1. The only contention in this departmental appeal is that the Commissioner (Appeals) had erred in cancelling the penalty of Rs. 1,46,000 imposed by the ITO under Section 271(1)(c) of the Income-tax Act, 1961 ('the Act').
2. The assessee is a HUF. It had filed its return of income on 10-8-1973 declaring an income of Rs. 20,821. The business of the assessee is sale of silver bullion and silver ornaments as well as pawning of the ornaments. While the above businesses are carried on in the head office, there is a branch also which deals in yarn and is run in the name of Ashok Kumar Barnwal. The karta of the assessee-HUF at the relevant time was Shri Ram Lala Prasad. Besides him, the family consisted of his mother Smt. Laxmi Devi, his wife Smt. Kamla Devi and his son Shri Ashok Kumar Barnwal. Shri Ashok Kumar Barnwal was born on 1-8-1947 and was married in 1968.
3. There was a search in the premises of the assessee first on 28-4-1973 by the Customs and Excise Department and subsequently on 1-5-1973 and 2-5-1973 by the Income-tax Department. In this search, besides ornaments, a Girvi Bahi was also found. The Girvi Bahi did not bear any name. It was claimed before the ITO that the transactions recorded in the Girvi Bahi belonged to Smt. Kamla Devi and Shri Ashok Kumar Barnwal and that they had nothing to do with the assessee family.
It was claimed by Shri Ashok Kumar Barnwal before him that he had been carrying on money-lending and pawning business besides business in bullion with a capital of about Rs. 20,000, which was received by him as gifts from relatives and from various other sources. Smt. Kamla Devi claimed that she had also been carrying on similar business since 1950, with a capital of about Rs. 8,000, which she had received from her mother and other relatives. She was found educated only up to 5th class. She did not know much about the business and stated that it was looked after by one Shri Hira Lal Barnwal. Shri Hira Lal Barnwal was an old associate of the family. He was living with the family along with his wife, was fed and clothed and maintained by the family and that he was not paid any salary for these services. He was also looking after the businesses of the family and had been writing the Girvi Bahi also.
4. Earlier to the searches Smt. Kamla Devi had filed voluntary returns on 27-12-1971 for the assessment years 1967-68 to 1971-72. It was claimed before the ITO that she had been carrying on business in money-lending on a small scale. The ITO made the assessments on the declared incomes varying between Rs. 5,000 to Rs. 6,000 on 31-12-1971.
Shri Ashok Kumar Barnwal had similarly filed voluntary returns on 7-10-1972 for the assessment years 1968-69 to 1972-73 under the small income scheme promulgated by the department. The assessments were also made on these returns on the same date, On the last page of the return for the assessment year, he put a note stating that he was carrying on money-lending, pawning and silver bullion business for about last 10 years with a capital of about Rs. 20,000 and that he had not maintained any books of account. The returns for the subsequent years were also filed voluntarily. We will make a mention of only the returns for the assessment year 1973-74, which appear to us relevant. The return by Smt. Kamla Devi for this year was filed declaring business income of Rs. 8,000. In the assessment order made on 30-3-1976, the ITO observed that she was found to have been doing some pawning and money-lending business. He, finally on the basis of her investment in the business at Rs. 75,000, estimated the income from the above business at Rs. 18,750.
She also surrendered a sum of Rs. 20,000 under Section 69A of the Act, which was claimed to be invested in this business. Similarly, Shri Ashok Kumar Barnwal filed his return declaring income of Rs. 5,000 for the above assessment year. In his case also, the ITO estimated the income at Rs. 18,750 on the basis that he had a capital investment of Rs. 75,000. He also surrendered Rs. 20,000 under Section 69A. In both these cases, therefore, the assessments were made on incomes of Rs. 38,750 each on 30-3-1976. In the case of Shri Ashok Kumar Barnwal, the ITO observed that he was found to have done some pawning and money-lending business. It will be relevant to mention here that all these assessments were made in the substantive capacity and not as a protective measure.
