G.K. Misra, C.J.
1. The following question of law has been referred by the Tribunal under Section 256(1) of the Income-tax Act, 1961 (Act No. 43 of 1961) (hereinafter to be referred to as ' the Act').
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in cancelling the penalty imposed by the Inspecting Assistant Commissioner by resort to Explanation to Section 271(1)(c) of the Act which was introduced with effect from April 1, 1964, and also holding that there was concealment of income on the part of the assessee ?'
2. Material facts may be stated in brief to answer the aforesaid question.
3. The relevant assessment year is 1960-61. Assessment was made for Rs. 48,255 on the 12th of December, 1962, under Section 143 of the Act. Notice under Section 148 of the Act was issued after April 1, 1964, calling upon the assessee as to why the escaped income should not be assessed under Section 147. The notice was in respect of two entries of cash credits amounting to Rs. 10,000 each in the assessee's accounts to be treated as the income from some undisclosed source.
4. In response to the notice the assessee filed returns on 23rd August, 1965, wherein he did not include the income under these two entries of cash credits amounting to Rs. 20,000. Assessment was completed on 20th of December, 1965. The entries relating to Rs. 20,000 which the assesseeconcealed in the returns were assessed as the income of the assessee. This amount bad appeared in the accounts of a firm styled as Messrs. Harnarayan Prabhudayal of Calcutta.
5. Penalty proceedings were initiated under Section 271(1)(c) on the very day, that is, 20th of December, 1965. A penalty of Rs. 12,900 was imposed by the Inspecting Assistant Commissioner of Income-tax under Section 271(1)(c) read with the Explanation on November 18, 1967.
6. The assessee filed an appeal before the Tribunal against the order imposing penalty. The Tribunal allowed the appeal and cancelled the penalty and directed refund of penalty if the amount had already been recovered.
7. The entire reason why the Tribunal allowed the appeal occurs in paragraphs 3 and 4 of its judgment. It runs thus:
'3. Before us the learned counsel submits that merely because the assessee was unable to prove satisfactorily the cash credits the penalty section cannot, automatically, be invoked and that in penalty proceedings it is the onus of the department to prove, first, that the amount concealed represented the income of the assessee and, secondly, that the assessee was guilty of concealment. Reliance is placed on the decision of the Supreme Court in the case of Commissioner of Income-tax v. Anwctr Ali : 76ITR696(SC) .
We think the assessee's contention is correct and has to be accepted, in view of the principles laid down by the Supreme Court in the case cited supra. The levy of penalty is accordingly cancelled.'
8. It would thus be seen that the Tribunal allowed the appeal on the basis of Anwar Ali's case.
9. Aggrieved by the Tribunal's order the Commissioner of Income-tax asked for a reference under Section 256(1) as has already been stated.
10. The learned standing counsel contends that the Tribunal acted contrary to law in not applying Section 271(1)(c) read with the Explanation which came into force from April 1, 1964.
11. It would be appropriate at this stage to notice the change in law relating to penalty proceedings for concealment of income.
12. Section 28(1)(c) of the Indian Income-tax Act, 1922 (Act XI of 1922), (hereinafter to be referred to as ' the old Act') ran thus:
' 28. (1) If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that any person--......
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he or it may direct that such person shall pay by way of penalty,.....in the cases referred to in Clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income :.... '
13. The Income-tax Act of, 1961 came into force on April 1, 1962. The provision corresponding to Section 28(1)(c) of the old Act is contained in Section 271(1)(c) of the Act. It runs thus :
'271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person--...
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,--...... (iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as correct income.'
14. By Section 40 of the Finance Act, 1964 (Act No. 5 of 1964), Section 271(1)(c) was amended with effect from April 1, 1964. In Section 271(1)(c) the word 'deliberately ' was omitted.
15. An Explanation was added at the end of Section 271(1) which runs thus:
'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 wilful 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.'
