Sudhindra Mohan Guha, J.
1. This reference under Section 256(2) of the I.T. Act, 1961, at the instance of the Commissioner of Income-tax, West Bengal-I, Calcutta, is in connection with the assessment years 1960-61, 1961-62 and 1962-63.
2. The assessee was M/s. Bhuramal Manikchand, dealing in jute and cloth with head office at Calcutta and branches at Dhubri, Agartala and Alipurduar. In the course of assessment proceedings, the ITO noticed certain cash credits in the assessee's accounts and being not satisfied with the nature of sources of these cash credits, the relevant assessments were completed making additions of Rs. 1,22,500, Rs. 95,000 and Rs. 18,440 for those three years, respectively, as income from undisclosed sources. Penalty proceedings under Section 271(1)(c), which were initiated by treating the aforesaid additions as items of concealed income by the ITO, were referred under Section 274(2) to the IAC for disposal, In respect of the assessment year1960-61 there were cash deposits of Rs. 7,000, Rs. 5,000, Rs, 10,000, Rs. 3,000, Rs. 1,000, Rs. 2,000 and Rs. 2,500 in the names of Deepchand Surana, Nouratmal Surana, Mahalchand Ghorawar, Promode Ranjan Ghose, Banwarilal Jain, Sudhir Chandra Saha and Smt. Mohini Devi Choraria, respectively, Sri Deepchand Surana, who was examined by the ITO, claimed to have deposited the amount out of his past savings made in Pakistan out of his salary income of Rs. 300 per month. Having regard to the lack of evidence for the remittance of the money, and the fact that he was being unemployed for more than 18 months and having regard to the size of his family, the I.T. authorities were not satisfied with his explanation regarding the sources of the amount. Sri Nouratmal Surana was not produced before the ITO. Sri Mahalchand Ghorawar, who was examined by the ITO, claimed to have made advances out of his savings. He was found to be an employee of the assessee drawing a petty salary. Here, in this case also, having regard to the size of his family and in the absence of proof of his claim regarding the sources of the amount, his explanation was also disbelieved. Sri Ghorawar was assessed to income-tax. Other items of cash credits were similarly disbelieved to be genuine.
3. The next item of addition of Rs. 40,000 was made by the ITO by scrutinising the books of account of the head office with reference to the books of Dhubri branch. It was found that the total remittance of certain amount from the head office to Dhubri branch were entered in the accounts at both the places on identical dates. The remittances were said to have been made through messengers by air or through air service personnel. After considering the assessee's explanation a sum of Rs. 1,30,000 was included in the assessment which was, however, reduced to Rs. 40,000 in appeal before the AAC. In these circumstances, the amount was treated as concealed income.
4. Coming to the last item of Rs. 52,000 the sum was included in the assessment after making a scrutiny of certain documents and the books of account seized by the Enforcement Directorate from the assessee's premises. These related to the assessee's transactions with his Dhubri branch. The assessee admitted that these were not transactions of its accounts and contended that these were not their transactions. This explanation was again not acceptable to the I.T. authorities and consequently there was an addition of Rs. 52,000 which was, however, reduced in appeal before the Tribunal to Rs. 35,000 after completion of the penalty order. On the basis of these facts and circumstances, the IAC imposed a penalty of Rs. 1 lakh.
5. In respect of the assessment year 1961-62, there were additions of Rs. 2,000 as fictitious cash credits in the name of Sri Mahalchand Ghorawar, Rs. 50,000 unexplained cash shown as remittances between the headoffice and Agartala branch and Rs. 43,000 unexplained cash shown as remittance between the head office and Dhubri branch, the total addition being Rs. 95,000. For similar reasons as in the earlier year 1960-61, the items of additions, as above, had been treated as concealed income of the assessee for purposes of penalty. Consequently, the IAC imposed a penalty of Rs. 79,800.
