GEORGE VADAKKEL J., - This reference by the Income-tax Appellate Tribunal, Cochin Bench, arises from penalty proceedings initiated by the Additional Income-tax Officer, Quilon, in respect of the assessment year 1959-60. The Additional Income-tax Officer imposed a penalty of Rs. 10,000 under section 28(1)(c) of the Indian Income-tax Act, 1922 (in brief 'the Act'). This was confirmed by the Appellate Assistant Commissioner. The imposition of penalty was upheld by the Tribunal, but the quantum of penalty was reduced to Rs. 5,500. The Tribunal refused to state the case on the ground that no question of law arises when the assessee applied under section 66 (1) of the Act. The assessee thereupon filed O. P. No. 2300 of 1968 under section 66 (2) of the Act. In compliance with the directions contained in the judgment of this court in that original petition the Tribunal was referred the following question :
'Whether, on the facts and circumstances of the case, the Appellate Tribunal was correct in holding that the provisions of section 28 (1) (c) of the Indian Income-tax Act, 1922, applied to the applicant?'
The assessment for the assessment year 1959-60 was completed by the Income-tax Officer as per his order dated August 15, 1960. The total income brought to tax in respect of that year was Rs. 60,537. The break-up of this amount was : Rs. 125 under 'property' Rs. 29,912 under 'business' and Rs. 30,500 under 'other sources'. The amount covered by the last head represented unexplained credits in a suspense account maintained by the assessee. In appeal against the assessment order, the Appellate Assistant Commissioner sustained the addition under 'other sources' to the extent of Rs. 22,500. This was confirmed by the Tribunal also in further appeal by the assessee against the assessment order.
During the assessment proceedings, the Income-tax Officer issued notice under section 28 (3) of the Act on August 15, 1960. The assessee by annexure 'A' reply, dated September 15, 1960, repudiated the charge that he has concealed the particulars of his income or deliberately furnished inaccurate particulars of his income. He therein reiterated that the amounts brought to tax under the head 'other sources' are amounts borrowed. He also stated that the Income-tax Officer made the addition in respect of these amounts only on the ground that his creditors who lent the amounts gave different versions before the Income-tax Officer. He pointed out that the creditors themselves had admitted before the Income-tax Officer that they have advanced the amounts, and that, though they gave different versions, 'they at no time denied their having made the advances'. He contended :
'The mere fact that you suspect that the borrowings were my concealed profit without adducing definite proof therefor does not make the borrowings my concealed income and the non-inclusion of the borrowing in my total income does not make me liable for the penal provisions of the Act.'
Annexure 'B' is the order of the Income-tax Officer whereby he imposed a penalty under section 28 (1) (c) of the Act. He therein referred to the appeal against the assessment order and said :
'The elaborate enquiries held at the assessment stage and the appeal stages proved beyond doubt that the assessee had deliberately furnished inaccurate particulars of his income and had concealed large portions of his income which appeared in the form of these credits in the names of the several persons in his books of accounts. Even at the time of final hearing of the penalty notice no further contentions regarding the genuineness of the impugned credits were advanced by the assessee. In the circumstances I have no hesitation to hold that the credits represent concealed profits of the assessee which he choose to plough back into the business in the guise of loans from the several persons. A penalty for concealment is richly deserving in this case. With the prior approval of the Inspecting Assistant Commissioner, Ernakulam, I impose a penalty of Rs. 10,000 under section 28 (1) (c) of the Indian Income-tax Act, 1922.'