16. The sole question for consideration in this case is, if Section 271(1)(c) read with the Explanation as has been amended from April 1, 1964, is, applicable to the impugned penalty proceedings initiated on 20th of December, 1965, in respect of the returns filed by the assessee on August 23, 1965.
17. Section 271(1) on the face of it shows that the condition precedent to the initiation of proceedings under that section is the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner. That satisfaction would relate to the fact as to whether any person concealed the particulars of his income or furnished inaccurate particulars of such income.
18. The date of the accrual of the cause of action is the date of satisfaction. In this case the penalty proceeding was initiated on 20th of December, 1965, the very day the Inspecting Assistant Commissioner came to the conclusion that Rs. 20,000 was the concealed income of the assessee from an undisclosed source. Though this concealed income related to the assessment year 1960-61, the proceeding under Section 271(1)(c) could not have been initiated until 20th of December, 1965, when the Inspecting Assistant Commissioner was satisfied that the amount constituted concealed income. On the plain language of Section 271(1)(c) the date of the satisfaction is the date of the application of the relevant law. By 20th of December, 1965, the relevant law on the field was Section 271(1)(c) read with the Explanation as was amended with effect from April 1, 1964. There is, therefore, no escape from the conclusion that to the present proceeding this section with the Explanation is applicable.
19. The matter is concluded by the judgment of the Constitution Bench in Jain Brothers v. Union of India : 77ITR107(SC) though the observations were made in a different context.
20. The facts of that case may be noticed. The assessment year was 1960-61, the corresponding accounting year ending with October 31, 1959. On 26th of May, 1960, a notice under Section 22(2) of the old Act was served on the firm calling upon it to submit a return of its income. The return had to be field within 36 days of the, service of the notice. It was not filed. Further notices were served on two occasions. The firm filed a return on 18th of November, 1961, showing an income of Rs. 3,55,566. The Income-tax Officer completed the assessment on 23rd November, 1964, computing the total income of the firm at Rs. 4,75,368. On the same day the Income-tax Officer issued a notice under Section 271 read with Section 274 of the Act calling upon the firm to show cause why an order imposing a penalty should not be passed on account of its failure to furnish the return in time. After considering the explanation submitted by the assessee the Income-tax Officer made an order on November 19, 1966, under Section 271(1)(c). In that case while the assessment proceeding was pending the assessee challenged the constitutionality of Section 297(2)(g) and Section 271(2) of the Act. The constitutionality of Section 297(2)(g) and Section 271(2) was attacked as being hit by Article 14 of the Constitution.
21. Section 297(2)(g) ran thus :
'297. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the repealed Act '),--...... (g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act.'
22. It was contended that the section was discriminatory under Article 14 inasmuch as assessments already completed before April 1, 1962, were treated on a different footing from assessments made subsequent thereto without any reasonable nexus for the differentia keeping the object in view. Their Lordships repelled this contention and made the following observations :
'There can be no manner of doubt that penalty has to be calculated and imposed according to the tax assessed. It follows that imposition of penalty can take place only after assessment has been completed......It isobvious that for the imposition of penalty it is not the assessment year or the date of the filing of the return which is important but it is the satisfaction of the income-tax authorities that a default has been committed by the assessee which would attract the provisions relating to penalty. Whatever the stage at which the satisfaction is reached, the scheme of Sections 274(1) and 275 of the Act of 1961, is that the order imposing penalty must be made after the completion of the assessment. The crucial date, therefore, for purposes of penalty, is the date of such completion. '
23. The aforesaid observations of their Lordships leave absolutely no room for doubt that the penalty proceedings is to be initiated only on the completion of the assessment when the assessing authority would have the satisfaction that the assessee had concealed income which had escaped assessment. Mr. B.K. Mohanti who argued this case with considerable ability as amicus curiae at our request, contended that the aforesaid Supreme Court decision is not a direct authority that the date of the satisfaction of the appropriate authority is the date for initiation of the proceeding under Section 271(1)(c). We find no force in this contention. Enunciation of law by the Supreme Court does not vary according to the context in which it is argued. The exposition was on the legal position and it is on that basis that the question of discrimination under Article 14 was examined. An answer could not be given by their Lordships on a wrong exposition of law that the section was not discriminatory. Mr. Mohanti fairly concedes that if this decision is taken as laying down the law on the point in issue, then clearly the amended Section 271 after April 1, 1964, would haveapplication to this case and consequently the Tribunal would have invoked the Explanation.
