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Krishan Lal Shiv Chand Rai Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 42 of 1971
Judge
Reported in[1973]88ITR293(P& H)
ActsIncome Tax Act, 1961 - Sections 143(3) an 148
AppellantKrishan Lal Shiv Chand Rai
RespondentCommissioner of Income-tax
Appellant Advocate G.C. Sharma,; Randhir Chawla,; S.R. Gupta,;
Respondent Advocate D.N. Awasthy and; B.S. Gupta, Advs.
Cases ReferredGumani Ram Siri Ram v. Commissioner of Income
Excerpt:
.....order. - awastby, learned counsel for the department, that full opportunity was afforded to the assessee-firm by the inspecting assistant commissioner for proving their case but they failed to utilise that opportunity, that the department successfully discharged the onus initially placed on it for the purpose of imposing the penalty and that the order of the tribunal, which was passed on a consideration of various circumstances, could not be interfered with by this court. ) wherein it has been held that an order imposing penalty is the result of quasi-criminal proceedings, that the department must establish that the receipt of the amount in dispute constitutes income of the assessee and that any finding given in the assessment proceedings for determining or computing the tax is not..........question for our opinion. 3. it was strenuously contended before us by mr. sharma that the penalty proceedings are penal in character, that it was for the department to establish that the amounts surrendered constituted their income and that the mere fact that the amounts were surrendered during the course of assessment proceedings would be no ground to impose the penalty on the assessee. it was also contended by the learned counsel that the inspecting assistant commissioner did not give any opportunity to the assessee-firm to prove their assertions, and that penalties were imposed illegally. on the other hand, it was contended by mr. awastby, learned counsel for the department, that full opportunity was afforded to the assessee-firm by the inspecting assistant commissioner for.....
Judgment:

1. This judgment of ours would dispose of Income-tax References Nos. 42 and 43 of 1971. The facts read as under :

For the assessment years 1959-60 and 1960-61, regular assessments had been made in respect of Messrs. Kishan Lal Shiv Chand Rai. Later on, notices were issued under Sections 143(3)/148 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), and in the course of the assessment proceedings in pursuance of those notices, the assessee surrendered certain amounts which it had shown as loans of third parties at the time of earlier regular assessments. The Income-tax Officer accepted those surrenders and made orders of reassessment after affording an opportunity to the assessee-firm to prove that the credits on the basis of hundis shown in the names of third parties were genuine credits. At that time, the assessee-firm, instead of proving that fact, gave a statement surrendering those amounts to be treated as its income of the year from undisclosed sources.

2. Thereafter, proceedings for imposition of penalty were initiated against the assessee-firm. In those proceedings, it was pleaded by the assessee that it should be given an opportunity to prove that the credits on the basis of hundis in favour of third parties, which had been surrendered during the course of assessment proceedings, were in fact credits of genuine parties, and it was only for the sake of avoiding botheration that the firm surrendered those credits and agreed to be assessed on the basis of those credits being taken as the income of the firm from undisclosed sources The Inspecting Assistant Commissioner refused to give an opportunity to the assessee-firm to prove their assertion and imposed a penalty of Rs. 18,291 in respect of the assessment year 1959-60 and a penalty of Rs. 22,729 for the assessment year 1960-61. The appeals filed by the assessee were also dismissed and their application for reference of some questions of law arising out of the Tribunal's order for opinion to this court, was also rejected. Thereafter, the assessee-firm filed petitions under Section 256(2) of the Act in this court for a direction to the Income-tax Appellate Tribunal for stating the case to this court for opinion along with the questions set out in that application. Those income-tax cases came up for hearing before Mahajan and Tuli JJ. and their Lordships, vide their order dated November 10, 1970, directed the Income-tax Appellate Tribunal to draw up the statement of the case and refer to this court for opinion, the question, ' Whether, on the facts and in the circumstances of the case, the order imposing penalty was justified ' It is in these circumstances that the Appellate Tribunal, Chandigarh Bench, has drawn the statement of the case, and has referred the above mentioned question for our opinion.

3. It was strenuously contended before us by Mr. Sharma that the penalty proceedings are penal in character, that it was for the department to establish that the amounts surrendered constituted their income and that the mere fact that the amounts were surrendered during the course of assessment proceedings would be no ground to impose the penalty on the assessee. It was also contended by the learned counsel that the Inspecting Assistant Commissioner did not give any opportunity to the assessee-firm to prove their assertions, and that penalties were imposed illegally. On the other hand, it was contended by Mr. Awastby, learned counsel for the department, that full opportunity was afforded to the assessee-firm by the Inspecting Assistant Commissioner for proving their case but they failed to utilise that opportunity, that the department successfully discharged the onus initially placed on it for the purpose of imposing the penalty and that the order of the Tribunal, which was passed on a consideration of various circumstances, could not be interfered with by this court.

