A.P. Sen, Actg. C.J.
1. By these applications under Section 256(2) of the I.T. Act, 1961, the Commissioner of Income-tax, Rajasthan II, requires the Tribunal, Ahmedabad Bench ' A ', to refer a certain question of law said to arise out of its consolidated order in Income-tax Appeals Nos. 321 to 323/JP of 1971-72, dated November 24, 1973, pertaining to the assessment years 1957-58, 1961-62 and 1963-64, and out of its consolidated order in Income-tax Appeals Nos. 323 and 324/JP of 1973-74, dated February 6, 1975, pertaining to the assessment years 1959-60 and 1960-61, to the High Court for its opinion, namely :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalty levied by the Income-tax Appellate Commissioner under Section 271(1)(c) of the Income-tax Act, 1961, read with the Explanation thereunder '
2. The facts giving rise to these reference applications, in brief, are as follows:
The assessee is the wife of Goswami Shri Brij Bhushan Lalji Maharaj of Kankrauli, the religious head of Pushti Marg Sampraday of Vaishnavites. The famous temple at Kankrauli belongs to this particular sect. The devotees and followers are mainly from the western region and particularly from Gujarat and Bombay. The books of account maintained in respect of the temple at Kankrauli are known as 'Shri Krishan Bhandar'. The assessee maintained no accounts for a number of years, but has started maintaining some accounts after Samwat 2020 relevant to the assessment year 1965-66. She is a pardanashin lady and is supposed to preach to the religious women followers of this particular sect. The devotees or the followers of this particular sect offer bhent which may be described as gifts or offerings to the lady on occasions like birth, marriage and similar other occasions. The birth of a male child in the family of religious head, it is said, is considered by the devotees as ' Krishna Janam '.
3. The assessee has been investing in lands, shares, properties, etc., and has also bank accounts. She has borrowed money on mortgage and shehas also lent money to the temple ' Shri Krishna Bhagwan '. There was a heavy deficit and it was found very difficult to maintain and perform the necessary daily pooja and religious rites in honour of the Lord Dwarkanathji, the presiding deity. On October 26, 1966, in response to a notice under Section 148 of the I. T. Act, 1961, the assessee filed returns for the assessment years 1957-58, 1959-60, 1960-61, 1961-62 and 1963-64. For the assessment year 1957-58, she showed an income of Rs. 4,582, for the year 1959-60, Rs. 4,582, for the year 1960-61, Rs. 6,764, for the year 1961-62, Rs. 6,764 and for the year 1963-64, Rs. 6,764. On March 24, 1970, she filed revised returns for the assessment years 1957-58, 1959-60 and 1960-61. For the assessment year 1957-58, she revised the return to Rs. 4,845, for the year 1959-60 to Rs. 8,997 and for the year 1960-61 to Rs. 22,212. On September 2, 1969, she filed revised returns for the assessment years 1961-62 and 1963-64. For the assessment year 1961-62, she revised the return to Rs. 7,394 and for the year 1963-64 to Rs. 8,406.
4. The ITO determined the income of the assessee for the year 1957-58 at Rs. 6,439, which was upheld by the AAC, who imposed a penalty of Rs. 6,439 under Section 271(1)(c) of the Act. For the assessment year 1959-60, the ITO determined the income at Rs. 9,382 but on appeal it was reduced by the AAC to Rs. 4,382, who imposed a penalty of Rs. 4,440. For the assessment year 1960-61, the ITO determined her income at Rs. 11,650 which, on appeal, was upheld by the AAC, who imposed a penalty of Rs. 11,650. For the assessment year 1961-62, the ITO determined the income at Rs. 8,039, but it was reduced to Rs. 6,039 on appeal by the AAC, who imposed a penalty of Rs. 6,039. Lastly, for the assessment year 1963-64, the ITO determined the income of the assessee to be Rs. 45,996 which, on appeal, was upheld by the AAC who imposed on her a penalty of Rs. 50,000. The Tribunal by its various orders in question, while substantially upholding the additions made to the income of the assessee, set aside the penalty imposed on her by the department under Section 271(1)(c) of the Act.
5. In deleting the penalty, the Tribunal observed :
' However, there is nothing to come to a firm conclusion that the amounts added definitely represented the income of the assessee and that too income of the respective years. Unless this is established, in our view, imposition of penalty is not justified. We delete the penalties imposed Under Section 271(1)(c).'
