taxed in 2019 R.N., the Income-tax Officer arrived at Rs. 79,000 in round figure (Rs. 1,38,050 minus Rs. 59,000). Accordingly, the assessee filed a revised return on January 29, 1969, including this amount of Rs. 79,000 in its income. The assessment was completed on January 31, 1969, by the Income-tax Officer on a total income of Rs. 1,15,974.
6. In the assessment order the Income-tax Officer issued notice against the assessee under Section 271(1)(c) of the Act for concealment of income
and the penalty proceedings were referred to the Inspecting Assistant Commissioner, Dibrugarh, as the minimum penalty leviable exceeded Rs. 1,000.
7. In the course of the penalty proceedings the assessee referred to its letter dated January 29, 1969, filed by it before the Income-tax Officer and pleaded that no penalty should be levied. The Inspecting Assistant Commissioner, however, held that the assessee had concealed its income and levied a penalty of Rs. 20,000 under Section 271(1)(c) of the Act.
8. The assessee preferred an appeal against the order of penalty before the Tribunal and the Tribunal on the reasonings given in its order cancelled the order of penalty levied under Section 271(1)(c) by the Inspecting Assistant Commissioner.
9. On the above facts, the above-mentioned question of law has been referred.
10. In its order the Tribunal has held that as far as original returns are concerned the Explanation to Section 271(1)(c) could not be invoked and, therefore, the department has to prove the concealment of income.
11. It is found that the original and the revised returns were filed on September 27, 1963, and January 29, 1964, respectively. But the Explanation to Section 271(1)(c) came into force with effect from 1st April, 1964, and the offence, if any, for which the penalty would be imposable was committed before the Explanation came into force. That being the position, we find that the learned Tribunal correctly held that in the instant case the Explanation to Section 271(1)(c) could not be invoked. Thus, the burden to prove that there was concealment of income remained on the department.
12. It was submitted on behalf of the department before the Tribunal and the same submission also has been made before us on behalf of the department that the assessee did admit that the amounts in question were its concealed income and, therefore, no further proof or evidence was necessary in the instant case to establish concealment of income.
13. The question whether there was admission of concealment by the assessee was examined by the Tribunal on the materials on record. In support of its submission that there was admission of the concealment of income by the assessee, the revenue has relied on the assessee's letter dated January 29, 1969 (annexure 'B' in the paper book). In this connection, the Tribunal has observed in its order as follows:
'Reading the letter as a whole we get the impression that these amounts had been surrendered only because the assessee was unable to prove the genuineness of the loans. They have clearly stated that they cannot conclusively prove these credits. The rest of the letter wherein they have offered to pay the income-tax has to be considered only in this light. Even if we hold that the letter would constitute an evidence of admission of concealment, it would appear that this is not the concealment of this year's income. The assessee has stated that the amounts were earned also in the year 2016 R.N. to 2018 R.N., i.e., the three earlier years. The Income-tax Officer has not accepted this contention and has refused to spread over. But there is no positive evidence in his order to show that these incomes had been earned not in the earlier years but in the assessment year concerned. Even if we hold that a part of the income offered for assessment was earned during this year, we find that there is no evidence to show that it pertained to the concealed income of the firm and not of the partners.'
14. The Income-tax Officer in the assessment order has observed as follows :
'Thus, the aggregate of intangible additions made in the aforesaid three years comes to Rs. 69,000 in round figure. Therefore, the deficiency comes to Rs. 69,050, i.e., Rs. 1,38,050 minus Rs. 69,000. I find that during 2019 R.N. one of the partners, Shri Kamakhya Nawka, was married but no marriage expenses were drawn from the disclosed business fund. So, on a most reasonable basis, such expense is estimated at Rs. 10,000 which would go to deplete the fund represented by the aggregate intangible addition made in this case up to 2018 R.N. Thus, the unaccounted income earned during 2019 R.N. would be Rs. 79,000. I am, however, unable to accept the assessee's prayer for spread-over of this sum over 2016 R.N. to 2019 R.N. Having understood the position the assessee has now offered for taxation Rs. 79,000 and, accordingly, a revised return in filed.'
15. The relevant portions of the letter dated January 29, 1969 (annexure 'B' in the paper book), are quoted below ;
'(1) That in the books of accounts beginning from the year R.N. 2016 to R.N. 2024 there are cash credits in different names and a complete list of these accounts is being submitted.
(2) That same amount is being used by way of introduction and then withdrawal from time to time during all these years.
