Skip to content


Commissioner of Income-tax Vs. Bharat Tubewell Stores - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 76 of 1974
Judge
Reported in(1980)14CTR(P& H)82; [1981]132ITR241(P& H)
ActsIncome Tax Act, 1961 - Sections 271 and 271(1)
AppellantCommissioner of Income-tax
RespondentBharat Tubewell Stores
Appellant Advocate D.N. Awasthy and; B.K. Jhingan, Advs.
Respondent Advocate B.S. Gupta, Adv.
Excerpt:
.....inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,-explanation. of the total income (hereinafter in tfiis 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 tohave concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section. in the case of the first type the..........of concealment. the totality of circumstances do not establish that this is the concealed income of assessee. this is what their lordships of the supreme court in anwar ali's case : [1970]76itr696(sc) have observed and we are of the view that the penalty is not exigible because the concealment has not been established by the department and for this we rely on anwar ali's case : [1970]76itr696(sc) and khoday eswarsa's case : [1972]83itr369(sc) , both decided by their lordships of the supreme court. the learned counsel for the assessee also relied on two judgments of the supreme court, namely, mohamed haneef's case : [1972]83itr215(sc) and hindustan steel ltd. : [1972]83itr26(sc) . but we need not go into these citations because we are of the view that the revenue have not been.....
Judgment:

J.V. Gupta, J.

1. This reference has been made on account of the directions of this court made in Income-tax Case No. 35 of 1973, vide its order dated April 26, 1974 (reported as CIT v. Bharath Tubewell Stores ). It was observed by this court that since the matter rested on the determination as to on whom the onus lay to prove that the concealment was deliberate or not and on the true effect of the Explanation to Section 271(1)(c) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), a question of law did arise on the facts and in the circumstances of the case. Consequently, the following question of law was referred to this court :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that penalty was not exigible and in deleting the same ?'

2. The relevant facts giving rise to this reference are that the assessee, M/s. Bharat Tubewell Stores, Sirsa, is a 'registered firm' consisting of four partners and a minor admitted to the benefits. The firm was constituted on October 4, 1967, and it derived its income from the sale of tube-well material, saria, patti, etc. The assessment is for 1968-69 ending on March 31, 1968. The return, furnished on November 1, 1968, declared an income of Rs. 13,589. The ITO completed the assessment at a total income of Rs. 33,600 after making an addition of Rs. 20,000. He found that payments of at least that amount had been made to M/s. Bharat Steel Tubes Ltd. (partly on 17th October, 1967, and partly on 28th October, 1967), by the assessee out of cash lying outside the assessee's books of account.Entries regarding these payments were made in the assessee's books only on November 11, 1967. The assessee's explanation was that one Om Parkash (a brother of two of the partners of the assessee-firm used to advance to to the assessee-firm loans without any interest, without any security and without any instrument or even without an entry in the assessee's books, either regarding the receipt of the loan or regarding the repayment thereof. Entries pertaining to the payment and receipt of the two amounts aggregating to Rs. 20,000 did appear in the account books of the said Om Parkash. The ITO suspected the genuineness of the entries in the books of Shri Om Parkash and he impounded those books. The ITO further rejected as unsatisfactory the assessee's explanation as to the nature and source of the sum of Rs. 20,000 in question. The assessee, being aggrieved, went up in appeal before the AAC, but he confirmed the order of the ITO. In second appeal before the Appellate Tribunal also, it failed. Thus, the said addition of Rs. 20,000 as income from undisclosed sources was sustained and confirmed.

3. On a reference under Section 274(2) of the Act, the IAC initiated penalty proceedings against the assessee for concealment of the particulars of income in respect of the aforesaid amount of Rs. 20,000 and he, after invoking the provisions of the Explanation occurring under Section 271(1), imposed a penalty of Rs. 20,000. He took the view that since the AAC had, after giving elaborate reasons, dismissed the assessee's explanation in respect of the said sum of Rs. 20,000 in the quantum appeal, the assessee was liable to penalty and imposed Rs. 20,000 as such. The Appellate Tribunal, vide its order dated December 16, 1972, allowed the appeal of the assessee and thus deleted the penalty. The relevant observations made therein by the Tribunal read as under :