5. Shri Hira Lal Barnwal, whose status has already been described above, was also examined by the ITO. In his statement, dated 20-7-1973, he stated that he was not carrying on any independent business.
However, subsequently he filed voluntary returns for the assessment years 1966-67 to 1974-75 in September 1974, i.e., after the search had been conducted. It appears that the assessments had been made on him on the income from business on commission, income from property and undisclosed income being deposits in Hindustan Commercial Bank and Allahabad Bank, Gorakhpur. It was found by the ITO that he had been making deposits in the above banks and the source of some of the deposits could not be explained by him. These facts are given in the order for the assessment year 1972-73 passed by the ITO on 8-9-1975.
Subsequently, voluntary return was filed by him for the assessment year 1973-74 also. For this year also, the assessment was made by the ITO on 27-11-1975 in a substantive capacity on income from commission, as well as unexplained investments in the banks.
6. After giving the background of the above three persons, we will not proceed to give the developments in the assessee's own case. In this case, the ITO held that the business carried on by Shri Ashok Kumar Barnwal, Smt. Kamla Devi and Shri Hira Lal Barnwal, actually belonged to the assessee-HUF. The reasons for such a conclusion in the cases of Shri Ashok Kumar Barnwal and Smt. Kamla Devi are more or less common.
Briefly they were as under : 1. That the almirahs in which the pawned goods were found were not in the residential portion of Shri Ashok Kumar Barnwal or of Smt.
3. That the claim of Shri Ashok Kumar Barnwal or of Smt. Kamla Devi that the said Girvi Bahi belonged to them could not be accepted as the Bahi bore no name and address and because the said bahi was written by Shri Hira Lal Barnwal, who was in charge of the HUF business of Shri Ram Lala Prasad.
4. That the pawning business has always been a part of the business of the assessee family.
5. That Shri Ashok Kumar Barnwal has not been able to establish from where he made the investment nor could he be able to show that he had any ostensible source of income from which he could have raised Rs, 20,000 for the investment.
6. That Shri Ashok Kumar Barnwal could not have started the pawning business in the financial year 1967-68, when he was a student of Intermediate class.
7. That Smt. Kamla Devi had not been able to prove by documentary evidence or by any other evidence that who had invested in the pawning business Rs. 8,000 in 1950.
8. That by looking at the Girvi Bahi, it could not be said as to what were the amounts, which had been advanced against the pawning business alleged to be carried "on by Smt. Kamla Devi.
9. That from the perusal of the statement on oath of Smt. Kamla Devi, it was evident that she had no knowledge about the pawning business, which was alleged to have been carried on by her only.
Shri Hira Lal Barnwal knew about the said pawning business and he was in charge of sarrafa business of Shri Ram Lala Prasad.
7. About Shri Hira Lal Barnwal, the finding of the ITO was that he was a man of no means, although he had been operating certain bank accounts, but substantial funds were withdrawn by Shri Ram Lala Prasad and Shri Ashok Kumar Barnwal during the financial years 1971-72 and 1972-73. He, therefore, held that even the business carried on by Shri Hira Lal Barnwal belonged to the assessee-firm. He finally brought to tax the entire incomes assessed in the cases of the above three persons independently in the assessment of the assessee-HUF. Besides, he also made certain other additions on the ground that the business carried on by Shri Hira Lal Barnwal required some funds. He estimated them at Rs. 1,17,000 and held that they represented the income of the assessee from other sources. Although this addition was deleted by the Commissioner (Appeals), but was restored by the Tribunal to the extent of Rs. 45,000. The above findings of the ITO were confirmed by the Commissioner (Appeals) as well as by the Tribunal.
