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Tiwari Kanhaiya Lal Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B.I.T.R. Nos. 29, 29A, 29B and 29C of 1972
Judge
Reported in[1985]154ITR109(Raj)
ActsIncome Tax Act, 1961 - Sections 148 and 271(1)
AppellantTiwari Kanhaiya Lal
RespondentCommissioner of Income-tax
Appellant Advocate S.K. Keshote, Adv.
Respondent Advocate R.N. Surolia, Adv.
Cases ReferredHindustan Steel Ltd. v. State of Orissa
Excerpt:
.....to file when no notice is issued may also be distinguished from failure to file after a notice to file return is served upon him. if despite the notice no return is filed, on the department issuing show cause to penalty notice under section 271(1)/274, the burden of proof as a matter of law in the sense of establishing a case will be on the department to prove that the failure or delay in filing the return was without reasonable cause. it may, therefore, be said that in a penalty proceeding, the department having shown that for failure to file return at all or for delay in filing return without reasonable cause, the assessee has rendered himself liable to penalty, subject to the rule that when it is within the special knowledge of the assessee, the burden of proof will be on him, the..........to file when no notice is issued may also be distinguished from failure to file after a notice to file return is served upon him. if despite the notice no return is filed, on the department issuing show cause to penalty notice under section 271(1)/274, the burden of proof as a matter of law in the sense of establishing a case will be on the department to prove that the failure or delay in filing the return was without reasonable cause. once this is done, the onus probandi will be on the assessee to prove the reasonableness orotherwise of his decision, by introducing evidence. it may, therefore, be said that in a penalty proceeding, the department having shown that for failure to file return at all or for delay in filing return without reasonable cause, the assessee has rendered himself.....
Judgment:

Agrawal, J.

1. In these references, the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal'), has referred the following questions under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as 'the Act').

'1. Whether, in the particular circumstances of the case, the assessee was liable to submit a fresh return of income in compliance with notice under Section 148 of the Income-tax Act, 1961 ?

2. Whether the penalty provisions under section 271(1)(a) were attracted on the failure of the assessee to file a fresh return in compliance with notice under Section 147(1)/148 of the Income-tax Act, 1961 ?'

2. These references relate to the assessment years 1955-56, 1956-57, 1957-58 and 1958-59.

3. The facts, briefly stated, are that M/s. Tiwari Swaroop Lal Kanhaiya Lal (hereinafter referred to as 'the assessee') was an HUF and was a partner in the firm, M/s. Tiwari Jhumarlal Swaroop Lal, through its karta, Shri Kanhaiya Lal Tiwari. M/s. Tiwari Jhumarlal Swaroop Lal had business at Jaipur, Bharatpur and Karauli. The assessee filed returns for the assessment years referred to above and on the basis of the said returns, assessments were completed. Subsequently, the Income-tax Department received information about concealment, of income by M/s. Tiwari Jhumarlal Swaroop Lal and raids were organised on the premises of the said firm and its partners. The aforesaid raids resulted in discovery of concealment of income to the tune of Rs. 41 lakhs by M/s. Tiwari Jhumarlal Swaroop Lal. Thereupon, proceedings under Sections 147 and 148 of the Act were commenced against the assessee and notices under Sections 147/148 were issued by the ITO on March 4, 1964, requiring the assessee to file revised returns of its income. The assessee did not file the revised returns but appeared before the ITO through its karta, Shri Kanhaiyalal Tiwari, and one Gulab Chand, The ITO reassessed the income of the assessee and also imposed penalty on the assessee under Section 271(1)(a) of the Act for failure on its part to file the returns. The appeals filed by the assessee against the orders of assessment as well as orders of penalty imposed under Section 271(1)(a) were dismissed by the AAC as well as the Tribunal. Thereupon, the assessee moved an application before the Tribunal for referring eight questions for the opinion of this court under Section 256(1) of the Act. The Tribunal, after considering the said questions, felt that questions Nos. 1, 2, 4, 6 and 8 could not be referred as they did not raise any question of law but after considering questions Nos. 3, 5 and 7 raised by the assessee in the said application, the Tribunal referred the questions above referred for the opinion of this court.

