The judgment of the court was delivered by
VEERASWAMI J. - For the assessment year 1949-50, a penalty of Rs. 32,000, as reduced by the Appellate Assistant Commissioner, with whom the Tribunal agreed, was levied on the assessee. The question directed to be referred to us under section 66(2) of the Income-tax Act, 1922, is whether, on the facts and in the circumstances of the case, the levy of penalty of Rs. 32,000 on the assessee-company was lawful. In the assessment of the total profits of the assessee for that year, certain additions had been made referable to understatement of sales of yarn and waste which, as eventually found on appeals, amounted in the aggregate to Rs. 77,641. In the penalty proceedings, it has been found by all the authorities including the Tribunal that the assessee had concealed or kept back the profits to that extent, but as regards the quantum of tax sought to be affected, the Appellate Assistant Commissioner, as reduced by him, found it to be Rs. 32,098. Though one and a half times of that amount might be levied as penalty, he actually limited it to the sum we mentioned.
The facts and circumstances relating to the addition of profits aforesaid to the total profits chargeable to tax for the year have been set out by us in Tax Case No. 5 of 1964, which we heard along with this case and do not require an elaborate reiteration. The assessee during the relevant year was a company engaged in the manufacture and sale of yarn at Vallakkinar near Coimbatore and during the course of business had to buy cotton, spin it into yarn and sell the same in the open market. The price of yarn was under control, but there was decontrol between April 24 and July 31, 1948. The South Indian Mill Owners Association, of which the assessee was a member, fixed however the prices of yarn of different counts by a circular dated April 22, 1948. Though this circular was expected to be followed by the assessee was as a member of the association, it did not adhere to it. The assessee was said to have sold during this period about 468 bales of yarn worth Rs. 3,53,205 to its employees and certain villagers, about 57 in number, at the association rates. The assessee had stated that it made this gesture as its employees and villagers were helpful to the management during the strike period a few months earlier. In the assessment proceedings this explanation was not accepted and, on the materials available, a finding was reached that the alleged sales to employees and villagers were not proved but the sales were directly made to certain dealers at the market rate, which was higher, and not the circular rate and delivery of the bales of yarn was made by the mill to the dealers directly at the premises of the mill. Such evidences the assessee produced in support of its explanation was disbelieved. It was accordingly held that the profits referable to the sales were not brought into the books of the assessee. It was in consequence of this finding that the additions were made to the assessees chargeable profits for the year. In the penalty proceedings, both the Income-tax Officer as well as the Appellate Assistant Commissioner were of the view that the profits out of the sales were really made by the assessee, that no portion of the profits endured to the benefit of the mill labourers as claimed by the assessee, that the alleged sales to labourers were spurious transactions and that the profits referable to these transactions were suppressed from its books. The Tribunal was satisfied that the profits made on the transactions had been kept back from the books and considered that the assessee would, therefore, be liable to penalty under section 28(1)(c) of the Income-tax Act.
Before us, the contention for the assessee is that section 28 being a penal provision, the burden entirely lay on the department to show that the assessee had concealed the particulars of its income or deliberately furnished inaccurate particulars of such income and that this burden has not been discharged. Learned counsel for the assessee adds that the conclusion in the assessment proceedings to make an addition to the profits was arrived at on balancing of the value of evidence and of the probability and that this will not suffice but a higher degree of proof is required in finding concealment. He says that concealment of particulars of income should be proved beyond doubt by the department which, according to him, it has failed to do here. We are not satisfied that, in the circumstances of this case, we can accept this argument.