6. In support of these reference applications, Shri S.K. Mal Lodha, learned counsel for the revenue, strenuously contends that a question of law undoubtedly arises from the order of the Tribunal inasmuch as there was an error in not applying the Explanation to Section 271(1)(c), which reads as follows :
'271. (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 this 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 to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this subsection.'
7. The learned counsel contends that there is a finding of concealment of income in the relevant years by the Tribunal in the quantum appeals. He relied upon the decision of their Lordships of the Supreme Court in CIT v. Anwar Alt : 76ITR696(SC) . He says that it was incumbent upon the Tribunal to have noticed the Explanation as the revised returns were all filed after April 1, 1968, i.e. after the Explanation to Section 271(1)(c) of the Act was added by the Finance Act, 1964, w.e.f. April 1, 1966. In support of his contention, Shri Lodha formulated five propositions, viz., (1) the Explanation to Section 271(1)(c) of the Act was attracted in the cases as the returns were filed after April 1, 1968 : CIT v. Data Ram Satpal : 99ITR507(All) CIT v. K.C. Behera, : 103ITR479(Orissa) and CIT v. K.C. Behera : 105ITR193(Orissa) (2) after the insertion of the Explanation to Section 271(1)(c), in view of the presumption therein, the burden was on the assessee to show that the disparity between the returned and the assessed income was not due to fraud or gross or wilful neglect on her part: CIT v. Kedar Nath Ram Nath : 106ITR172(All) (3) if any finding is arrived at by the Tribunal by the placing of wrong burden, i.e., there is an erroneous approach, a question of law arises: Parimisetti Seetharamamma v. CIT : 57ITR532(SC) and CIT v. Bharat Tubewell Stores (4) the question as formulated is a question of law : CIT v. Bharat Tubewell Stores and Addl. CIT v. Chandra Vilas Hotel (Special Appeals Nos. 1649 and 1650 (T) of 1973) decided on August 1, 1977 (since reported in : 115ITR118(SC) ); (5) the decision in CIT v. Anwar Ali : 76ITR696(SC) on which the Tribunal relied, has no application.
8. It is pointed out that the assessee's explanation regarding the source of her concealed income in the relevant years was neither accepted nor rejected and, therefore, the finding of the Tribunal in paras. 28 and 29 of the order is vitiated. In support of the contention, reliance is placed on Dhirajlal Girdharilal v. CIT : 26ITR736(SC) Omar Salay Mohamed Sait v. CIT : 37ITR151(SC) Lalchand Bhagat Ambica Ram v. CIT : 37ITR288(SC) and CIT v. Anwar Ali : 76ITR696(SC) . It is further pointed out that their Lordships in Addl. CIT v. Chandra Vilas Hotel : 115ITR118(SC) had called upon the High Court to refer an identical question under Section 256(2)as being a question of law. We are afraid, none of these contentions can be accepted. There is no need for us to deal with the decisions relied upon as the principles are well settled.
9. In reply, Shri Kaji, learned counsel for the assessee, rightly contends that it is not a question of the Explanation to Section 271(1)(c) of the Act not being looked at or not being applied. According to him, the question as framed does not arise from the order of the Tribunal at all. It is pointed out that nobody invoked the Explanation. He fairly concedes that the findings in the quantum appeals are not conclusive but they are good evidence as held by their Lordships in CIT v. Anwar Ali : 76ITR696(SC) . Further, he contends that the Tribunal's findings are based on the totality of evidence. According to him, the assessee had three sources of income, viz., (1) agricultural income, (2) bhents, i.e., offerings made by the female followers of Pushti Marg Sampraday of Vaishnavities, and (3) home chest, i.e., the accumulated cash lying in the chest. In view of this, he contends that the Tribunal was not certain in finding that the additions made in the relevant years represented the assessee's income and that they pertained to the years in question. He, therefore, contends that the Tribunal was justified in deleting the penalties imposed under Section 271(1)(c) of the Act. There is, in our opinion, great force in the contention.