6. Coming to the assessment year 1962-63, the I.T. authorities made additions of Rs. 15,000 representing the peak amount in respect of the remittances from the head office to the Dubri branch and of Rs. 3,440 representing interest on account of deposits in the different accounts, which deposits were treated as the assessee's own money in the earlier assessments. The amounts being treated as concealed income, the IAG imposed a penalty of Rs. 11,100.
7. Being dissatisfied and aggrieved, the assessee came in appeal before the Tribunal. The orders of penalty were challenged on the ground that the additions had been made by way of an estimate in the trading account or in respect of cash credits taken to be the assessee's income for the purpose of assessments. According to the department, the accounts of the assessee revealed a regular modus operands, suppressing income by way of remittances year after year, and, according to the facts of the case, precluded the application of the authorities cited on behalf of the assessee, viz., the decision of Anwar Ali's case : 76ITR696(SC) .
8. On hearing the submissions of both sides, the Tribunal upheld the assessee's contention on the ground that the department was not satisfied with the explanation offered regarding the nature and source of the cash credit which led it to make the additions and moreover, as regards the remittances found in the accounts or in the documents seized from the assessee's premises, the additions were made as a result of the unsatisfactory explanation by the assessee. As regards the departmental contention on the strength of the provisions of Section 68 of the I.T. Act, 1961, the Tribunal rejected the same holding that the said section gave the ITO a discretion for charging the credits to income-tax as the income of the assessee but there was nothing in the language for extending this provision to matters relating to the imposition of penalty. Consequently, the penalty orders were cancelled.
9. It appears from the statement of the case that before the Tribunal, the assessee raised objections as to the imposition of penalty in respect of the assessment years 1960-61 and 1961-62 on the ground that the assessments for these years were completed under Section 23(3) of the Indian I.T. Act, 1922, and as such penalties could not be levied under Section 271(1)(c) of the I.T. Act, 1961.
10. On behalf of the department reliance was placed on the decision of the Supreme Court in the case of Third ITO v. Damodar Bhat : 71ITR806(SC) . It was held therein that the proceedings for recovery of tax could be continued in respect of a demand raised under the old Act on the language of Section 297(2)(g) of the 1961 Act. Admitting that there was force in the objection, the Tribunal following the decisions in Shakti Offset Works v. IAC : 64ITR637(Bom) , S.C. Magam Haveri v. CTT : 64ITR409(KAR) and CIT v. Hiralal Mohanlal Shah : 69ITR312(Guj) , observed that the language of Section 297(2)(g) and the other sections referred to in the judgment of the Supreme Court was general whereas Section 297(2)(g) read with Section 271(1)(c) contained specific references to the other sections of the 1961 Act, and as such the Tribunal was unable to hold that the decision superseded the High Court decisions referred to above. Accordingly, the Tribunal held that the imposition of penalty under Section 271(1)(c) for each of the first two years was invalid.
11. Mr. B.L. Pal, learned advocate for the revenue, contends that the controversy on the point has been set at rest by the decision of the Supreme Court in the case of Jain Brothers v. Union of India : 77ITR107(SC) .
12. Section 297(2)(g) of the Act of 1961 lays down the principle which is in the following lines :
'Any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act.'
But Section 271(1) of the Act refers to any proceeding under the Act of 1961.
13. There is no dispute that the assessment proceedings for the years 1960-61 and 1961-62, were completed under Section 23(3) of the Indian I.T. Act, 1922, and the penalty proceedings were completed for these two years on February 28, 1967, and March 15, 1968, respectively.