8. The ITO also initiated penalty proceedings under Section 271(1)(c), as he was of the opinion that the assessee had concealed the incomes earned in the names of Shri Ashok Kumar Barnwal, Smt. Kamla Devi and Shri Hira Lal Barnwal. In this connection, he also applied the Explanation to Section 271(1)(c) as it stood at the relevant time. The Explanation was attracted as the returned income fell short of 80 per cent of the assessed income. Relying on the findings given by the ITO, the Commissioner (Appeals) and the Tribunal, the ITO held that the assessee had failed to account for the income earned in the names of the above three persons and, therefore, it was guilty of concealment either under Section 271(1)(e), or under that section read with the Explanation thereof. He finally imposed a penalty of Rs. 1,46,000.
9. The assessee appealed to the Commissioner (Appeals). It was submitted before him that the Tribunal while dealing with the quantum appeal had refused to permit the assessee to place certain additional evidence. This evidence was in the form of certain certificates from the citizens certifying that the various businesses run by Smt. Kamla Devi and Shri Ashok Kumar Barnwal actually belonged to them of which they were the owners. Besides this, the additional evidence also included orders of the Tribunal in the cases of Shri Hira Lal Barnwal, Smt. Kamla Devi and the order of the Commissioner passed under Section 263(1) of the Act setting aside the assessments of Smt. Kamla Devi.
After carefully going through this evidence, the Commissioner (Appeals) was of the view that it was not correct to say that the assessee had concealed any income or had failed to discharge its burden in terms of the Explanation to Section 271(1)(c) by showing that failure to return the correct income had not arisen from any fraud or gross or wilful neglect on its part. He finally cancelled the penalty imposed by the ITO.10. The department is now in appeal before us. The first submission of the learned departmental representative was that the Commissioner (Appeals) while cancelling the penalty had committed a legal error inasmuch as he had not followed the findings given by the Tribunal in the quantum assessment and had come to a fresh conclusion that the businesses run in the names of Shri Ashok Kumar Barnwal, Smt. Kamla Devi and Shri Hira Lal Barnwal actually belonged to them and not to the assessee-HUF. He submitted that there were no new facts for coming to this conclusion and, in any case, the Commissioner (Appeals) was not justified in admitting such an evidence and drawing a different conclusion than that arrived at by the Tribunal in the appeal against the quantum assessment. Relying on the decisions of the Supreme Court in ITO v. Bachu Lal Kdpoor  60 ITR 74 and of the Allahabad High Court in M.K. Dar v. CIT  138 ITR 801, he submitted that even though a particular income was assessed in the assessment of a particular person, that did not preclude the department from assessing the same income in the assessment of another person, who was the real owner of that income.
11. On behalf of the assessee, it was submitted that although there was no quarrel about the principle enunciated in the above two cases, but the Commissioner (Appeals) or even the Tribunal were at liberty to admit fresh evidence in the course of the penalty proceedings and then come to a different conclusion than that arrived at in the course of the assessment proceedings either by the ITO or by the appellate authorities.
12. After considering the facts of the case, we are in agreement with the submissions of the learned departmental representative that the person, who is the owner of a particular income, has to be assessed with reference to that income irrespective of the fact whether that income has been shown and declared by some other person or has been assessed on that income. However, that does not end the matter. The Supreme Court in the case of Anantharam Veerasinghaiah & Co. v. CIT  123 ITR 457 had held that an order imposing a penalty is the result of quasi-criminal proceedings and the burden lies on the revenue to establish that the disputed amount represents income and that the assessee has consciously concealed the particulars of his income or has deliberately furnished inaccurate particulars. Since the burden of proof in a penalty proceeding varies from that involved in an assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted as a finding to that effect in the penalty proceeding. In the penalty proceeding, the taxing authority is bound to consider the matter afresh on the material before it and, in the light of the burden to prove resting on the revenue, to ascertain whether a particular amount is a revenue receipt. Although the finding in the assessment proceeding is good evidence in the penalty proceedings, but the finding in the assessment proceeding cannot be regarded as conclusive for the purposes of penalty proceeding. Before a penalty can be imposed, the entirety of the circumstances must be taken into account and must point to the conclusion that the disputed amount represents income and that the assessee has consciously concealed particulars of his income or deliberately furnished inaccurate particulars. This was also the view taken by the Allahabad High Court in the case of CIT v. Mohinder Singh  139 ITR 160.