10. The principles which emerge from the decided cases are well settled. The levy of a penalty is not a matter of course. Though the findings given in assessment proceedings would be relevant and admissible materials in penalty proceedings, those findings cannot operate as res judicata because the considerations that arise in penalty proceedings are different from those in assessment proceedings. The fact that the assessee's explanation regarding cash credit or other receipt is disbelieved, or the amount is assessed in his hands, does not by itself justify the department in imposing the penalty. The circumstances of the case must be such as to lead to the reasonable and positive conclusion that the amount represents the assessee's income. These principles were reaffirmed by their Lordships of the Supreme Court in CIT v. Anwar Ali : 76ITR696(SC) . In CIT v. Khoday Eswarsa and Sons : 83ITR369(SC) their Lordships further ruled that a penalty cannot be levied solely on the basis of the reasons given in the order of assessment. In Kanga and Palkhivala's, The Law and Practice of Income Tax, 7th Edn., Vol. 1, p. 1212, the learned authors, observe:
'There are two ways of approaching this question, both of which converge on the same conclusion :
(a) As is established by the cases cited above, in order to jusiify the levy of a penalty two factors must co-exist; (i) there must be some materials 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 the amount does not represent concealed income as with the hypothesis that it does.......
(b) Alternatively, even treating the Explanation as dealing with both the ingredients (i) and (ii) set out above, where the circumstances do not lead to the reasonable and positive inference that the assessee's explanation is false, the assessee must be held to have proved that there was no fraud or gross or wilful neglect on his part. Even in this view of the matter the Explanation cannot justify the levy of a penalty.'
11. That, in our view, is the true legal position. The above interpretation of the Explanation was accepted in Addl. CIT v. Karnail Singh which held that the Explanation does not entirely supersede the ratio of CIT v. Anwar Ali : 76ITR696(SC) .
12. As Palkhivala rightly points out, in order to justify a levy of penalty, there must be some materials or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income. Here, the Tribunal, on the facts and circumstances of the case, held, (1) that there is nothing to come to a firm conclusion that the amounts added bona fide represent the income of the assessee, and (2) that too income of the respective years. In our opinion, these are the findings of fact reached by the Tribunal on the totality of the evidence. There is no talk of any burden of proof. The question of applying the Explanation to Section 271(1)(c) of the Act never arose. On the totality of the evidence, the Tribunal was unable to come to a firm conclusion that the amounts added were, in fact, the income of the assessee and that they were income of the relevant years.
13. The question whether there is or is not a concealment of income for purposes of levy of a penalty under Section 271(1)(c) is essentially a question of fact: Addl. CIT v. Gem Palace CIT v. Devendra Singh : 108ITR314(All) CIT v. Faizuddin : 108ITR395(All) and CIT v. G. L. Textiles : 109ITR37(All) . Looking to the source of funds in the hands of the assessee, we cannot see that the findings of the Tribunal are either perverse or based on mere surmises and conjectures. In para. 28, the Tribunal explains why the additions were made. In para. 29, the Tribunal comes to the categoric conclusion that it was unable to come to a firm conclusion that the additions truly represented the income of the assessee. The provisions contained in Section 271(1)(c) of the Act for the levy of a penalty, therefore, did not apply.
14. We are conscious that their Lordship s of the Supreme Court in Addl. CIT v. Chandra Vilas Hotel : 115ITR118(SC) directed the Gujarat High Court to call for a reference of an identical question, stating that it was a question of law. But on a closer examination it would appear that the case is distinguishable on facts. There, the Tribunal on the facts and in the circumstances of that case, held that the assessee was not guilty of any fraud or gross or wilful neglect in returning the income, which resulted in the income being returned at a figure lower than 80% of the income assessed. That was, therefore, a case directly covered by the Explanation to Section 271(1)(c). The question before their Lordships was whether the Tribunal was justified in arriving at that finding, contrary to the material on record. Their Lordships, therefore, framed question No, 1 as to whether the assessee had discharged the burden placed upon him under the Explanation. Then comes question No. 2, which is identical as in the present set of cases. In those circumstances, question No. 2, was, in our view, interdependent on question No. 1. It cannot, therefore, be said on the authority of their Lordships' decision in Addl. CIT v. Chandra Vilas Hotel : 115ITR118(SC) that the question as framed by itself amounted to a question of law. The question whether the Explanation applies or not depends on the facts and circumstances of each particular case. For similar reasons, our decision in CIT v. Satnam Malik (since reported in ), relied upon by Shri Lodha, learned counsel for the revenue, is clearly distinguishable on facts.
15. For all these reasons, these applications under Section 256(2) of the I.T. Act, 1961, must fail and are accordingly dismissed. There shall, however, be no order as to costs.