14. According to Mr. Pal, on the basis of the decision in the case of fain Brothers : 77ITR107(SC) , the penalty proceedings for these two years could very well be disposed of under the provisions of the Act of 1961. It was found by the Supreme Court in that case that for the imposition of penalty it was not the assessment year or the date of filing of the return which was important but it was the satisfaction of the I.T. authorities that a default had been committed by the assessee which would attract the provisions relating to penalty. Whatever the stage at which the satisfaction was reached, the scheme under Sections 274(1) and 275 of the Act of 1961 was that the order imposing penalty must be made after the completion of the assessment. The crucial date, as found by the Supreme Court for the purpose of penalty, was the date of such completion. The SupremeCourt laid down that both Sections 271(1) and 297(2)(g) have to be read together and in harmony and so read the only conclusion possible is that for the imposition of a penalty in respect of any assessment for the year ending on March 31, 1962, or any earlier year which is completed after the first day of April, 1962, the proceedings have to be initiated and the penalty imposed in accordance with the provisions of Section 271 of the Act of 1961. Thus, the assessee would be liable to a penalty as provided by Section 271(1) for the default mentioned in Section 28(1) of the Act of 1922 if his case falls within the terms of Section 297(2)(g). The provisions of Section 271 of the Act of 1961 will apply mutatis mutandis to proceedings relating to penalty initiated in accordance with Section 297(2)(g).
15. Again, penalty may be considered as an additional tax for some purposes, but penalty proceedings arc essentially different from assessment proceedings. The principle, that the law applicable under the I.T. Act to a particular assessment year is the law prevailing on the 1st April of that year, does not apply to penalty proceedings. Exactly such were the decisions of the Allahabad High Court in the cases of CIT v. Data Ram Satpal : 99ITR507(All) and Addl. CIT v. Jiwan Lal Shah : 109ITR474(All) . We are fully in agreement with the views expressed by their Lordships. So, if the facts were so justified in law, the order of penalty for these two years need not be disturbed on the aforesaid ground.
16. Next, in order to show the principle for imposing penalty, Mr. Pal cites the decisions in the cases of CIT v. Anwar All : 76ITR696(SC) and Anantharam Veerasinghaiah & Co. v. CIT : 123ITR457(SC) . In the former, a penalty was imposed on the respondent under Section 28(1)(c) of the Indian I.T. Act, 1922, for concealment of particulars of income, whereas in the other case on an examination of the assessee's books, the ITO found that on two dates the expenditure was in excess of the disclosed available cash and also noticed cash deposits in the names of certain Sindhi shopkeepers. Rejecting the explanation, the ITO made certain additions to the book profits which were reduced by the Tribunal. Penalty proceedings were initiated under Section 271(1)(c) of the I.T. Act, 1961.
17. Section 28(1)(c) of Act of 1922 is attracted if an assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income,
18. Such is also the provision in Section 271(1)(c) of the Act of 1961. The word 'deliberately' was deleted in that section with effect from 1st April, 1964.
19. As Section 28 of the Indian I.T. Act, 1922, is in pari materia with Section 271(1)(c) of the 1961 Act, the principles enunciated in both the cases referred to above are practically the same. The gist of the offence rests on the allegations that the assessee had concealed the particulars of the income or deliberatelyfurnished inaccurate particulars of such income--by a subsequent amendment, if there was a difference between the returned income and the income subsequently assessed was found to be of a certain percentage, the onus lay on the assessee to prove that such failure was not deliberate and the burden was on the assessee to establish it, then the receipt of the income in question constituted the income of the assessee. If there was no evidence on record except the explanation given by the assessee, which again had been found to be false, it did not follow that the receipt constituted the assessee's taxable income or, in other words, there would be no reason to hold that the disputed amount represented the income of the assessee only because the explanation put forward by the assessee was false.
20. Again it is also pointed out by the Supreme Court that in a proceeding for penalty being quasi-criminal in nature the burden lies on the revenue to establish that the disputed amount represented income and the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. The burden of proof in such a proceeding being different from the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted as a finding to that effect in the penalty proceeding. So in a penalty proceeding, the I.T. authorities are bound to consider the matter afresh on the materials before them, and also having regard to the onus to prove, which lay on the revenue, that a particular amount was a revenue receipt. It is also emphasized by the Supreme Court that the finding of fact in the assessment proceeding may be taken as a good evidence in the penalty proceeding, but such a finding in the assessment proceeding cannot be taken as conclusive for the purpose of penalty proceeding. Before passing any order in the penalty proceeding, the entirety of the circumstances must be taken into consideration and that must point to no other conclusion than that the disputed amount represented the assessee's income and that he had consciously concealed the particulars of his income or deliberately furnished inaccurate particulars. The falsity of an explanation cannot lead to the inevitable conclusion of concealment but there must be in addition some cogent material or evidence from which the necessary conclusion attracting a penalty could be drawn.