13. Almost similar principle applies where the Explanation to Section 271(1)(c) is applicable. The findings given in the assessment proceedings are relevant and have probative value. However, penalty proceedings are different from the assessment proceedings. The assessee can give evidence in these proceedings to show that the failure to return the correct income was not due to any fraud or gross or wilful neglect on his part. This was the principle laid down by the Allahabad High Court in the case of CIT v. M. Habibullah  136 ITR 716. It was also held in this case that the Explanation to Section 271(1)(c) creates a fiction and it is that where the total income returned is less than 80 per cent of the total income assessed. It shall be presumed that the assessee had concealed the particulars of his income or has furnished inaccurate particulars in respect of the same. The presumption is, however, rebuttable. The assessee can disprove it by showing that the failure to return the correct income was not due to any fraud or any gross or wilful neglect on his part. Though penalty proceedings are quasi-criminal in nature, yet the nature of the onus of proof is as in a civil case and the matter is to be decided on a preponderance of probabilities. This was also the view of the Allahabad High Court in a later case in Addl. CIT v. Lakshmi Industries & Cold Storage Co. Ltd.  146 ITR 492.
14. On the basis of the above principles, we have no hesitation in holding that the approach adopted by the Commissioner (Appeals) was legally correct. He took into account the other evidence which was not admitted or considered by the Tribunal in the appeal against the quantum assessment. We find no flaw in the finding of the Commissioner (Appeals) in this regard.
15. It was contended by the learned counsel for the assessee that in the absence of any positive finding that the HUF's funds had been utilised by any of the above three persons for carrying on the business, it could not be said that the-businesses run by them or in their names belonged to the assessee-HUF. In our opinion, there is considerable substance in this submission. The Supreme Court in the case of P.N. Krishna Iyer v. CIT  73 ITR 539 had held that income received by a member of a HUF, from a firm or a company in which funds of the HUF are invested, is taxable as the income of the HUF if it is earned by detriment to the family funds or with the aid or assistance of those funds. If these facts are not found, then that income is taxable as member's separate income. The Allahabad High Court in the case of Sir Padampat Singhania v. CIT  24 ITR 184 had held that there is no presumption that any business carried on by a member of a joint Hindu family is joint family business and it is for those, who allege that it is so, to prove it. A similar view was expressed by the Patna High Court in the case of Mangilal Rungta v. CIT  28 ITR 167. It was held that where the members of an HUF contribute specific sums of money to the capital of a firm, there is no presumption that the amounts paid by the members came out of the funds of the joint family. The onus is on the department to prove that the amounts were paid out of the funds of the joint family. It is not for the members of the family to prove that the amounts contributed by the members came out of their personal funds. Consequently, if the Income-tax Department produced no evidence to discharge this onus, the amounts contributed could not be held to have come out of the joint family funds.
16. We will now examine the facts of the present case in the light of the above principles. We will first refer to Shri Ashok Kumar Barnwal.
The ITO while making the assessment for the assessment year 1973-74 on 30-3-1976 had observed that he was found to have done some pawning and money-lending business. He had also surrendered a sum of Rs. 20,000, which he claimed to have invested in that business. There is no evidence on record that this sum of Rs. 20,000 had directly or indirectly flowed from the assessee-HUF. Similar is the position in the case of Smt. Kamla Devi. In her assessment also for the assessment year 1973-74 made on 30-3-1976, the ITO had observed that she was found to have done some pawning and money-lending business. She had surrendered a sum of Rs. 20,000 being the capital invested in the business. There is no evidence that that amount had come from the coffers of the assessee. She had further stated that she had started the above business with a capital of Rs. 8,000 in 1950, received by her from her mother and other relatives. The Commissioner (Appeals), while dealing with the penalty appeal has dealt with in somewhat detail about the financial position of the family and found that it had been assessed on income of more than Rs. 1,58,959 up to the assessment years 1946-47 and on an income of Rs. 1,88,964 for the assessment years 1947-48 to 1951-52. In the opinion of the Commissioner (Appeals), possession of Rs. 8,000 in 1950 with the daughter-in-law of such a well-to-do-family was quite probable. He had further observed that there was no evidence to indicate that the initial investment or any sums had flowed from the family funds to the business done by Shri Ashok Kumar Barnwal and Smt.
