1. In this reference by the Income-tax Appellate Tribunal under Section 256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income tax, the question which has been placed for our decision is--
'Whether on the facts and in the circumstances of the case, the assessee could be said to have concealed the particulars of his income for the assessment year 1959-60 so as to be penalised Under Section 271(1)(c) of the Income-tax Act, 1961?'
2. The material facts are that for the assessment year 1959-60 the total income of the assessee. Punjabhai Shah, was fixed at Rs. 10,953/-. During the course of assessment for the next year, namely, 1960-61, it was noticed that the assessee had purchased a motor vehicle and made payments for the purchase of the vehicle as under--
Rs. 3,450/- body
The assessment for the year 1959-60, was therefore, reopened under Section 147 of the Act. The assessee's explanation with regard to these payments was that on 26th August, 1958 he had a cash balance of Rs. 14,168.0.0, and out of this cash balance he made a payment of Rs. 1000/- on 26th August 1958 and of Rs. 9,000/- on 9th September 1958. This explanation was rejected by the Income-tax Officer, Chhindwara. The Income-tax Officer found that in the cash book there were no entries of the withdrawal of Rs. 10,000/-; that in the Rokad there were certain jottings in pencil; and that if the payments had been actually made from the cash balance, then the amounts withdrawn would have appeared merged in the Rokad entries themselves and not in pencil jottings. In regard to the source of payment of the balance of the purchase price, the assessee said that he was allowed depreciation amount on his trucks for assessment years 1957-58 to 1959-60, and that this amount was utilised by him for making the payments. This explanation was also rejected by the Income-tax Officer, who observed--
'In the circumstances of the case by no stretch of imagination he (assessee) can be said to possess hard cash of Rs. 21,126/-available for purchase of vehicle on the above-mentioned dates'.
The Income-tax Officer described the explanation as 'obviously phoney and without any substance.' After rejecting the explanation of the assessee, the Income-tax Officer held that Rs. 31,250/- was the income of the assessee from undisclosed sources in the assessment year 1959-60.
3. Thereafter penalty proceedings were initiated against the assessee by the Inspecting Assistant Commissioner of Income-tax under Section 274(2) of the Act. Before the Inspecting Assistant Commissioner, the assessee repeated the explanation which he gave before the Income-tax Officer in the re-assessment proceedings He placed no material to show that the amount of Rupees 31,250/- was not his income or that there was no concealment of income on his part. The Inspecting Assistant Commissioner also found himself unable to accept the explanation. He found that the cash balance of Rs. 14,168/-, which existed on 26th August 1958, continued to be carried forward to full extent from day-to-day upto the close of the account year on 11th November 1958 and the assessee did not withdraw from his cash balance the amount of Rupees 10,000/- as alleged by him . The Inspecting Assistant Commissioner reached the conclusion that 'cash came from concealed income in possession of the assessee for making these payments'. While rejecting the assessee's explanation with regard to the payment of the balance of purchase price out of the depreciation amount allowed to him for some years, the Inspecting Assistant Commissioner said--
'The assessee has not created any depreciation reserve and has not carried forward an equivalent amount in the form of cash or other liquid reserve to be able to claim that the amount of depreciation allowed to him in the past before computing the assessable income was kept apart by him and that he did not withdraw or did not utilise the same for any purpose but used it for making a payment towards the purchase of the truck to the extent of Rs. 21,170/-. It is apparent that the assesses is merely relying upon the notional allowance granted for statutory purposes before computing the total income to explain away his investments to the extent of Rs. 21,170/-..... It is thus clear that the assessee has financed and (sic) purchase of truck from some undisclosed sources.'
The Inspecting Assistant Commissioner concluded by observing that the 'fact of concealment of income is proved beyond reasonable doubt' and imposed a penalty of Rs. 5,000/- on the assessee under Section 271(1)(c) of the Act.
4. The assessee then preferred an appeal before the Appellate Tribunal against the order of the Inspecting Assistant Commissioner imposing penalty on him. The Tribunal found that the explanation which the assessee offered with regard to the payment of Rs. 10,000/- 'from the cash balance stands completely disproved.' As regards the explanation about the payment of the balance, the Tribunal said that in the manner in which the assessee's accounts were maintained there was nothing prima facie unreliable in his explanation so as to be rejected in penalty proceedings and that with regard to this payment 'the position is slightly more in favour of the assessee'. The Tribunal went on to say that even if the assessee's explanation is wrong or false, he could not be penalised
'merely because the explanation given by him is not accepted or the explanation is found to be false. Much more than this is necessary to sustain the penalty.'
