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Commissioner of Income-tax Vs. Metal Products of India - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 43 of 1977 and Civil Miscellaneous No. 2049-C-II of 1983
Judge
Reported in(1985)45CTR(P& H)445; [1984]150ITR714(P& H)
ActsIncome Tax Act, 1961 - Sections 145(1) and 271(1); Evidence Act, 1872
AppellantCommissioner of Income-tax
RespondentMetal Products of India
Appellant Advocate Ashok Bhan and; A.K. Mittal, Advs.
Respondent Advocate S.S. Mahajan and; Jagmohan Singh Bhatti, Advs.
Excerpt:
.....estimate and even though it had itself confirmed the estimate, the assessee by producing regular books of account had in its opinion displaced the presumption that failure to return the correct income had arisen from any fraud or gross or wilful neglect. as is well known, strict rules of evidence, as are known to the indian evidence act, are not applicable to income-tax proceedings, and thus the word 'evidence' in the question under reference has to be understood in the generic sense, and not in the arrested sense so as to be either oral or documentary evidence, or both. merely because, the addition had been made on estimate under the proviso to section 145(1) by adopting the view that the gross profit shown in the books of account was too low as there were defects in the method..........1965, the assessee submitted a return declaring a total income of rs. 52,416 on the basis' of the books of account maintained by it. those were rejected by the ito and he made an addition of rs. 1,49,624. on appeal to the aac, the addition was reduced to rs. 80,000. on further appeal to the income-tax appellate tribunal, the same was confirmed. then came the turn, for levying penalty. the iac undertook the. exercise and requisite notice for the purpose was served on the assessee for january 31, 1972. the assessee did not put in appearance but sent an application requesting for an adjournment. the prayer was rejected and the decision communicated. the assessee kept mumthereafter. the iac thus proceeded in the absence of the petitioner and came to hold that the assessee had not been able.....
Judgment:

M.M. Punchhi, J.

1. This income-tax matter came in reference to us in the following circumstances:

For the accounting year ending March 31, 1965, the assessee submitted a return declaring a total income of Rs. 52,416 on the basis' of the books of account maintained by it. Those were rejected by the ITO and he made an addition of Rs. 1,49,624. On appeal to the AAC, the addition was reduced to Rs. 80,000. On further appeal to the Income-tax Appellate Tribunal, the same was confirmed. Then came the turn, for levying penalty. The IAC undertook the. exercise and requisite notice for the purpose was served on the assessee for January 31, 1972. The assessee did not put in appearance but sent an application requesting for an adjournment. The prayer was rejected and the decision communicated. The assessee kept mumthereafter. The IAC thus proceeded in the absence of the petitioner and came to hold that the assessee had not been able to show that the difference between the assessed and the returned income was not due to any fraud or any gross or wilful neglect, and thus he should be deemed to have concealed the particulars of its income or furnished inaccurate particulars of such income. On this view, he imposed a penalty of Rs. 12,000. On appeal to the Appellate Tribunal, the penalty levied was cancelled. For coming to such view, the Tribunal had taken into account three particulars which are as under :

(1) The addition of Rs. 80,000 had been made merely on the basis of an estimate and even though it had itself confirmed the estimate, the assessee by producing regular books of account had in its opinion displaced the presumption that failure to return the correct income had arisen from any fraud or gross or wilful neglect. (Proviso to Section 145(1) had been applied).

(2) Even though there was a discrepancy in the value of stock as per books of account, yet no specific addition had been made in the assessment on this account. In this situation, on a mere discrepancy in the stock statement, no penalty could be imposed,

(3) The assessee's claim that 10,000 shares of Messrs Panipat Woollen and General Mills Limited belonged to the partners and not to it, and thus the dividend income of Rs. 4,000 derived therefrom was not that of the assessee, though not believed in the quantum case, could still have the assessee entertain the belief for penalty purposes that the dividend income belonged to the partners, and thus there was no positive evidence to draw an inference that the assessee was guilty of any concealment regarding the income from dividends.'

2. The Revenue sought a mandamus from this court, vide decision in Income-tax Case No. 40 of 1973 decided on October 18, 1976. This court allowed the prayer by observing as follows :

'On appeal, the Tribunal set aside the levy of penalty on the ground that no penalty could be imposed for a mere discrepancy in the stock statement as declared to the bank and as shown by the assessee in his books. On these facts, we think that the following question arises for our consideration and we direct the Tribunal to state a case and refer the question for our decision : 'Whether, on the facts and in the circumstances of the case, it could be said that the Tribunal had any evidence before it from which it could be said that the assessee had discharged the burden that lay on him under the Explanation to Section 271(1)(c) of the Income-tax Act ?''

3. In obedience to the abovesaid order, the Tribunal has prepared the statement of the case and referred the aforesaid question of law to us for our opinion.