(3) That we cannot conclusively prove these credits and like to be taxed for those amounts.
(4) That we have no other business than what have been shown in the returns and those amounts introduced and withdrawn from time to time are profits from those businesses not shown in the accounts.....
(6) That the peak credit appears in R.N. 2019 and it is Rs. 1,88,050 out of which Rs. 50,000 was returned as income (Rs. 30,000 in R.N. 2018, and Rs. 20,000 in R.N. 2019) but the income is not of this year only. This is the accumulated undisclosed profits of the years R.N. 2016, 2017, 2018,
and 2019 and so the balance of Rs. 1,38,050 may be spread over the years R.N. 2016, 2017, 2018 and 2019.....
(9) That in view of the voluntary full disclosure and full co-operation, we pray that due consideration should be given in the matter of penal provision that may be applied as also in the matter of charging interest.
(10) That we are now submitting revised returns and pray that you may be pleased to complete those assessments.'
16. In K. C. Trunk and Bucket Factory v. Commissioner of Income-tax a Full Bench of this court relying on the decision of the Supreme Court in Commissioner of Income-tax v. Anwar Ali : 76ITR696(SC) has observed as follows--See :
'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.'
17. The Inspecting Assistant Commissioner relied on the so-called admission or acceptance made by the assessee in its letter dated 29th January, 1969. Considering the contents of the assessee's letter dated 29th January, 1969, the Tribunal has held that the amounts in question were surrendered for taxation because the assessee was unable to prove the genuineness of the loans. The assessee had clearly stated that it could not conclusively prove these credits and, therefore, the assessee submitted that these amounts might be taxed. Thus, the Tribunal has found that there was no admission as such that the assessee concealed its income. The Tribunal has proceeded further that even if the letter was construed as evidence of admission of concealment, there was no admission that the concealment was in respect of the income of the relevant year. The assessee asserted that the amounts in question were earned in the years 2016 R.N. to 2018 R.N., that is, the three years earlier to 2019 R.N. which is the relevant year of income. The Tribunal also found that there was no evidence to show that these incomes had not been earned in the earlier years but earned in the assessment year concerned. These findings of fact arrived at by the Tribunal go to show
that the department failed to prove by evidence that the amounts in question represented the income of the assessee for the relevant assessment year and that these were concealed by the assessee. These findings of fact arrived at by the Tribunal after considering the materials on record have to be accepted in a reference inasmuch as these findings cannot be said to be without materials on record or otherwise perverse.
18. Section 68 of the Act reads as follows :
'68. Cash credits.--Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.'
19. In its letter dated January 29, 1969, the assessee is found to have resorted to the provisions of Section 68, wherein it says that since it could not conclusively prove those credits, it liked to be taxed for those amounts. When the Income-tax Officer finds any sum credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source of such credit or the explanation offered by him is not satisfactory in the opinion of the Income-tax Officer, the Income-tax Officer may charge the amount to tax or the assessee also may offer the sum to be taxed as his income of that previous year in accordance with the provisions of Section 68. But such an offer of cash credit, to be taxed under Section 68, made by the assessee is by itself not sufficient to lead to the presumption that the assessee admitted that such credit was his income for the relevant previous year and that he concealed that income.
20. In the instant case, the Inspecting Assistant Commissioner committed this error in law and logic while coming to the conclusion that there was admission on the part of the assessee regarding the amounts in question to be his income of the relevant previous year and that he concealed it. The Tribunal detected this legal and logical infirmity in the finding of the Inspecting Assistant Commissioner and, therefore, the Tribunal came to the finding that the department failed to prove that the amounts in question were incomes of the assessee or that the assessee concealed the said income. The conclusion arrived at by the Tribunal is quite logical and justified in law on the materials on record.
21. In the instant case, the department relied on the letter of the assessee dated 29th January, 1969, as an admission by the assessee to the effect that the amounts in question were its income during the relevant previous year and that in the said letter the assessee admitted concealment of the income. Both these assumptions have been correctly found to be wrong by the Tribunal as discussed hereinabove. That being so, the Tribunal correctly
found that the department failed to establish that the amounts in question represented the income of the assessee for the relevant assessment year and that there was concealment of such income.
22. In the result, we find that the Tribunal was justified in cancelling the order of penalty under Section 271(1)(c) of the Act passed by the Inspecting Assistant Commissioner.
23. We, therefore, answer the question referred in the affirmative and against the department.
24. The reference is answered accordingly.
Bharul Islam, J.
25. I agree.