24. The learned standing counsel placed reliance on Commissioner of Income-tax v. Bhan Singh Boota Singh in support of his contention that the penalty provisions become operative on the date on which the false return is filed and that they will not be governed by the law which was in force on the first day of the assessment year. In this case the returns were filed on 9th April, 1964, and by then the Explanation had come into force. The ultimate result of the case would not make any difference whether the date of the return or the date of the satisfaction is to be taken into consideration. We are unable to agree with this decision as laying down the correct law to the extent it says that the penalty provisions become operative on the date on which the false return is filed. Those provisions apply from the date of the satisfaction of the assessing authorities as we have already indicated.
25. Reliance was placed by Mr. Mohanty on Hajee K. Assainar v. Commissioner of Income-tax : 81ITR423(Ker) .That case is also distinguishable on facts. The assessment year was 1956-57. The order of reassessment to include the escaped income was passed on March 13, 1963, and on that day the penalty proceedings were initiated. The satisfaction was thus reached prior to April 1, 1964, when the Explanation came into force. Their Lordships rightly observed that the omission of the word 'deliberately' from Section 271(1)(c) and introduction of the Explanation with effect from April 1, 1964, involved amendment of substantive and procedural law together and consequently had no retrospective effect. In the facts and circumstances of that case the learned judges had taken the correct view. That decision has, however, no application to the facts of this case where the satisfaction was reached long after April 1, 1964.
26. On the aforesaid analysis, we are clearly of opinion that to the present penalty proceedings Section 271(1)(c) read with the Explanation has application.
27. The Tribunal, however, disposed of the case before it on the basis of Anwar Ali's case. There the assessment year was 1947-48 and the penalty proceedings were initiated under Section 28(1)(c) of the old Act prior to the coming into force of the new Act. Section 28(1)(c) which corresponds in essential particulars to Section 271(1)(c) of the new Act prior to its amendment had application. In construing the ambit and scope of that section under the old Act, their Lordships clearly laid down that the penalty proceedings are of a penal nature and the burden was on the department to prove that a particular amount was a revenue receipt. Itwas further laid down 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 his income. Under that section in the old Act it was for the revenue to establish that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.
28. That decision has no application to initiation of penalty proceedings subsequent to April 1, 1964. The Explanation brought in radical changes. The object of the Explanation was to get over the difficulty created by decisions which placed the burden of proving concealment of the particulars of the income on the revenue as was done in Anwar Ali's case. The Explanation now places the burden of proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect of the assessee. The object of the Explanation is to create a presumption in favour of the revenue in a certain contingency. That is to say, where the total income returned is less than 80 per cent. of the total income assessed, the presumption would apply. The presumption is a rebuttable one and can be displaced by the assessee by proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part.
29. It is to be noted that the penalty proceeding continues to be penal in nature even after the introduction of the Explanation. The quantum of proof necessary to discharge the onus by the assessee would be as in a civil case, that is, by preponderance of probabilities. After applying the Explanation the taxing authorities would take into consideration all the facts and circumstances, pros and cons, and then determine whether the assessee has discharged the onus.
30. On the aforesaid analysis, the Tribunal acted contrary to law in not applying the Explanation to the facts of this case. We would accordingly answer the question in the negative by saying that the Tribunal was not justified in law in cancelling the penalty without resorting to the Explanation.
31. In the result, the reference is allowed; but in the circumstances, there will be no order as to costs.
S.K. Ray, J.
32. I agree.