Kamla Devi. The learned departmental representative was unable to demolish either of these findings of fact. We, therefore, cannot say that the businesses run in the names of Shri Ashok Kumar Barnwal and Smt. Kamla Devi belonged to the assessee-HUF. In this connection, we will refer to another decision of the Supreme Court in the case of Anil Kumar Roy Chowdhury v. CIT  102 ITR 12. It was held in this case that there was no evidence on record to show that the property from which the income in question accrued, was the property of the HUF and in the absence of any such evidence, the burden was on the department to prove affirmatively that the income in question belonged to the HUF.The Court observed that the person who asserts that certain property is joint family property, has to prove that it is so. This principle squarely applies to the present case.
17. With regard to Shri Hira Lal Barnwal also, the same principle will apply. It is no doubt correct that in the initial stages, he had denied to have carried on any business independently. Subsequently, however, he filed his own returns for the assessment years 1966-67 to 1974-75.
Assessments on him, as stated above, were also made in substantive capacities for the assessment years 1972-73 and 1973-74. He was also assessed on income from commission and on unexplained investments made in the banks. He was admittedly found operating the bank accounts.
18. It was no doubt observed by the lower authorities that some of the amounts out of these bank accounts were withdrawn by Shri Ram Lala Prasad and Shri Ashok Kumar Barnwal. The Commissioner (Appeals) h: s, however, given an additional finding in this regard. He found that Shri Ashok Kumar Barnwal had explained to have given back the amounts to Shri Hira Lal Barnwal. He also gave a categorical finding that Shri Hira Lal Barnwal had withdrawn Rs. 37,067 from his bank account for his own business purposes, which was also accepted by the ITO. Besides these, we concur with the findings of the Commissioner (Appeals) that there is no evidence on record to link the investment made by Shri Hira Lal Barnwal with those of the assessee-HUF. Shri Hira Lal Barnwal can also not be called a man of no means. In his statement dated 2-5-1973, he stated that his wife had 50 tolas of gold ornaments and 6 kgs. of silver ornaments. This statement was not doubted by the ITO. Shri Hira Lal Barnwal's daughter was also married about 14 and 15 years back.
Besides, as stated above, he has been assessed substantively at least for the assessment years 1972-73 and 1973-74. We do not agree with the stand of the department that since he was an employee he could not be expected to establish a competitive business to that of the assessee-HUF. There is hardly any substance in this ground. He was certainly not bound by any obligation to the family or by an agreement not to carry on any parallel business. After all the assessee family had been carrying on money-lending and pawning business and simultaneously it was also its claim that similar businesses had been carried on by Shri Ashok Kumar Barnwal and Smt. Kamla Devi. In other words, the assessee himself admits that he had no objection to the carrying on of similar business by other persons. We are in agreement with the findings of the Commissioner (Appeals) that there is no evidence on record to suggest that the business run or carried on by the above three persons either belonged to the assessee-HUF or had any connection with the latter.
19. The learned counsel for the assessee made out another important point. He submitted that the ITO, while computing the income from the business carried on by Shri Ashok Kumar Barnwal and Smt. Kamla Devi had not relied on the transactions in the Girvi Bahi. Instead, he had estimated their investment in the business at Rs. 75,000 and had further estimated incomes of Rs. 18,750 from such investment in each case. In case the ITO was of the view that the Girvi Bahi belonged to the assessee, it was open to him to compute the income on the basis of the transactions found in that Bahi. Any mala fide motive can also not be attached either to Shri Ashok Kumar Barnwal or to Smt. Kamla Devi in getting themselves separately assessed. We have already stated above that they had filed their returns for the assessment years 1967-68 to 1972-73 much before a search was conducted on their premises either by the customs authorities or by the department. It is also correct that the assessments made on Shri Ashok Kumar Barnwal were not cancelled by the Commissioner under Section 263(1). The assessments made on Smt.