'In the ultimate, the case of the revenue is firstly that there is gross or wilful neglect on the part of the assessee as the borrowing from Shri Om Parkash and repayment of the same to him have not been incorporated in the account books of the assessee and, secondly, a charge has been levied against the assessee that he has concealed the particulars of income and furnished inaccurate particulars thereof. In the ultimate, the assessee's story has not been believed by the revenue authorities and so is the case with us, all the explanations given by the assessee before the authorities below and before us having not been believed or the explanations having been proved to be false. But is that enough for imposition of penalty For imposition of penalty and the sustenance thereof the revenue has to establish not by mere falsity of the explanation of the assessee or no explanation on the part of the assessee that the subject-matter of assessment is the concealed income of the assessee, but the burden lies on the revenue to establish the charge of concealment and the absence of an explanation or thefalsity of an explanation cannot be construed as establishment of concealment. The totality of circumstances do not establish that this is the concealed income of assessee. This is what their Lordships of the Supreme Court in Anwar Ali's case : [1970]76ITR696(SC) have observed and we are of the view that the penalty is not exigible because the concealment has not been established by the department and for this we rely on Anwar Ali's case : [1970]76ITR696(SC) and Khoday Eswarsa's case : [1972]83ITR369(SC) , both decided by their Lordships of the Supreme Court. The learned counsel for the assessee also relied on two judgments of the Supreme Court, namely, Mohamed Haneef's case : [1972]83ITR215(SC) and Hindustan Steel Ltd. : [1972]83ITR26(SC) . But we need not go into these citations because we are of the view that the revenue have not been able to establish the concealment on the part of the assessee. Mere assessment of an amount for assessment purposes is not by itself enough to establish the concealment. We, therefore, hold that no penalty is exigible in the instant case which is deleted, and the appeal allowed.'

4. Mr. Awasthy, learned counsel for the revenue, has vehemently argued that the Tribunal has erred in placing the onus on the revenue to establish the charge of concealment. The burden of his argument is that after the addition of the Explanation to Section 271(1)(c) on April 1, 1964, and the deletion of the word 'deliberately' in Clause (c) thereof, it is for the assessee to prove that the failure to return the correct income did not arise from any fraud or gross or wilful fault on his part. In the absence of any such explanation it will be deemed that the assessee had concealed the particulars of his income or furnished incorrect particulars of his income for the purpose of Clause (c) of Section 271(1). It will be beneficial to reproduce Section 271(1)(c) along with its Explanation :

'(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 furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,--.....

Explanation.--Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in tfiis 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 tohave concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section.'

5. According to the learned counsel, after the said Explanation had been added, the two judgments of the Supreme Court in Anwar Ali's case : [1970]76ITR696(SC) and Khoday Eswarsa's case : [1972]83ITR369(SC) could not be relied upon by the Tribunal as those are cases decided prior to the said Explanation. In support of his contention, he relied upon the cases of Addl. CIT v. Swastik Mineral Corporation : [1979]118ITR583(SC) , R.S. Joshi, STO v. Ajit Mills Ltd. : [1978]1SCR338 , and also on the judgments of the Allahabad High Court in CIT v. Kedar Nath Ram Nath : [1977]106ITR172(All) , of the Patna High Court in CIT v. Patna Timber Works : [1977]106ITR452(Patna) , of the Orissa High Court in CIT v. Laxmi Auto Stores : [1977]106ITR626(Orissa) , of the Calcutta High Court in CIT v. Walker and Company : [1979]117ITR690(Cal) and of the Madras High Court in CIT v. Smt. Kanakammal : [1979]118ITR94(Mad) .

6. On the other hand, Shri B. S. Gupta, learned counsel for the assessee, has placed reliance on a judgment of this court in Addl. CIT v. Karnail Singh V. Kaleran , which, according to him, fully covers the present case. It has been held therein that the purpose of the Explanation to Section 271(1)(c).is to differentiate between two types of assessees : those who have reported correct income up to eighty per cent. of the assessed income and those who have not. In the case of the first type the onus lies on the department to prove fraud or gross or wilful neglect in not returning the correct income and in the case of the second type the onus is on the assessee to establish that the failure to return the correct income was not on account of any fraud or gross or wilful neglect on his part. It has been further held therein that the principles enunciated by the Supreme Court in Anwar Ali's case : [1970]76ITR696(SC) are still applicable while construing Section 271 of the Act. The learned counsel has further relied upon a judgment of the Allahabad High Court in Addl. CIT v. Jiwan Lal Shah : [1977]109ITR474(All) , wherein the principles laid down in the judgment of this court in Karnail Singh's case have been followed. The relevant observations made therein are (at p. 483) :