4. We have heard Shri S. K. Keshote, the learned counsel for the assessee, and Shri R. N. Surolia, for the Revenue.

5. Shri Keshote has submitted that in the particular circumstances of the case, the assessee was not liable to submit a fresh return of income in compliance with the notice issued under Section 148 of the Act inasmuch as the assessee had already filed its returns at the original assessment stage and the assessee had not accepted the Department's contention that there was concealment of income by it, the assessee was not required to submit a fresh return and that any such return, if filed, would only have been a repetition of the earlier return. Shri Keshote has also submitted that in order that the provisions of penalty under Section 271(1)(a) of the Act areattracted, it is necessary for the Department to establish that the assesses had failed to furnish the returns without reasonable cause and since it was not necessary for the assessee to file a fresh return in response to the notice issued under Section 148 of the Act, no penalty could be imposed on the assessee under Section 271(1)(a) of the Act. Shri Keshote has also submitted that the burden to establish that the assessee was liable to penalty under Section 271(1)(a) of the Act lay on the Department and that, on the facts and circumstances of the present case, it could not be said that the Department has been successful in establishing that the assessee had failed to furnish the return in response to the notice under Section 148 without reasonable cause. In support of his aforesaid submission, Shri Keshote has placed reliance on the decision of a Division Bench of the Gauhati High Court in Sewbalakram & Co. v. CIT .

6. Shri R. N. Surolia, the learned counsel for the Revenue, has on the other hand submitted that in view of the notice issued under Section 148 of the Act requiring the assessee to furnish a revised return, the assessee was liable to submit a fresh return of income. Shri R. N. Surolia has also submitted that the failure on the part of the assessee to submit the revised return in response to the notice issued under Section 148 of the Act rendered him liable to penalty under Section 271(1)(a) of the Act and that it was for the assessee to show that he had a reasonable cause for not filing the return. Shri Surolia also submitted that in the present case, the assessee had assigned two reasons for not filing the returns, viz., that the service of the notice on Gulab Chand was not a proper service on the assessee and that in view of the fact that the records and books of account of the assessee had been seized by the Department in May, 1963, it was not possible for the assessee to file a return. Shri Surolia has submitted that both the reasons given by the assessee for not filing the return have been rejected by the Tribunal and that, in the circumstances, it must be held that the assessee has failed to show that there was reasonable cause for its not filing the returns.

7. In order to answer the first question, it will be necessary to take note of the provisions of Section 148 of the Act which reads as under :

'148. (1) Before making the assessment, reassessment or recomputation under Section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139 ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.

(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.'

8. A perusal of the aforesaid provisions shows that they require the ITO, before making the assessment, reassessment or recomputation under Section 147, to serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139 and the provisions of the Act, so far as may be, would apply to such notice as if the notice were a notice issued under Sub-section (2) of Section 139. Sub-section (2) of Section 139 lays down that in the case of any person who, in the ITO's opinion, is assessable under the Act, whether on his own total income or on the total income of any other person during the previous year, the ITO may, before the end of the relevant assessment year, issue a notice to him and serve the same upon him requiring him to furnish, within thirty days from the date of service of the notice, a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. It would thus be seen that by a notice issued under Sub-section (2) of Section 139, a person may be required to furnish a return of his own income or the income of any other person mentioned in the prescribed form and setting forth such other particulars as may be prescribed. In view of Section 148, the ITO is required to issue a notice which may contain all or any of the requirements which may be included in a notice issued under sub- Section (2) of Section 139. This would mean that by a notice under Section 148, the ITO may require the assessee to furnish a return in respect of the previous year in relation to which he is seeking to make the assessment, reassessment or recomputation under Section 147 of the Act. By a notice under s, 148, the ITO may also ask the assessee to furnish such other particulars as he may desire in the said notice. On the facts of the present case, we are not required to consider as to whether the assessee is liable to furnish a revised return in every case in which a notice has been issued under Section 148 of the Act. From the order of the Tribunal dated August 31, 1971, which has been annexed as annexure to the statement of the case, we find that under the notices that were issued to the assessee under Section 148 of the Act, the assessee was required to file revised returns of its income. We are, therefore, only required to consider as to whether in a case where an assessee has been served with a notice under Section 148 of the Act requiring him to file a revised return of its income, the assessee is liable to submit fresh returns of his income in compliance with the said notice. In our opinion, the notice issued under Section 148 requiring the assessee to file a fresh return carries with it an obligation to file the fresh return in pursuance of the said notice. In case the assessee feels that it is not necessary to file a fresh return and that the earlier return filed by him under Section 139 of theAct should be treated as the return for the purpose of reassessment under Sections 147 and 148 of the Act, he may inform the ITO of his decision to treat his previous return as the return filed in response to the notice under Section 148 of the Act and, in that event, the earlier return will be treated as the fresh return submitted in response to the notice under Section 148 of the Act. It must, therefore, be held that in the particular circumstances of the present case, the assessee was liable to submit fresh returns of income in compliance with the notice under Section 148 of the Act.