4. Indisputably, the extent of the additions in the instant case put the burden on the assessee to prove his case as envisaged in the Explanation to Section 271(1)(c) of the I.T. Act, 1961. The point to be seen is whether, on the facts and in the circumstances of the case, there was any evidence before the Tribunal for the purpose from which it could be said that the assessee had discharged that burden. As is evident from the order of this court in Income-tax Case No. 40 of 1973, it took note of only one factor which was the basis of the demolition of the order of penalty. That was the discrepancy in the stock statement as declared to the bank and as shown by the assessee'in his books. Yet the Bench observed that 'on these facts we think...' in terms of plurality. Thus, to put the record straight, we would take the reference of only one factor therein as merely illustrative and take into account all the three factors afore-enumerated, as dealt with by the Tribunal in its appellate decision, to formulate our opinion. And since, in the question referred, stress has been laid to discern whether there was any evidence before the Tribunal, we must straightway clarify as to what is meant by that word in the context.

5. Now the word 'evidence' as a term of law is not an arrested one. In the context of the Indian Evidence Act, 'evidence' means and includes all statements made before the court which are called 'oral evidence' and all documents produced before it for inspection which are called 'documentary evidence'. That is a controlled meaning of the word for that Act. Yet, in certain proceedings, evidence in the form of affidavits, declarations and other means of the same kind is allowed to be adduced. But all such exercise is made before a court or a quasi-judicial Tribunal to make things obvious or manifest. In other words, the effort is to make things plainly visible or conspicuous. The object can also be achieved by a positive suggestion indicating an inference which adds to the plain visibility or manifestation. For the cause before it, the court or the Tribunal must have before it, in all events, the correct perspective of things, and what is helpful or valuable in that direction is 'evidence' in the larger context or in the generic sense. As is well known, strict rules of evidence, as are known to the Indian Evidence Act, are not applicable to income-tax proceedings, and thus the word 'evidence' in the question under reference has to be understood in the generic sense, and not in the arrested sense so as to be either oral or documentary evidence, or both.

6. The order of the IAC, as said before, was ex parte. Obviously, the assessee did not project its view-point before him and, in a sense, did notdischarge the burden that lay on him. Before the Tribunal, the first attempt was made in the grounds of appeal, a copy of which, with the consent of the learned counsel for the parties, had to be placed on the record for our benefit. In that, the positive assertion of the assessee was that he did not conceal any particulars of income in his return. The Tribunal on that assertion seemingly took into account the conduct of the assessee with regard to the disclosure of its income and the preponderance of probabilities. Regarding the addition of Rs. 80,000 mentioned in the first particular, the Tribunal's view on the conduct of the assessee was that he had displaced the presumption by producing regular books of account. Merely because, the addition had been made on estimate under the proviso to Section 145(1) by adopting the view that the gross profit shown in the books of account was too low as there were defects in the method employed for the accounts, did not automatically lead to the conclusion that there was failure to return the correct income by means of fraud or gross or wilful neglect. Though the onus to prove that it was not by means of any fraud or gross or wilful neglect was on the assessee, yet the quantum of proof to discharge it was that as required in a civil case, i.e., by preponderance of probabilities. This had been discharged by the assessee's producing regular books of account and that was 'enough evidence' before the Tribunal to come to the view that the onus had been discharged. In the same manner, on the second particular, which in essence is the part of the first particular, was the discrepancy in the value of stock shown to the bank and the value of stock as per books of account explained. The view taken by us for the first particular is applicable to the second particular also.

7. The addition of Rs. 80,000 on one count and the dividend income of Rs. 4,000 on the other count cumulatively attracted a penalty of Rs. 12,000 in the first instance. It would be legitimate to ascribe the major part of the penalty to have been attracted on the addition of Rs. 80,000 and a negligible bit towards the dividend income of Rs. 4,000. The latter income, which was dealt with by the Tribunal (the third particular), was also based on the finding that the assessee could hold a bona fide belief that the shares stood in the names of the partners and, therefore, the dividend income belonged to the partners. The Tribunal further held the view that there was no positive evidence to draw, an inference that the assessee is guilty of any concealment regarding the income from the dividends. Conversely put, the conduct of the asseesee and the entertainment of his bona fide belief, as explained by him was 'sufficient evidence' for the Tribunal to take the view that on preponderance of probabilities, the assessee had discharged the burden that lay on him. Thus, we are of the considered view that there was evidence before the Tribunal on all the aforesaid three particulars from which it could be said that the assessee had discharged theburden that lay on him under the Explanation to Section 271(1)(c) of the I.T. Act, 1961.

8. For the foregoing reasons, the question framed is answered in the affirmative, in favour of the assessee and against the Revenue. In the circumstances of the case, there would, however, be no order as to costs.

R.N. Mittal, J.

9. I agree.


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