4. After giving our thoughtful consideration to the entire matter, we are of the view that there is much force in the contentions raised by thelearned counsel for the assessee. As to the nature of the penalty proceedings and as to on whom onus lies, the matter is beyond any pale of doubt in view of the decision of their Lordships of the Supreme Court in Commissioner of Income-tax v. Anwar Ali, [1970] 76 I.T.R. 696 (S.C.) wherein it has been held that an order imposing penalty is the result Of quasi-criminal proceedings, that the department must establish that the receipt of the amount in dispute constitutes income of the assessee and that any finding given in the assessment proceedings for determining or computing the tax is not conclusive, though it is a good piece of evidence. It has also been held in another decision of their Lordships of the Supreme Court in Commissioner of Income-tax v. Khoday Eswarsa and Sons, [1972] 83 I.T.R. 369 (S.C.) that penalty cannot be levied solely on the basis of the reasons given in the original order of assessment. It is in the light of the observations made by their Lordships of the Supreme Court in the above-said two decisions that this case has to be decided.

5. On the respective contentions of the learned counsel for the parties, the first question that requires determination is whether any opportunity was afforded to the assessee-firm for leading evidence during the course of penalty proceedings initiated by the Inspecting Assistant Commissioner. From the statement of case we find that the Inspecting Assistant Commissioner refused to give opportunity to the assessee-firm to prove its assertions that the credits on the basis of hundis in favour of third parties, which the assessee-firm had surrendered during the course of assessment proceedings were, in fact, credits of genuine parties and that it was only for the sake of avoiding botheration that the firm surrendered those credits and agreed to be assessed on the basis of those credits to be taken as the income of the firm from undisclosed sources. Mr. Awasthy, learned counsel for the department, contested the correctness of the fact made in the statement of the case that the Inspecting Assistant Commissioner refusec to give an opportunity to the assessee-firm, but we do not find any substance in this challenge of the learned counsel for the department. When the income-tax cases of the assessee came up for hearing before this court, the order of the Bench clearly shows that it was the admitted position of the parties that the Inspecting Assistant Commissioner refused to give an opportunity to the assessee-firm to prove its assertion. Even from the records of the Inspecting Assistant Commissioner, which were made available by the learned counsel for the department, we find that no opportunity was afforded to the assessee for leading evidence in order to prove its assertions though detailed objections were filed by them. The Inspecting Assistant Commissioner proceeded to impose penalty solely on the basis of the fact that the amounts were surrendered by the assestee at the time of the assessment, as is evident fromhis observations which read as under, in the order which is attached as annexure ' B-1 ' with the statement of the case :

' In this case what further proof is required regarding the concealment of income when the assessee itself surrendered the amount for assessment. I see no reason why the assessee should agree to be assessed on the hundi loans unless it was the concealed income of the assessee. '

6. This to our mind was not a legal way of proceeding with the matter, Even treating the fact of surrender as an admission of the concealment of undisclosed income, with which we do not agree, the Inspecting Assistant Commissioner could not deny the assessee its right to prove that the fact of surrender was no such admission and that the so-called admission was in fact wrong and the surrender was made simply to avoid botheration.

7. It is an established principle of law that a party is entitled to show and prove that the admission made by him previously is in fact not correct and true. In the instant case the assessee had definitely alleged that the amounts surrendered were not in fact his undisclosed income, that the hundis in favour of the creditors were genuine and that the surrender was made simply to avoid botheration. That being so, it was incumbent upon the Inspecting Assistant Commissioner to have afforded the assessee full opportunity to prove his assertions, it was an indisputable right which had been denied to the assessee without any justification. It appears that there is a wrong notion prevailing with the authorities deciding the penalty proceedings that once a surrender is made of any amount, the assessee can be straightaway penalised without asking the department to supply some other material and further proof establishing the dishonest concealment of the undisclosed income and the falsity of the return and without affording the assessee an opportunity to show that the surrendered amounts were in reality not his undisclosed income, that he had not concealed the same, and that it was for certain reasons that he had made surrender of the amount. Apparently, it is this notion that has prevailed with the Inspecting Assistant Commissioner in deciding the instant penalty cases as is manifestly evident from the order the relevant portion of which has been reproduced above.

8. It is to be borne in mind that the penalty proceedings are distinct from the assessment proceedings and are in the nature of quasi-criminal proceedings. The onus was on the department to positively prove and produce for that purpose, certain other material besides the factum of surrender that the amounts in dispute were the undisclosed income of the assessee. We agree with Mr. Sharma, learned counsel for the assessee, that the mere fact of surrender could not necessarily be an admission of the assessee that the amounts surrendered were its undisclosed income. The surrender bythe assessee could have been for more than one reason in spite of the fact that it was not his income and that fact alone could not be the basis of imposing penalty as has been done in the present case. This view of ours finds full support from a Bench decision of this court in Gumani Ram Siri Ram v. Commissioner of Income-tax, [1972] 85 I.T.R. 67 (Punj.) wherein, in similar circumstances, it was held that there may be hundred reasons for the assessee to surrender the amount irrespective of the fact whether it ,was his income or not and it was incumbent for the Income-tax Officer to find on evidence that the amount surrendered represented the income of the assessee.

9. As a result of the above discussion, we are clearly of the view that, on the facts and circumstances of this case, the order imposing penalty was not justified and accordingly answer the question in the negative. The assessee shall have his costs from the department which are assessed at Rs. 250.


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