Kamla Devi were no doubt cancelled by him, but at the same time, he did not give any finding that the income earned by her belonged to the assessee-HUF. He only set aside the assessments directing the ITO to make fresh assessments in accordance with certain directions.
20. On behalf of the department, reliance was especially placed on the decision of the Supreme Court in the case of D.M. Manasvi v. CIT  86 ITR 557. In this case, the ITO had held that the business of the firm was the proprietary concern of the assessee and its income was his income. Penalty under Section 271(1)(c) was also levied for the concealment of this income. The Supreme Court held that there was relevant material before the Tribunal to hold that the assessee had deliberately concealed the particulars of his income. In the opinion of the Supreme Court, this was not a case of inference from mere falsity of the explanation given by the assessee in the assessment proceedings, but a case where there were definite findings that a device had been deliberately created by the assessee for the purpose of concealing his income. In our opinion, this principle does not apply to the facts of the assessee's case. There is no finding in the present case nor there is an evidence to come to any such, finding that the income earned from loan, the business carried on in the names of the above three persons belonged to the assessee or that the assessee had deliberately concealed the particulars of its income. This was also not a case where there were definite findings that a device had been deliberately created by the assessee for the purpose of concealing its income.
21. We will now deal with the Explanation to Section 271 (1)(c). The Allahabad High Court in Addl. CIT v. Jiwan Lal Shah  109 ITR 474 had held that the law laid down in CIT v. Anwar All  76 ITR 696 (SC) had really not been affected by the Explanation added to Section 271(1)(c) on 1-4-1974. The Explanation has been held to be a mere rule of evidence. It merely raises a rebuttable presumption but the basic principle laid down in Section 271(1)(c) still remains, namely, that there should have been a concealment of the particular of the income or inaccurate furnishing of such particulars. Whatever view might be taken on the facts of the case, it has to be held that even if the Explanation applies, the presumption raised under that Explanation has been rebutted by the assessee.
22. Some other arguments were also placed before us on behalf of the rival parties. On behalf of the assessee, it was submitted that the department having assessed Shri Ashok Kumar Barnwal. Smt. Kamla Devi and Shri Hira Lal Barnwal was bound by the principle of promissory estoppel and, therefore, a different view could not be taken in the case of the assessee. Similarly, on behalf of the department, it was submitted that this was not a case of benami where the burden lay on the department, but that it was the case of a clear finding that certain business carried on in the names of certain persons belonged to the assessee. In our opinion, there is no merit in either of these contentions. The principle of promissory estoppel, no doubt, might be applicable to the same assessee but certainly, it does not apply to another assessee in view of the principle laid down by the Supreme Court in the case of Jamnaprasad Kanhaiyalal v. CIT  130 ITR 244 and a few other cases already quoted above. Similarly, there is no merit in the contention of the learned departmental representative that this was the case where certain businesses were held to be belonging to the assessee-HUF. We have already stated above that all the three persons, namely, Shri Ashok Kumar Barnwal, Smt. Kamla Devi and Shri Hira Lal Barnwal had been assessed with reference to the same very incomes which were subsequently assessed as the income of the assessee.
Whatever might be the position in the quantum assessment, certainly those findings cannot be followed in the penalty proceedings when there is an additional evidence, as discussed by the Commissioner (Appeals) in his order to show positive that it could not be conclusively said that those businesses were either run with the funds of the assessee or actually belonged to it. The Commissioner (Appeals) has also given various other reasons to effectively answer the reasons and grounds taken by the ITO in support of the levy of the penalty. We do not consider necessary to repeat them here as we are in full agreement with his findings. In view of these facts and the legal principles, we agree with the findings of the Commissioner (Appeals) that the penalty imposed under Section 271(1)(c) cannot be sustained in law.