9. We may now come to the second question which has been referred by the Tribunal, namely, whether the penalty provisions under Section 271(1)(a) were attracted for the failure of the assessee to file a fresh return in compliance with the notice under Section 147/148 of the Act. Section 271(1)(a) lays down that if the ITO or the AAC, in the course of any proceedings under the Act, is satisfied that any person has without reasonable cause failed to furnish the return of total income which he was required to furnish under Sub-section (1) of Section 139 or by notice given under Sub-section (2) of Section 139 or Section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by Sub-section (1) of Section 139 or by such notice, as the case may be, the ITO or the AAC may direct that such person shall pay by way of penalty the amounts specified in Clause (i) of the said sub-section. It would thus appear that the failure on the part of the assessee without reasonable cause to furnish the return of total income which he was required to furnish by a notice under Section 148 empowers the ITO or the AAC to impose penalty on the assessee. Shri Keshote has submitted that the aforesaid provisions contained in Section 271(1)(a) of the Act with regard to the imposition of penalty are in the nature of penal provisions and that it is necessary for the Department to first prove that the conditions necessary for imposition of penalty have been fulfilled and that the burden of proving the said condition lies on the Department. According to Shri Keshote, mens rea is a necessary element for imposition of penalty under Section 271(1)(a) of the Act and that it is necessary for the Department to first show that the assessee has failed to furnish the return which he was required to furnish without a reasonable cause. In support of this aforesaid submission, Shri Keshote has placed reliance on the decision of the Gauhati High Court in Sewbalakram & Co. v. CIT . In this regard, Shri Keshote has also submitted that, in the facts and circumstances of the present case, it cannot be said that the aforesaid burden had been discharged by the Department inasmuch as the Department did not produce any material to show that the assessee had failed to furnish the return in response to the notice under Section 148 without reasonable cause.

10. It cannot be disputed that proceedings for the imposition of penalty are quasi-criminal in nature. It has been so held by the Supreme Court in CIT v. Anwar AH : [1970]76ITR696(SC) and Ananthram Veerasinghaiah & Co. v. CIT : [1980]123ITR457(SC) . In Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) the Supreme Court, while dealing with the provisions of the Orissa Sales Tax Act, 1947, which provided for imposition of penalty for failure on the part of a 'dealer' to register himself as a dealer under the said Act, held that penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of contumacious conduct or dishonest intention or acted in conscious disregard of its obligation. The aforesaid observations of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) have given rise to divergent interpretation by the various High Courts for the purpose of deciding a question as to whether mens rea is an essential element for imposition of penalty under Section 271(1)(a) of the Act. There are Full Bench decisions of High Courts in CIT v. Gangaram Chapolia : [1976]103ITR613(Orissa) CIT v. Gujarat Travancore Agency : [1976]103ITR149(Ker) Addl. CIT v. Dargapandarinath Tuljayya & Co. : [1977]107ITR850(AP) and CIT v. Patram Das Raja Ram Beri wherein it has been laid down that the mental element or mens rea cannot be imported into the penalty provisions of the Act, On the other hand, there is the decision of the Full Bench of the Gujarat High Court in Addl. CIT v. V.I.M.Patel & Co. : [1977]107ITR214(Guj) as well as the decisions of the Divisions Benches of the Madras High Court in Dutt v. CIT : [1976]103ITR634(Mad) and of the Gauhati High Court in Sewbalakram & Co. wherein it has been held that mens rea or attitude of mind of the assessee is necessary for the imposition of penalty under the provisions of Section 271 of the Act.