That section 28 of the Income-tax Act is penal in character can admit of no doubt. Penalty is additional levy made to penalise concealment of particulars of income or deliberate furnishing of inaccurate particulars of such income. It is in addition to the taxes charged on the total income and is a multiple of the tax sought to be avoided by concealment or giving deliberately inaccurate particulars of such income. The object of this levy is not only to punish but also to discourage the particular vice which constitutes the means rea. The section itself will be attracted only where the specified officer or Tribunal is satisfied that there is concealment or deliberate furnishing of inaccurate particulars of the income. The section also provides that no order thereunder shall be made unless the assessee has been heard or given a reasonable opportunity of being heard. A further provision it has made is that no prosecution for an offence against the Act can be instituted in respect of the same facts on which a penalty has been with the previous approval of the Inspecting Assistant Commissioner. The quantum of penalty itself may extend to one and a half times the taxes sought to be avoided by concealment or deliberately giving inaccurate particulars of the income. These provisions in section 28 as well as the nature of the penalty clearly point to the proceedings thereunder being highly penal in character. There are numerous authorities in support of this view and it will suffice to refer to a recent judgment of this court in M. Hussain Ali and Sons v. Commissioners of Income-tax to which one of us was a party.
The penal character of the proceedings in section 28 necessarily implies a strict construction and unless the requisites of the levy are clearly established, there could obviously be no levy. The burden of proof is, therefore, naturally on the department to prove beyond doubt that there has been a concealment or deliberate furnishing of inaccurate particulars of the income. As pointed out by Lord Denning in Miller v. Minister of Pensions, proof beyond reasonable doubt does not earn proof beyond the shadow of a doubt. The Noble Lord observe :
'If the evidence is so strong against a man as to leave only remote possibility in his favour which can be dismissed with the sentence Of course it is possible, but not in the least probable, the case is proved beyond reasonable doubt, but nothing short of that will suffice.'
It may be seen that proof beyond reasonable doubt means that there must be a higher degree of probability than what is implied in the discharge of burden of an issue in a civil case. In a civil case the evidence relating to a point at issue is assessed and balance on broad lines and the decision rests on a reasonable degree of probability. That is where lies the dividing line between the extent of probability in a evil case and a criminal case. While in a civil case reasonable degree of probability may support a decision, a higher degree of probability is required in a criminal case. The demarcation of the difference between a civil and a criminal case was accepted by this court as correct in P. K. Kalasami Nadar v. Commissioners of Income-tax and the principle was applied to the proceedings under section 28 of the Income-tax Act. The learned judges there sai :
'Treating the penalty proceedings under the Indian Income-tax Act as being more in the nature of criminal proceedings than civil proceedings, we can say that the facts must establish a high degree of probability of the assessee being guilty of the charge against him and nothing more and, of course, nothing less. Imaginary possibilities ought not to be assumed to weaken the conclusion which is the result of a fair inference from the materials on record. Any rigid standard of proof in these matters cannot be laid down and we are hesitant to embark on such a venture.'
With respect we share this view.
While on the question of burden it is argued for the assessee that the order of assessment is not conclusive on the question of levy of penalty but the question will have to be approached and divided on the basis of material independent of the assessment order. We are of the view that having regard to the requirements of section 28 of the Act and the nature of the finding which the specified officer should arrive at in order that he might have jurisdiction and might properly levy penalty, the nature and area of the enquiry in proceedings for that purpose and for assessment of income-tax are not common. In computing and adding income or escaped income chargeable to tax, the assessing officer is not concerned with the specific question of deliberate withholding of particulars of income or concealment of such income but only with the question whether the income which is liable to tax has been left out and has, therefore, to be added or brought to tax. Moreover, before a penalty is levied, section 28 also requires that the assessee must be heard or given a reasonable opportunity of being heard on the specific questions germane to the purpose and relevant to the requirements of that section. There is, therefore, no doubt that section 28 contemplates an independent proceedings which is not concluded by an order of assessment or any observation contained therein. This court considered the