No doubt, the Appellate Assistant Commissioner considered the credits in seriatum. But he also, relying on the order of the Appellate Tribunal in the appeal against the assessment order, dismissed the statements given by the creditors as unworthy of credence. The Tribunal on further appeal in the penalty proceedings rested their decision solely on the findings that were entered in the earlier appeal against the assessment order. This is what the Tribunal says in annexure 'D' to the order :
'We have carefully gone through the order of the Appellate Assistant Commissioner regarding the cash credits and we have also heard the assessees representative on these points. It is clear that most of the persons from whom the amounts were alleged to have been borrowed were close relations or employees of the assessee. There are clear circumstances in each of these cases to indicate that the assessees version regarding the cash credit was palpably untrue. It does not appear to us necessary to discuss each of these cash credits in detail in view of the fact that they have been considered once by the Tribunal in appeal in I.T.A. No. 3662 of 1961-62. The Tribunal has considered these items in great detail and we find no reason to differ from the view expressed therein. The facts of this case clearly indicate that the provisions of section 28 (1) (c) would apply. It follows that the department was fully justified in imposing a penalty in respect of these cash credits.'
Annexure 'G' order is the final order in the appeal against the assessment. Therein the Tribunal sustained the addition except to a small extent on the ground that the statements given by the person stated to have made the advances are inconsistent and contradictory, and that, therefore, they could not be believed.
It appears to us that the revenue as well as the Tribunal proceeded in this case as if the burden is upon the assessee to establish that the unexplained credits found in the suspense accounts of the assessee are not his income but his borrowings. The department has imposed the penalty, and the Tribunal has sustained the imposition solely on the ground that the assessee failed to establish that these amounts were borrowed amounts. The failure of the assessee to prove that the amounts were borrowings may be sufficient to sustain the additions made in the assessment proceedings. But such failure is not sufficient to sustain an imposition of penalty under section 28 (1) (c).
Naturally, the first decision that was referred to us is the one in Anwar Alis case. The Supreme Court, in that case, laid down three principles that govern penalty proceedings. Firstly, the court said :
'The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against public interest.'
Secondly, the court was of the view that the burden of establishing that the assessee is liable to pay penalty is upon the department. Regarding the nature of the burden, this is what the Supreme Court said :
'.... the gist of the offence under section 28 (1) (c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and, therefore, the department must establish that the receipt of the amounts in dispute constitutes 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.'
The third point settled by that decision, as stated by Grover J., who delivered the judgment of the court, is as follows :
'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.'
In Anwar Alis case, there was no other material, apart from the falsity of the explanation given by the assessee, to come to the conclusion that the receipts were of a revenue nature and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. Therefore, the appeal by the revenue was dismissed.
The next decision to which Mr. Paripoornan, the learned counsel for the assessee, invited our attention is Commissioner of Income-tax v. Khoday Eswarsa and Sons. In that case, as in the case in hand, neither the Income-tax Officer nor the Appellate Assistant Commissioner had made any 'independent discussion' regarding the question whether the assessee (a firm) had concealed the particulars of its income or whether it has deliberately furnished inaccurate particulars of such income. As in the case before us, the Income-tax Officer had, in that case also, relied solely on the findings in the assessment proceedings. The Appellate Assistant Commissioner also acted likewise. This, the Supreme Court said, is not the proper approach to be made in penalty proceedings. Vaidialingam J., who spoke for the court, referred to Anwar Alis case and said :
'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 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.'
Anwar Alis case and Khoday Eswarsa and Sons case were distinguished in a later case, D. M. Manasvi v. Commissioner of Income-tax, by the Supreme Court. In that case, it was observed by Khanna J. that the inference that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars was based 'not merely upon the falsity of the explanation given by the assessee.' It was pointed out that it was a case wherein there were definite findings that a device had been deliberately created by the assessee for the purpose of concealing his income. In that case the Income-tax Officer, after the completion of the assessment for the years 1959-60 and 1960-61 but before completion of the assessment for the next two years, 1961-62 and 1962-63, got information that a firm, Kohinoor Mills, was not a genuine partnership but was the sole proprietary concern of the assessee, and that the whole of the income from that concern belonged to him. The Income-tax Officer also found that the assessee had not included any income from that concern in the return filed for the first year, and that for the next three years the assessee disclosed only 20% as his share of the profits from it. In the penalty proceedings the Tribunal referred to its earlier findings in the appeal relating to the refusal of the income-tax authorities to register Kohinoor Mills as a firm. In that appeal the Tribunal had found that there was not only no such firm in existence but that the Kohinoor Mills belonged to the assessee. The Tribunal had also noticed that of the four partners, three were minor grandchildren of the assessee, and that the final disposition of the accumulated profits was made only after the assessee became the sole proprietor of the business. It was also held by the Tribunal in the appeal relating to registration that the whole scheme was to disguise the profits of the assessee as those of the firm. It is in these circumstances that the court held that it cannot be said that 'there was no relevant material or evidence before the Tribunal to hold that the assessee had deliberately concealed the particulars of his income or had deliberately furnished inaccurate particulars of such income.' This decision is not, in our view, of any assistance to the revenue.