'In the instant case the mere fact that the explanation given by the assessee in respect of the bank deposits was not accepted does not necessarily lead to the conclusion that the said deposits were concealed incomes or that the assessee furnished inaccurate particulars of his income. The nature of penalty proceedings as quasi-criminal has not undergone any change by the addition of the Explanation to Section 271(1). It merely affects the onus of proof and does nothing more than that. We find that our view is supported by a decision of the Punjab and Haryana HighCourt in Additional Commissioner of Income-tax v. Karnail Singh V. Kaleran .'

7. After hearing the learned counsel for the parties at great length, we are of the opinion that as to the effect of the Explanation to Section 271(1)(c), the law has been correctly laid down in Karnail Singh's case . The two Supreme Court judgments relied upon by the learned counsel for the revenue are not helpful for the determination of the question under consideration. In Swaslik Mineral Corporation's case : [1979]118ITR583(SC) , the Supreme Court only observed that the Tribunal appeared to have overlooked the amendment made by Act 5 of 1964 to Section 271 of the Act. These amendments, undoubtedly, ought to have been considered by the Tribunal. Of course, we are following these observations in the present case, as well. The other case, i. e., Ajit Mill's case : [1978]1SCR338 , deals with the interpretation of statutes dealing with the sales tax matter, with which we are not concerned here. The judgment of the Allahabad High Court in Kedar Nath Ram Natk's case : [1977]106ITR172(All) , was not followed subsequently by that very High Court itself in Jiwan Lal Shah's case : [1977]109ITR474(All) , in which the view of this court in Karnail Singh's case , has been accepted as a correct one. As regards the judgment of the Orissa High Court in Laxmi Auto Store's case : [1977]106ITR626(Orissa) , no reasons have been stated as to how the decision of the Supreme Court in Anwar Ali's case : [1970]76ITR696(SC) could not provide any guidance after the Explanation to Section 271(1)(c). The Patna High Court in Patna Timber Works' case : [1977]106ITR452(Patna) has noticed the Punjab High Court judgment in Karnail Singh's case but has failed to give any cogent reasons to differ from the same. The judgment of the Calcutta High Court in W. J. Walker's case : [1979]117ITR690(Cal) is rather based upon the Supreme Court decision in Anwar Ali's case : [1970]76ITR696(SC) and it has been held therein that in -view of the clear provisions of the Explanation, it must be held that it is only after the assessee has proved positively that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part, that the principles laid down by the Supreme Court in Anwar Ali's case : [1970]76ITR696(SC) would come into play, i.e., the department will have to prove that the assessee was guilty of concealment of income or had furnished inaccurate particulars of income. The only difference of opinion in Karnail Singh's case and W. J. Walker's case : [1979]117ITR690(Cal) , is that in the former case it is for the department to establish that the receipt of the amount in dispute constitutes the income of the assessee and if there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes its taxable income ; whereas in the latter, it isonly after the assessee has positively proved that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part, the department will have to prove that the assessee was guilty of concealment of income or had furnished inaccurate particulars of income. In Smt. V. Kanakammal's case : [1979]118ITR94(Mad) , the Madras High Court referred to Anwar Ali's case : [1970]76ITR696(SC) in its judgment, but nothing has been stated as to its applicability after (the insertion of) the Explanation to Section 271(1)(c) of the Act.

8. It will be useful to note here the following observations made in Anwar Ali's case : [1970]76ITR696(SC) by the Supreme Court, which, in our opinion, are still relevant even after the amendment in Section 271 (p. 701) :

'It must be remembered that the proceedings under Section 28 are of a penal nature and the burden is on the department to prove that a particular amount is a revenue receipt. It would be perfectly legitimate to say 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 income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.'

