R. N. MISRA J. - The Income-tax Appellate Tribunal, Cuttack Bench, has stated this case at the instance of the Commissioner of Income-tax and referred the following question for the opinion of the court :
'Whether, on the facts and circumstances of the case and on a true interpretation of section 271(1)(c) read with sections 68 and 2(24) of the Income-tax Act, 1961, the Appellate Tribunal was right in requiring the revenue to prove that the amount added under section 68 of the Act was in fact the income of the assessee to sustain the imposition of penalty for concealment of such amount in the return of income ?'
Assessee is a firm deriving income from business in china clay and iron mines and the relevant year of assessment is 1965-66 corresponding to the accounting period ending on December 31, 1964. Assessee returned an income of Rs. 18,199 but the Income-tax Officer determined the same at Rs. 1,61,389. This amount of total income included a sum of Rs. 69,900 which the assessee claimed were cash credits, but the Income-tax Officer added it as the assessees income under section 68 of the Income-tax Act.
Penalty proceeding was initiated under section 271(1)(c) of the Act and the Income-tax Officer referred the matter to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner imposed penalty of Rs. 25,000 taking into consideration the entire cash of Rs. 69,900. By then the assessees first appeal against the quantum assessment was pending disposal before the Appellate Assistant Commissioner.
Assessee challenged the levy of penalty before the Appellate Tribunal and claimed that the Appellate Assistant Commissioner had deleted a sum of Rs,50,000 out of the cash credits. It appeared that by the time the Appellate Tribunal came to deal with the penalty appeal, the second appeal relating to the quantum matter had already been finalised and the Tribunal had already upheld a sum of Rs. 19,900 out of the cash credits. Before the Tribunal in the appeal against penalty matter, it was claimed that the evidence on record clearly demonstrated the bona fides of the assessee and there was, therefore, no intention to commit any fraud and the burden should be on the revenue to prove that the amount added in the assessment was the income of the assessee before the assessee could be penalised for concealment of income. The Tribunal took into account the Explanation to section 271(1)(c) of the Act which was admittedly applicable even if the ultimate addition out of the cash credits was confined to Rs. 19,900 and came to hold :
'....... Even though the accounts of the assessee were perused by the Income-tax Officer, there is nothing on record to shown that this plea of the assessee was false so as it indicate that the action of the assessee in not disclosing its credits in the return arose from any fraud or any gross or wilful neglect on its part. We are of the opinion that the assessee had discharged the initial negative onus cast by the Explanation to section 271(1)(c) and therefore, the burden shifted to the revenue to prove that the amounts added were in fact the income of the assessee. There is nothing on record to show that the amounts added were in fact the income of the assessee and the revenue relied entirely upon section 68, according to which unexplained cash credits would be deemed to be the income of the assessee. In our opinion, penalty can be levied only for concealment of actual income and not for the concealment of an amount which is seemed to be the income under section 68 of the Act. Section 2(24) which defines income does not include the amount deemed to be income of the assessee under section 68. Therefore, in the absence of cogent evidence on record to show that the amount added in the assessment was in fact the income of the assessee, it cannot be said that the assessee was guilty of concealing the particulars of its income........'
In this view of the matter, the imposition of penalty was annulled.
Section 2(24) of the Act gives an inclusive definition of the term 'income'. The effect of a definition that is beginning with the word 'includes' is not to single out for specific mention some of the things comprised within the natural import of the term defined, but the effect is to enlarge that import for the addition of certain things which would otherwise not be regarded in the other sense. A definition clause so expressed is ordinarily not exhaustive. The word 'income' in the Act is formidably wide and vague in its scope. As was pointed out by the Supreme Court in the case of Dooars Tea Co. Ltd. v. Commissioner of Agricultural Income-tax : 44ITR6(SC) , the word is of elastic import.
Section 68 of the Act provides :
'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.'
This section gives a statuary recognition to the law as applied in the country prior to the Act of 1961. In the case of Kale Khan Mohammad Hanif v. Commissioner of Income-tax : 50ITR1(SC) , the Supreme Court indicated that there was nothing in law which prevented the Income-tax Officer in an appropriate case in taxing both cash credits, the source and nature of which ar not satisfactorily explained, and the business income estimated by him after rejecting the books of account as unreliable. When on rejecting the explanation of the assessee as unsatisfactory, the Income-tax Officer adds a sum found credited in the books of account to the assessees income, there is no distinction between the income arising on account of section 68 and income earned otherwise. After all the amounts are merged into the pool of total income of the assessee, there is no distinction to be drawn between income resulting by application of the provision of section 68 of the Act and income accruing from the other heads indicated in section 14 of the Act. Section 68 essentially contains a deeming provision which applies when the explanation is rejected as unsatisfactory. The view taken by the Appellate Tribunal that income resulting from application of section 68 of the Act is not 'income' as defined by the Act is not correct because the definition is of inclusive type and does not exclude sums of money which may be income on account of other provision in the statute. An amount of money which is deemed to be income by operation of law is also income to which the provisions of section 271 of the Act shall apply. The view taken by the Appellate Tribunal does not seem to be supportable by precedents. The Tribunal was not right in holding that it was for the revenue to show that the sum of Rs. 19,900 was income of the assessee as a fact. About the character or nature of the sum of money, there could be no further dispute when it had already been added as income by application of a statutory provision.
We would accordingly answer the question by saying that, in the facts and circumstances of the case and on true interpretation of section 271(1)(c) read with sections 68 and 2(24) of the Income-tax Act, 1961, the Appellate Tribunal was not right in requiring the revenue to prove that the amount added under section 68 if the Act was in fact income of the assessee so as to warrant assessment for concealment of the same in the return of income (sic).
It is appropriate at this stage to bring to the notice of the Income-tax Appellate Tribunal the fact that while penalty was being imposed by the Inspecting Assistant Commissioner he had taken into consideration the total amount of Rs. 69,900. Ultimately, the addition of a sum of Rs. 19,900 only has been sustained and if penalty is to be imposed, this fact has to be kept in view. We would recommend to the Appellate Tribunal to take this aspect into consideration while disposing of the appeal.
There shall be no direction for costs.
DAS J. - I agree.