The learned counsel for the revenue strenuously contended before us that the finding entered by the Tribunal is a finding on a question of fact and that any adjudication thereon by us will be in excess of our jurisdiction. In support of this the learned counsel relied on the decision of the Supreme Court in M. A. Jabbar v. Commissioner of Income-tax. He particularly drew our attention to the passages occurring at page 497 of the reports, viz. :
'In examining this question of fact, it is clear that the High Court exceeded its jurisdiction. The finding of fact recorded by the Appellate Assistant Commissioner had been affirmed by the Tribunal and no question was referred to the High Court that it was a finding which was based on no evidence. Whether the evidence on which the finding was accepted by the Tribunal was good or bad did not fall for consideration by the High Court. The finding being binding on the High Court, that court should have proceeded on the basis that these facts did exist and should have examined the legal position on the premise.'
The law on this point has been correctly summarised in the book, Income-tax by Kanga and Palkhivala, sixth edition, volume I, page 1006, with reference to the decision of the Supreme Court in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax and other cases as follows :
'(a) Where an ultimate finding on an issue is an inference to be drawn from the facts found, on the application of any principle of law, there is a mixed question of law and fact, and the inference from the facts found is, in such a case, a question of law and is open to review by the court. For instance, valuation of goodwill involves a question of law.
(b) Where the final determination of the issue does not involve the application of any principle of law, an inference from the facts is a pure inference of fact although it is drawn from other basic facts.
(c) The proposition that an inference from proved facts is one of law is therefore correct in its application to mixed questions of law and fact, but not to pure questions of fact.'
In the case of pure questions of fact, the inference from proved facts being itself a question of fact can be attacked as being erroneous in law only if there is no evidence to support it or if it is perverse.'
In our view, this is a case of 'no evidence' at all to support the conclusion that the assessee is guilty of concealment of particulars of his income or deliberately furnishing inaccurate particulars of such income. The Tribunal has only found that the explanation of the assessee is not acceptable. But this alone will not afford evidence on which the Tribunal could properly arrival the conclusion about the guilt of the assessee. For this the revenue will have to establish on cogent material that the amounts in dispute are revenue receipts of the assessee or, in other words, taxable income of the assessee. The question we are considering is whether there was any material before the Tribunal to arrive at the conclusion it had made about the guilt of the assessee. In our view, there is no material at all for concluding that receipts in question are taxable income of the assessee. In fact, there is no finding by the Tribunal to that effect. Therefore, the conclusion of the Tribunal that the assessee is guilty of an offence under section 28 (1) (c) of the Act is based on no relevant material. This view is supported by the principles laid down by the Supreme Court in Anwar Alis and Khoday Eswarsa and Sons cases. Therefore, the argument advanced by the learned counsel relying on the decision of Jabbars case is only to be repelled.
Our answer to the question referred is in the negative, that is, in favour of the assessee and against the revenue. The department will pay costs of this reference, including advocates fee of Rs. 350, to the assessee.
A copy of this judgment shall be sent under the seal of this court and the signature of the Registrar to the Income-tax Appellate Tribunal, Cochin Bench.
Question answered in the negative.