9. Again, the Supreme Court in CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) , repeated the same observations, to the following effect (p. 376) :

'Before we conclude we may refer to the decision of this court in Commissioner of Income-tax v. Anwar Ali : [1970]76ITR696(SC) , wherein it has been held that one of the principal objects in enacting Section 28 is to provide a deterrent against recurrence of default on the part of the assessee and that Section 28 is penal in the sense that its consequences are intended to be an effective deterrent which would put a stop to the practices which the legislature considers to be against the public interest. It has been further held that the department must establish that the receipt of the amount in dispute constitutes the income of the assessee and if there is no evidence on record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes its taxable income. It has been further held that, as the proceedings under Section 28 are of a penal nature and the burden is on the department to show that a particular amount is revenue receipt, it is legitimate to say 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 the income. It has been pointed out in the said decisionthat the finding given in the assessment proceeding for determining or computing the tax is not conclusive though it may be good evidence. It has been further held by this court in the above decision :

'Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assesseehad consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.' From the above it is clear that penalty proceedings being penal in character, the department must establish that the receipt of the amount in dispute constitutes the income of the assessee. Apart from the falsity of the explanation given by the assessee, the department must have before it, before levying penalty, cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is a revenue receipt. No doubt the original assessment proceedings for computing the tax may be a good item of evidence in the penalty proceedings but the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment.'

10. The judgment of this court in Karnail Singh's case is based on the observations of their Lordships of the Supreme Court in Anwar Ali's case : [1970]76ITR696(SC) . Thus, it has been rightly held therein that the gist of the offence is whether the assessee has concealed the particulars of his income or has deliberately furnished inaccurate particulars of such income, the department must establish that the receipt in dispute constituted the income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income. In our opinion, in order to justify the levy of a penalty, two factors must co-exist : (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income, it being not enough for the purposes of penalty that the amount has been assessed as income ; and (ii) the circumstances must show that there was animus, i. e., conscious concealment or conscious furnishing of inaccurate particulars on the part of the assessee. The Explanation has no bearing on (i), but it has a bearing only on (ii). The Explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. No penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that it does. Therefore, we are in respectful agreement with the decision of this court in Karnail Singh's case .Since in that case it was the clear finding of the Tribunal on a question of fact that the assessee was not the owner of the money in his pocket and there was no proof thereof, this court held that no fault could be found with the conclusion of the Tribunal that the provisions of Section 271(1)(c) of the Act were not applicable, and decided the matter in favour of the assessee. Thus, we find that the Explanation to Section 271(1)(c) was duly considered by the Tribunal while giving that finding in that case. However, in the present case, from the observations made by the Tribunal in the order reproduced earlier, it appears that the Tribunal did not consider the effect of the Explanation added to Section 271(1)(c). The observations made by the Tribunal that, 'For imposition of penalty and the sustenance thereof, the revenue has to establish not by mere falsity of the explanation of the assessee or no explanation on the part of the assessee that the subject-matter of assessment is the concealed income of the assessee, but the burden lies on the revenue to establish the charge of concealment and the absence of an explanation or the falsity of an explanation cannot be construed as establishment of concealment', are quite relevant in this respect to find out the approach of the Tribunal, Before it could be found as a fact that whether there was concealment or not, the revenue is required to prove whether there is some material or circumstances leading to the reasonable conclusion that the amount of Rs. 20,000 does represent the assessee's income, it being not enough for the purposes of penalty that this amount has been assessed as income, and in case the amount assessed is proved by the department to represent the income of the assessee, the Explanation puts the burden squarely on the assessee to show that there was no fraud or gross or wilful neglect on his part in furnishing his return of income. In the absence of a clear finding on both these points and also not keeping in view the Explanation to Section 271(1)(c) by the Tribunal, it is not possible to answer the question referred to this court. This court, while issuing the mandamus on 26th April, also observed that the matter rests on the determination as to on whom the onus lies to prove that the concealment was deliberate or not and on the true effect of the Explanation to Section 271(1)(c) of the Act.

11. Under these circumstances, we send back this reference to the Tribunal without answering the question, with a direction that after giving a reasonable opportunity to both the parties, of being heard, the Tribunal shall decide afresh keeping in view the law laid down by this court in Karnail Singh's case , whether any penalty was imposable on the assessee or not. This reference is accordingly disposed of without answering the question and without making any order as to costs.

R.N. Mittal, J.

12. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //