SRINIVASN J. - The question that stands referred to us is :
'Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was a deliberate concealment of income or keeping back of particulars to attract the operation of section 28(1)(c) of the Income-tax Act ?'
The facts are briefly these. The assessee is a registered partnership firm doing business in grocery. For the account year ended April 12, 1955, relevant to the assessment year 1955-56, a return of income of Rs. 20,861 was made. An examination of the account books of the assessee revealed, between May and October of 1954, credits amounting to Rs. 47,800 in the day-book. The day-book indicated the credits as under suspense account. But the suspense account which was maintained by the assessee contained no entries. The relevant ledger purported to record certain credits and withdrawals of credits, but those entries were in most cases made either in the first of the last line of the ledger page. The entire amount was finally was cancelled by debit entries. The explanation of the assessee was that this sum of Rs. 47,800 represented the sale proceeds of over 1,000 bags of sugar. On a scrutiny of these of accounts and on an examination of some of the parties purportedly concerned in this transactions, the Income-tax Officer held that these credits were unexplained or unproved. If the credits really represented sales of sugar, he saw no need for the subsequent debits. He, accordingly, treated the entire amount as undisclosed income. On appeal, the Appellate Assistant Commissioner thought that a reasonable estimate of the concealed profits would be about Rs. 10,000 and directed the assessment of the assessee on that basis.
The Income-tax Officer took proceedings under section 28(1)(c) of the Act, and after issuing notice to the assessee and giving it an opportunity of being heard, he imposed a penalty of Rs 15,000. This order was again the subject-matter of an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner was satisfied that a case existed for levy of penalty and that the penalty imposed was justified considering that magnitude and gravity of the offence.
In the further appeal, the Tribunal, while accepting the view that the levy of penalty was justified, for there was a deliberate manipulation of the accounts, reduced the penalty to Rs. 10,000.
On the application of the assessee under section 66(2) of the Act, the question set out above has been referred to us.
It is the contention of Mr. Meenakshisundaram, learned counsel for the assessee, that there was really no material before the Tribunal on foot of which it could reach the conclusion that the assessee had concealed the particulars of its income or deliberately furnished inaccurate particulars of its income. It is urged that the assessees explanation with regard to the entries in the accounts was disbelieved, but that fact alone would not suffice to establish the basic requirement for the imposition of a penalty under the provision. It is argued that in those circumstances, the Tribunal was wholly unjustified in agreeing with the departmental authorities that there had been a deliberate suppression or deliberate furnishing of false particulars.
The short point raised by the learned counsel for the assessee is that this sum of Rs. 47,800, which was entered as credits in the day-book, represents lump sum realisations by the sale of sugar. It is stated that the exact amount covered by these sales was noted after the receipt of the respective invoices. The amount credited was originally entered in the suspense account and at the end of the year, various debits were made and the accounts were balanced. It is claimed further that even assuming that the explanation given by the assessee as to the source of the amounts was false, it would not follow either that the amounts represented the income or that the assessee deliberately furnished false particulars of its income. It is claimed that before applying the penal provisions contained in section 28(1)(c) of the Act, the Income-tax Officer has to find definitely that the assessee did furnish deliberately false accounts. If he only came to the conclusion that the explanation was false, but could not determine that the amount represented income or the manner of making the entries in the accounts represented a method by which the income of the assessee was sought to be suppressed, then it is claimed that the Income-tax Officer had no jurisdiction to impose the penalty. In Sreelekha Banerjee v. Commissioner of Income-tax their Lordships of the Supreme Court had to consider the mode of appreciation of an explanation tendered by the assessee in reassessment proceedings under section 34. That was a case where an entry appeared in the account books of the assessee showing the receipt of a sum on conversion of high denominational notes. It is observed in this decision that at that stage the department is not required to prove anything and that it is the duty of the assessee to establish what the source of that money was and to show further that it was not in the nature of income. If the explanation offered by the assessee, scrutinised in the light of the books of account or other documents or evidence, produced by the assessee, established that the receipt was not of an income nature, obviously the amount cannot be brought to tax. If the explanation of the assessee is unconvincing, it is open to the department to reject it and draw an inference that the amount represents income. In such case, the department does not proceed on no evidence, for the receipt of the money itself is evidence against the assessee. This prima facie evidence it is for the assessee to rebut, and if the state of accounts and the dealings of the assessee are of such a nature as would justify a reasonable inference in support of the stand taken by the department, such a conclusion cannot be attacked as based upon no evidence whatsoever. Their Lordships point out that whether it is a case of original assessment or of reassessment, the method of approach or the mode of evaluation of the testimony is in no wise different. Mr. Balasubrahmanyan has also referred to a decision of the Supreme Court in Commissioner of Income-tax v. Bhikaji Dadabhai and Co. Reference is made in this decision to an earlier decision of the Supreme Court in C. A. Abraham v. Income-tax Officer, Kottayam where their Lordships observe that the penalty that is imposed under section 28 of the Income-tax Act is in the nature of an additional tax. Relaying upon these decisions, Mr. Balasubrahmanyan suggests that if the true nature of a levy made under section 28 of the Act is only that of an additional tax, then it would necessarily follow that a different view with regard to the onus of proof cannot be taken on the basis of theory that action under section 28 is punitive in its scope. Notwithstanding the above observations of the Supreme Court, where the nature of the penalty imposed is regarded as an additional tax, it is not denied that this additional tax is imposed for the dishonest or contumacious conduct of the assessee. We are unable to agree with Mr. Balasubrahmanyan that merely because of the description of this levy as additional tax it is not necessary for the department to show that the assessee did in fact invite the application of this provision by concealment of the particulars of his income or deliberately furnishing inaccurate particulars of such income. The section requires that the Income-tax Officer should be satisfied that the assessee acted in that manner before the penalty can be imposed. It should certainly follow from the wording of the section, as well as from numerous other decisions which have held so, that the proceedings under this section are undoubtedly of a penal nature, and what may be regarded as the guilt of the assessee had to be brought home to him. It would not suffice merely to say that the explanation of the assessee is not acceptable. The explanation, if it is shown to be deliberately false, may no doubt induce the inference that, when the assessee originally furnished particulars of his income, he deliberately furnished false particulars. But it is for the Income-tax Officer expressly so to decide. Mr. Balsubrahmanyans contention that no onus of any description rests upon the department is not supported by authority.
Turning now the evidence in this regard, the credits are entered during the period May 18, 1954, to October 20, 1954. The sums are in multiples of Rs. 100 and the total comes to Rs. 47,800. Between the 15th February, 1955, and the 13th April, 1955, that is during the last two months of the account year, debits have been recorded again in multiples of Rs. 100, wiping out the total credit of Rs. 47,800. It is the case of the assessee that this credits represented receipts by way of sale of sugar, and it is claimed that the sales of sugar were in fact effected between April 1, 1955, and April 13, 1955, of 1,018 bags to the total value of Rs. 49,513-3-0. It is again the contention of the assessee that the sum of Rs. 47,800 entered as credits were set off against these sales of sugar which took place during the last twelve days of the accounting year. It is really difficult to follow the method of accounting said to have been employed. Mr. Meenakshisundaram stated in the course of his arguments that this was the first year in which the assessee had any business in sugar. In the grounds of appeal before the Appellate Assistant Commissioner, it was stated :
'In the course of sugar sales, certain amounts thereof were segregated and kept as safe deposit in the day-book itself. This was done with a view to have a reserve, since as a new-comer for sugar, your petitioner had no proper grip of the marker as against the existing dealers in the market.... This also explains the fact on a number of days payments have exceeded receipts for obvious reasons that the accumulations in this safe deposit were utilised on those occasions.'
This explanation, which is not precisely the same as the one which has been advanced before us in the course of the hearing does not really explain how if the sales of sugar took place between April 1, 1955, and April 13, 1955, the credits could have been made in the vasakattu account during the earlier part of the year. What is claimed in this explanation is that it was the receipts from the sales of sugar that was so kept 'segregated' and entered in the vasakattu credits. In effect, what the assessee means is that it had kept apart a certain sum out of the normal receipts of his sugar trade during the earlier part of the year with a view probably to enable it to purchase sugar and deal in it in the later part of the year. Quite obviously, the withdrawal of these sums from the general trade and crediting them to the separate vasakattu account should find properly reflected in the accounts itself. Wherefrom these sums represented by these vasakattu credits were drawn is admittedly not established by the accounts at all. A tabular statement of the accounts of purchase and sales of sugar also forms part of the record. This is extracted presumably from the day-book, and even here beyond the entry of the various sums as credits, it does not appear that these sums came out of the normal sugar transactions which took place on dates earlier to the dates of credit. It is impossible to discover, from the manner in which the accounts had been maintained, wherefrom these amounts were drawn, and if one thing is clear it is that these sums were not withdrawn from general trading account in sugar and kept apart, as claimed by the assessee. The explanation is not even intelligible, and if the Income-tax Officer rejected it out of hand, we are unable to say that he acted improperly in doing so. The Tribunal also referred to the fact that the alleged sales of sugar, which took place between April 1, 1955, and April 13, 1955, were at different rates which do not at all agree with the market rates. Mr. Meenakshisundaram urged before us that the apparent differences in the rates per bag as recorded in respect of these sale transaction arose from the circumstance that the bags were of different sizes. Except for the explanation that is placed before us for the first time, there is nothing in the accounts to indicate the truth of that explanation.
We have given careful consideration to the question. If an assessee maintains accounts in such as unintelligible fashion and his accounts contain records of credits which did not show that they have been drawn from other transactions contained in the accounts themselves, the Income-tax Officer seems to us to have been perfectly justified in inferring that these sums should have come in from a totally different source. It was not even unreasonable for him to infer that the entire series of transactions have been kept in this fashion only with a view to conceal the real source of these sums of money, and if so much could be inferred, we are unable to agree with the learned counsel that section 28(1)(c) is not attracted.
We accordingly answer the question referred to us against the assessee. The assessee will pay the costs of the department. Counsels fee Rs. 250.