question in M. Hussain Ali & Sons v. Commissioners of Income-tax and held that the determination of the income to be added in the assessment or reassessment proceedings was not final in so far as the imposition of penalty under section 28 was concerned and that it would be open and within the competence and jurisdiction of the Income-tax Officer to examine the matter afresh and to determine the liability to penalty. It was further explained that the estimated addition in the assessment proceedings could not by itself form the real basis for the determination of the quantum of penalty because what the Income-tax Officer has to take note of is that part of the income, actual or estimated, that has been concealed deliberately which would furnish the basis for ascertaining the penalty. The learned judges sai :
'It is clear from the wording (of the section) that it is not in all cases whereas addition is made to the returned income of the assessee owing to defects in his accounts or for other reasons that there has been a deliberate concealment or furnishing of inaccurate particulars and that was done with a view to avoid the levy for the proper quantum of tax. It is this finding that gives him the jurisdiction to impose the penalty, and the section say that the penalty shall be a certain multiple of the amount of income-tax or super-tax which would have been avoided. Normally, this section is invoked only on the finalisation of the assessment or reassessment proceedings. By that stage, the Income-tax Officer would already have made an order direction the addition of any amount to the returned income on the basis that such income so added represented the income of the assessee which had been concealed.... It may be that in cases where an addition is made to the returned income, it is not the entirety of such addition that may represent deliberate concealment; part might be deliberate and part might be due to inadvertence or accidental omissions. What the section accordingly requires the Income-tax Officer to do is to take note of that part of the income (actual or estimated) that had been concealed deliberately, and it is that that would furnish the basis for ascertaining the quantum of the penalty to be imposed... what we are endeavoring to emphasise is that the determination of the income to be added in the assessment or reassessment proceedings is not final in so far as the imposition of the penalty under section 28 is concerned.'
With respect we accept that these observations express the correct view and, as observed by the learned judges themselves, there is ample authority in support of it, some of which the learned judges themselves referred to and which we do not propose to cover over again. But there is one point which has to be adverted to, namely, as to whether and as to how far an assessment order or reassessment order which made an addition to the taxable income can be taken as prima facie evidence in penalty proceedings. In P. K. Kalasami Nadar v. Commissioner of Income-tax Jagadisan and Srinivasan JJ., in the course of their judgment, observe :
'But the department is not precluded from relying upon the finding in the assessment proceedings to establish, prima facie, that the cash credits represented his income.'
The Gujarat High Court in Commissioner of Income-tax v. L. H. Vora dissented from this observation and expressed the vie :
'The view of the Madras High Court that a finding in the assessment proceedings that a certain receipts is undisclosed income would, prima facie, establish that the deputed amount is income of the assessee unless it is shown by the assessee in the penalty proceedings to be incorrect, would amount to throwing the burden of proof upon the assessee. The proceedings being of a penal nature and the burden being upon the department, it would be but legitimate to say that mere falsity of an explanation given in assessment proceedings would not necessarily lead to the inference that the disputed amount represented income, and that, besides that circumstances, there must be some additional material from which the Income-tax Officer has to satisfy himself whether the assessee was guilty of the charge against him under section 28.'
In Dwarka Prasad Sheokaran Das v. Commissioner of Income-tax the Allahabad High Court considered that the Income-tax Officer in proceedings as materials for arriving at the findings in the penalty proceedings for the purpose of levying penalty and that there was nothing anywhere in law laying down that such material was to be inadmissible in the penalty proceedings. At the same time, that court took care to point out that findings given during assessment proceedings could not operate as re judicata in proceedings for imposition of penalty, as the considerations which applied for giving a decision in the two proceedings were not identical. This view seems to have been adhered to by the court in Haji Abdul Rahman, Abdul Qayum v. Commissioner of Income-tax, where it sai :
'A finding arrived at in assessment proceedings that a certain income was not disclosed in the return and that it was, therefore, undisclosed income is material sufficient to support a finding to be reached in penalty proceedings that income had been concealed, though such material is not conclusive and can be rebutted.'