11. As regards burden of proof in proceedings for imposition of penalty under Section 271 of the Act, reference may be made to the decision of the Supreme Court in CIT v. Anwar Ali : [1970]76ITR696(SC) wherein the Supreme Court, while dealing with the provisions of Section 28(1)(c) of the Indian I.T. Act, 1922, which provided for imposition of penalty in cases where a person had concealed the particulars of his income and deliberately furnished inaccurate particulars of such income (in pari materia with S. 271(1)(c) of the Act), has laid down that the burden was on the Department to prove that a particular amount was a revenue receipt and that 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. Similarly, in Anantharam Veerasinghaiah & Co. v. CIT : [1980]123ITR457(SC) the Supreme Court, while dealing with the provisions of Section 271(1)(c) of the Act, has held thatthe burden lies on the Revenue to establish that the disputed amount represents income and that the assessee has consciously concealed the particulars of his income or has deliberately furnished inaccurate particulars and that it is for the Revenue to prove those ingredients before a penalty can be imposed. In so far as the imposition of penalty under Section 271(1)(a) is concerned, the Kerala High Court in CIT v. Gujarat Travancore Agency : [1976]103ITR149(Ker) the Orissa High Court in CIT v. Ganga Ram Chapolia : [1976]103ITR613(Orissa) the Gujarat High Court in Addl. CIT v. Patel & Co. : [1977]107ITR214(Guj) the Madras High Court in Dutt v. CIT : [1976]103ITR634(Mad) the Gauhati High Court in Sewbalakram & Co. v. CIT and the Andhra Pradesh High Court in Addl. CIT v. Dargapandarinath Tuljayya & Co. : [1977]107ITR850(AP) have held that the burden is on the Department to establish prima facie that the assessee has, without reasonable cause, failed to furnish the return within the time specified in Section 271(1)(a) read with other relevant sections referred to in that section and once this initial burden has been discharged by the Department, it is for the assessee to show, as in a civil case by balance of probabilities, that he had reasonable cause for failing to file the return within the time specified. In Dutt v. CIT : [1976]103ITR634(Mad) it has been pointed out that the Department can discharge this burden placed upon it by circumstantial evidence and that where a person has no explanation to offer, it may be treated as circumstantial evidence to show that he had acted without reasonable cause and, similarly, in a case where the explanation is prima facie unreasonable, it would be open to the ITO to levy penalty on the ground that the assessee had no reasonable cause for the delay in the submission of the return. The aforesaid view of the Madras High Court in Dutt's case : [1976]103ITR634(Mad) has been followed by the Gauha ti High Court in Sewbalakram & Co. v. CIT wherein it has been held that (p. 162) :

'The case of the assessee who has failed to file a return on the bona fide belief that he is not required to file such a return, may be treated as for a reasonable cause, and it may be distinguished from that of an assessee who earlier filed returns and was certain about his obligation to file his return, but yet has not filed it and unless reasonable cause is shown, it may be treated as being without reasonable cause. Failure to file when no notice is issued may also be distinguished from failure to file after a notice to file return is served upon him. If despite the notice no return is filed, on the Department issuing show cause to penalty notice under Section 271(1)/274, the burden of proof as a matter of law in the sense of establishing a case will be on the Department to prove that the failure or delay in filing the return was without reasonable cause. Once this is done, the onus probandi will be on the assessee to prove the reasonableness orotherwise of his decision, by introducing evidence. It may, therefore, be said that in a penalty proceeding, the Department having shown that for failure to file return at all or for delay in filing return without reasonable cause, the assessee has rendered himself liable to penalty, subject to the rule that when it is within the special knowledge of the assessee, the burden of proof will be on him, the burden to show that there was a reasonable cause for failure to file the return of income, or to file within required time will always lie on the assessee. If this burden is not discharged, the Department shall be justified in holding that the assessee by his failure to file return or to file within time made himself liable to penalty. If a cause is shown, the burden of proving the truth and reasonableness of the cause will always be with the assessee. If he fails to discharge that burden, then the assessee by his failure rendered himself liable to penalty. But when the assessee shows that the cause shown was true and was reasonable, the burden will shift to the Department to prove that either the cause shown was not true or that, even if it was true, it was not a reasonable one so as to justify the assessee's failure to file or delaying filing return.'

12. Similarly, in Hanutram Ramprasad v. CIT another Division Bench of the Gauhati High Court has held that the ground for not filing the return within the time allowed is within the special knowledge of the assessee and the Department cannot know it and that when the ground is not disclosed by the assessee, which ground was within the special knowledge of the assessee, then the ITO can reasonably presume that he had no reasonable ground for his failure to furnish the return within time or that the ground if disclosed would show that it was unreasonable, that that presumption is, of course, a rebuttable presumption and the burden is upon the assessee to rebut the presumption. In other words, according to the said judgment, the initial burden of establishing its case can be discharged by the Department by relying upon the aforesaid presumption that arises against the assessee on account of his not disclosing the ground for failure to file the return which was within his special knowledge or on account of his disclosing a ground which is found to be unreasonable.