The Tribunal based its conclusion relying on Commr. of Income Tax v. Gokuldas Harivallabhdas : 34ITR98(Bom) and Commr. of Income Tax v. L.H. Vora : 56ITR126(Guj) . The Tribunal stated its conclusion thus--
'On a consideration of all the facts before us and applying the decisions mentioned above, we have to hold that the assessee cannot be penalised on the facts as they are before us. We, therefore, cancel the penalty.'
5. In our judgment, the question, which we have been asked to answer, is plainly a question of fact. It has been held by this Court in Mangilal Karwa v. Commr. of Income-tax, Misc. Civil Case No. 113 of 1962 D/- 14-9-1962 (MP) that the question whether the assessee concealed the particulars of of his income or whether he has committed an offence under Section 28(1)(c) of the Indian Income-tax Act, 1922, is a question of fact to be determined in the circumstances of the cast. The same proposition has been laid down in In re, Lachhman Das Brijballabh Das : 10ITR186(All) and Padmaraju v. Commr. of Income Tax : 37ITR365(AP) . It seems to us that this nature of the question whether the assessee concealed his income is in no way altered here by enquiring whether there was evidence before the tribunal to justify the finding that the assessee had not committed an offence under Section 28(1)(c) of the Indian Income-tax Act, 1922, or under Section 271(1)(c) of the Income-tax Act, 1961. The reference can be disposed of on the short ground that no question of law arises from the order of the Tribunal. Be that as it may, even on the settled principle with regard to the nature of penalty proceedings and the material that must exist in order to find an assessee guilty of concealment of his income, it must be held in the present case that the Tribunal was right in coming to the conclusion that it did.
6. Now, a penalty under Section 28 (1) (c) of the 1922-Act or Section 271(1)(c) of the 1961-Act can be imposed on an assessee only if the authority mentioned in those provisions is satisfied that the assessee has concealed the particulars of his income. The penalty proceedings, being in their very nature penal proceedings, the degree or quantum of proof for finding an assessee guilty is that of a criminal prosecution. The assessment proceedings and penalty proceedings are different in their nature. The findings given in assessment proceedings are no doubt relevant and admissible in penalty proceedings. But they do not operate as res judicata so as to preclude the production of other evidence in penalty proceedings to show that the assessee concealed his income or to rebut this charge. Again, the bare fact that the explanation offered by the assessee in assessment proceedings was rejected and it was held in those proceedings that he had concealed his income or that the explanation was unsatisfactory by itself cannot be made the basis of the conclusion that he has been guilty of deliberately concealing the particulars of his income. No doubt, if the assessee's explanation is found to be deliberately false, then it is possible to infer that he concealed his income. But the authority competent to impose penalty must expressly find that the assessee's explanation is false. These principles have been laid down in : 34ITR98(Bom) , Khemraj Chagganlal v. Commr. of Income Tax : 38ITR523(Patna) , Bhagwandas Shyam-sunder v. Commr. of Income Tax : 45ITR566(Patna) , Mohd. Atiq v. Income Tax, Officer : 46ITR452(All) P.K. Kalasami Nadar v. Commr. of Income Tax : 46ITR1056(Mad) , Maney and Co. v. Commr. of Income Tax : 47ITR434(Ker) , Lakshmi Narain Shambhuram v. Commr. of Income Tax : 49ITR350(Patna) , M. Hussain All and Sons v. Commr. of Income Tax : 58ITR787(Mad) , Mohan Ram Ram Kumar v. Commr. of Income Tax : 59ITR135(All) and S. Paramasiva Mudaliar and Sons v. Commr. of Income Tax : 60ITR283(Mad) . They have been followed by this Court in Mangilal Karwa v. Commr. of Income-tax (supra) and in S. R. Kalani and Co. v. C.L. Sharma, 1965 MPLJ 553 : (1965) 16 STC 756.