The High Court of Kerala is of a like view in Money & Co. v. Commissioner of Income-tax. There that court held that while the assessment order could not operate as re judicata because of the essential different between the two type of proceedings, the evidence in the assessment proceedings would be relevant and admissible material in penalty proceedings. We are of opinion that the relevance to and the evidentary value in penalty proceedings of an assessment order will depend on the kind of findings and the materials on which they were based. The scope of the two proceedings being different, it is obvious that the findings in an assessment order may not concluded the assessee in the penalty proceedings. Often materials for both the proceedings may be identical. In the course of making additions to chargeable income either in assessment or reassessment proceedings, it is possible that observations relating to concealment or deliberate furnishing of inaccurate particulars are incidentally made though they are not necessary for the purpose of making the addition. We do not see why such observations, provided they are based on materials, are not relevant and may not furnish primacy evidence to provide the charge under section 28. It is of course true that such evidence is not conclusive in penalty proceedings and it will be quite open to the assessee to show that the observations in the assessment or reassessment orders are not supported by material or otherwise unsupportable. While in proceedings under section 28, the specified officer should reach finding necessary to exercise jurisdiction to levy penalty, where he has, though incidentally, already reached a conclusion on that matter in the light of the materials in the assessment or reassessment proceedings, it may be permissible in the penalty proceedings to refer to that as prima facie evidence, provided the assessee has an opportunity or been given a reasonable opportunity to test it and show that such a conclusions incorrect or is not supported by material. In doing so, he can place further material in the penalty proceedings. For instance, where on the facts found in the assessment or reassessment order, concealment is so patent, we do not see why the Income-tax Officer cannot rely on that in the penalty proceedings and call upon the assessee why, in view of that, penalty should not be levied. Such a procedure, as we think, does no violence either to the nature of the penalty proceedings or the burden arising thereunder or to the principle that penalty proceedings being of a character different from that in assessment or reassessment proceedings, findings in the latter cannot be conclusive or operate as res judicata in the penalty proceedings. We should like to reaper that the question whether the findings in assessment or reassessment proceedings can be used as prima facie evidence in penalty proceedings will depend upon the facts and circumstances of each case and whether such findings are based on material and on a high degree of probability.
It was suggested for the revenue that because penalty levied under section 28 was in the nature of an additional tax as was held in C. A. Abraham v. Income-tax Officer, Kottayam, the nature of the proceedings under that section should be held to be not essentially different from the assessment and reassessment proceedings except regarding the quantum of profits. Learned counsel for the revenue argues that the question that a findings for the purpose of section 28 does not turn on any abstract conception of burden or onus of proof, but what is relevant to it is the rule of high degree of proof. But, at the same time, he has to conceded that what is sufficient for assessment proceedings is not sufficient for penalty proceedings, though the converse may be true. It should be remembered that though penalty may be in the nature of additional tax, the levy is of a penal character. We have already pointed out that the nature and scope of enquiry and the finding that should be arrived at in the two proceedings are not common and that though the gins in assessment or reassessment orders may be relevant and may even be prima facie evidence in proceedings under section 28, they are by no means conclusive in the latter proceedings. Learned counsel for the assessee argues that, in the instant case, the findings in the assessment proceedings which led to the addition of the income were based on evaluation of evidence and broad probabilities and it could by no means be said that they satisfied the rule of higher degree of proof applicable to penalty proceedings. Learned counsel for the assessee points out that it did not necessarily follow from the findings in the assessment proceedings that the assessee concealed any income or deliberately furnished inaccurate particulars of such income. We are not persuaded that we can accept this contention. We have in T. C. No. 5 of 1964 held that the department was justified in finding that the sales to labourers alleged by the assessee were a make-believe affair to circumvent the circular of the South Indian Mill Owners Association to sell yarn bales at the association rates and to secrete the surplus amount released by them from the ultimate purchasers without bringing them into its books of account. We are, therefore, of the view that the facts of the case do attract section 28.
The question under reference is answered against the assessee and in favour of the department with costs. Counsels fee, Rs. 250.