13. In so far as this court is concerned, there is the decision in CIT v. Rawat Singh & Sons wherein a Division Bench of this court, while considering the provisions of Section 271(1)(a) of the Act, after noting the decisions of the Supreme Court in CIT v. Anwar Ali : [1970]76ITR696(SC) Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) Khemka and Co. (Agencies) P. Ltd. v. State of Maharashtra : [1975]3SCR753 and the decisions of the Kerala High Court in CIT v. Gujarat Travancore Agency : [1976]103ITR149(Ker) the Orissa High Court in CIT v.Gangaram Chapolia : [1976]103ITR613(Orissa) the Gujarat High Court in Addl. CIT v. Patel & Co. : [1977]107ITR214(Guj) and the Madras High Court in Dutt v. CIT : [1976]103ITR634(Mad) has held that the scope of the observations of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) could not be confined to the sale tax statutes only and that it would also not be proper to hold that the basic nature of the penalty proceedings under one clause of Section 271(1) is different from those under other clauses of the same sub-section. In other words, according to the aforesaid decision of this court, in order that penalty may be imposed under Section 271(1)(a) of the Act, it is necessary that the assessee has either deliberately acted in defiance of law or his conduct was contumacious or dishonest. In the said case, this court has not expressed any opinion on the matter of burden of proof.

14. In view of the aforesaid decisions, it can be said that in order that penalty may be imposed under Section 271(1)(a) of the Act, it is necessary that failure to file the return within the period prescribed for the same was the wilful and deliberate act of the assessee. The failure on the part of the assessee to file the return can be held to be wilful and deliberate if he has failed to file the return without reasonable cause. The burden of showing that this was so lies on the Department and, therefore, it will be for the Department to establish that the assessee has failed to furnish the return which was required to be furnished without a reasonable cause. The Department can discharge the aforesaid burden by circumstantial evidence. Since the reason for the failure to file the return is a matter within the special knowledge of the assessee, in cases where the assessee fails to file the return in spite of service of notice and fails to offer any explanation for his failure to file the return, a presumption may arise that the assessee had no reasonable cause for his failure to furnish the return within time and the onus placed on the Department would stand discharged. Similarly in a case where the assessee offers an explanation for his failure to file the return and that explanation is found to be false or unreasonable, the onus which rests on the Department would stand discharged and it can be presumed that the assessee had failed to file the return without reasonable cause.

15. If the facts of the present case are examined in the light of the aforesaid principles, we find that here the assessee had given two reasons for his failure to file fresh returns in response to the notice issued under Section 148 of the Act. One reason was that the notices were served on Gulab Chand who was not empowered to receive the said notice. The Tribunal has found that Gulab Chand was an employee of Tiwari Jhumar Lal Swaroop Lal and he had not only been accepting the service on behalf of the assesseebefore the acceptance of these notices but even thereafter and that he had, in fact, been making appearances before the ITO at several hearings and filing reply on his behalf. The Tribunal, therefore, held that the entire course of events shows that Gulab Chand has been acting on behalf of the assessee as his agent and further that the assessee had also started making appearances in these reassessment proceedings before the ITO and during those proceedings, the assessee never challenged that the service of notice had not been effected on him. The Tribunal further found that in the notices which were reissued to the assessee under Section 142(1) in compliance of which those appearances were made by the assessee, the ITO had specifically mentioned that the earlier notices under Section 147/148 had been served upon the assessee and in those notices it was also apprised to the assessee that he had failed to file the revised returns and that in spite of that no attempt was made by the assessee to file the returns and that this was being purposely done by the assessee in order to exploit later the circumstance that the original notices under Section 148 had not been served personally on the karta and was in fact served on Gulab Chand.

16. The second reason given by the assessee for not filing the returns was that the records and books of account had been seized by the Income-tax Department in May, 1963, and in the absence of the said records, the assessee was precluded from filing the returns. The Tribunal has, however, found that the assessee and its members were constantly inspecting the books after the seizure and were associated with the day to day investigation of entries in them and that it could not be said that the assessee had no access to them and that lack of access to the seized records prevented it from filing the return. The Tribunal further observed that no application was moved by the assessee for return of books and moreover the firm, M/s. Tiwari Jhumar Lal Swaroop Lal, had already filed the returns in pursuance of the notice under Section 148 on March 7, 1964, which shows that the assessee was aware of the state of its income and should not have defaulted in filing the return.

17. The aforesaid findings recorded by the Tribunal thus show that both the reasons given by the assessee for its failure to file the returns in response to the notices issued under Section 148 were unsustainable and that it was a deliberate decision, i.e., a wilful act on the part of the assessee not to file the returns in response to the notices issued under Section 148 of the Act. In view of the aforesaid findings recorded by the Tribunal, it cannot be said that penalty could not be imposed on the assessee under Section 271(1)(a) of the Act. We are, therefore, of the opinion that, in the facts and circumstances of the present case, the penalty provisions under Section 271(1)(a) were attracted on the failure of the assessee to file its returns in compliance with the notices under Section 147/148 of the Act.

18. In the result, questions Nos. 1 and 2 are/both answered in the affirmative i.e., against the assessee and in favour of the Revenue. In the facts and circumstances of the case, there will be no order as to costs.


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