7. A different view as regards the nature of penalty proceedings has no doubt been expressed in Lal Chand Gopal Das v. Commr. of Income Tax : 48ITR324(All) and A. V. Thomas and Co. (India) Ltd. v. Commr. of Income Tax : 59ITR499(Ker) , In Lal Chand's Case, : 48ITR324(All) , it has been said that in view of the decision of the Supreme Court in C.A. Abraham v. Income-tax Officer, Kottayam : 41ITR425(SC) that additional tax imposed on the assessee for his contumacious conduct is 'designated as penalty', proceedings under Section 28 of the Indian Income-tax Act, 1922, cannot be regarded as penal proceedings. To the same effect is the decision in : 59ITR499(Ker) where Lalchand's case : 48ITR324(All) , is followed. No doubt, the Supreme Court has observed in : 41ITR425(SC) , as also in Commr. of Income Tax v. Bhikaji Dadabhai and Co. : 42ITR123(SC) that penalty imposed on an assessee is additional tax. But this observation was made by the Supreme Court while considering the question whether the word 'assessment' covered penalty proceedings if 'assessment' were taken to denote the whole procedure for imposing liability on the taxpayer. It would not, therefore, be right to press into service this observation of the Supreme Court for holding that penalty proceedings are not criminal proceedings and, therefore, the onus of proof of non-concealment lies on the assessee.
In the cases before the Supreme Court the question whether penalty proceedings are penal proceedings or, the question as to the party on whom onus of proving concealment lies, did not arise for consideration. Even in the case of Lal Chand. : 48ITR324(All) and A.V. Thomas and Co. (India) Ltd. : 59ITR499(Ker) , though it was held that the onus of proving real nature of the receipt and of non-concealment of income lay on the assessee, it was recognised that in order to levy a penalty the income-tax authorities must have material to justify their finding of concealment of the particulars or deliberate furnishing of inaccurate particulars.
8. Now, here, in the penalty proceedings the only material that was before the Inspecting Assistant Commissioner was that the assessee's explanation about the source of payment of Rs. 31,250/- had been rejected by the Income-tax Officer in re-assessment proceedings. The Income-tax Officer no doubt described the assessee's explanation as obviously 'phoney' that is, counterfeit, and as without any substance. But the Inspecting Assistant Commissioner did not express his own view about this explanation. After pointing out why the assessee's explanation could not be accepted, he merely stated his conclusion that 'cash came from concealed income in possession of the asses-see for making these payments' and that 'the fact of concealment of income is proved beyond reasonable doubt' The Inspecting Assistant Commissioner nowhere said that the explanation of the assessee was palpably false. The Tribunal also did not find that the explanation of the assessee was false. What it found was that the explanation, which the assessee offered with regard to the payment of Rs. 10,000/-'from the cash balance stands completely disproved'. In regard to the payment of the balance, the Tribunal remarked: 'the position is slightly more in favour of the asses-sees'. The Tribunal no doubt considered the applicability of the decisions in : 34ITR98(Bom) , and : 56ITR126(Guj) assuming that the explanation given by the assessee was wrong or false. This assumption by the Tribunal cannot be regarded as a finding that the explanation given by the assessee was false. In : 60ITR283(Mad) the learned Judges of the Madras High Court, while saying that the assessee's explanation if it is shown to be deliberately false, may no doubt induce the inference that the assessee deliberately furnished false particulars of his income, pointed out that it is for the Income-tax Officer expressly so to decide. In other words, the Income-tax Officer must himself expressly find in penalty proceedings that the explanation given by the assessee was false before imposing a penalty on him for concealment of his income.
Here, as neither the Inspecting Assistant Commissioner nor the Tribunal found that the assessee's explanation was false and as there was no other material from which an inference of concealment of income could be drawn, no penalty could be imposed on the assessee. When the Tribunal has only held that the assessee's explanation with regard to the payment of Rs. 10,000/- stands disproved and that in regard to the payment of the balance 'the position is slightly more in favour of the assessee', this Court cannot in this reference hold that the assessee's explanation was false and that a penalty should have been imposed on him. So to do would be to evaluate the explanation and decide a question of fact, namely, whether the assessee did or did not deliberately conceal his income.
9. For these reasons, our conclusion is that on the view taken by the Tribunal about the assessee's explanation, the Tribunal was justified in holding that the assessee could not be penalised under Section 271(1)(c) of the Income-tax Act, 1961. We answer accordingly the question referred to us for decision. The assessee shall have costs of this reference. Counsel's fee is fixed at Rs. 200/-.