21. Mr. Pal also refers to the case of CIT v. Ananthamm Veerasinghaiah and Co. : 99ITR544(AP) . But no new principle has been enunciated therein.
22. In the present case, apart from the findings in the assessment proceedings by the ITO, the IAC in the penalty proceeding for the year 1960-61, as to the alleged cash deposits, observed that these parties never possessed the said sums and they could not have advanced the said sums.The evidence given by some of them was interested and the depositors were either men of straw or did never exist. As far as the items of Rs. 40,000 and Rs. 52,000 were concerned, the evidence relating to the latter sum, according to him, clearly established that the assessee was having transactions outside its regular books of account and that the amount utilised had not come from its known capital and as such the said sum represented its unaccounted income. The basis for such addition was the documents and accounts seized by the Enforcement Directorate.
23. As for the year 1961-62, it was found that the cash credit of Rs. 2,000 in the name of Shri M. Ghorawar had actually come out of the concealed income of Rs. 50,000 being unexplained cash shown as remittance between the head office and Agartala branch, and Rs. 43,000 unexplained cash shown as remittance between the head office and Dhubri branch, and the other items were similarly disbelieved to be genuine. As to the year 1962-63, the books of account of the head office with reference to the books of Dhubri branch were scrutinised. It was found that there were total remittances of Rs. 1,60,000 from head office to the Dhubri branch and the entries in the accounts of both the places were made on identical dates. The sum of Rs. 40,000 was treated as concealed income. The sum of Rs. 52,000 was also included after making a scrutiny of certain documents and books of account seized by the Enforcement Directorate. This was reduced to Rs. 35,000 after the completion of the penalty order. The sum of Rs. 3,440, representing interest on account of deposits, was treated as the assessee's own money.
24. Thus, it would; appear that there was a clear finding of the IAC that the disputed amount represented income and the assessee consciously concealed the particulars of his income and had deliberately furnished inaccurate particulars.
25. Mr. Deb, the learned counsel for the assessee, draws our attention to the fact that the assessee, even before the IAC, took the objection that there was no material with the department to prove that the amount added were actually earned by the assessee during the assessment year in question. The IAC, of course, was unable to accept the contention, but did not assign any reason.
26. With reference to Section 68 of the Act, Mr. Pal contended that in the circumstances of the case, the amount in dispute might be charged to income-tax as the income of the assessee of that previous year. This section enacts that unexplained cash credits may be charged to income-tax as income of the previous year for which the accounts have been made up. It was held in cases under the Act of 1922 that the previous year in case of cash credits was the financial year preceding the assessment year : CIT v. P. Darolia & Sons : 27ITR515(Patna) , Bishan Dutt v. CIT : 39ITR534(All) . In agreement with the views expressed by their Lordships of Patna High Court and Allahabad High Court, we hold that the amount in dispute might be taken as income of the previous year in all the three years.
27. Now, the question arises whether such principle under Section 68 of the Act could be extended to penalty proceedings. In the opinion of the Tribunal, findings in the assessment proceedings cannot come to the aid of the department in penalty proceedings. It is further observed that there is nothing in the language of the section to uphold the contention that the items added constituted income for all purposes. The field of operation of Section 68, according to the Tribunal, is confined to the assessment proceedings and does not extend to penalty proceedings as well. In this connection, we may remind the note of warning given by the Supreme Court that any finding in the assessment order may constitute good evidence in the penalty proceeding, but that finding cannot be regarded as conclusive for the purpose of the penalty proceedings. In this context, it was obligatory on the part of the department to establish that the disputed amount constituted the income of the assessee in the previous accounting year. There was no such finding, though it was pressed by the assessee.
28. It is emphasized by the Supreme Court in the case, Anantharam Veerasinghaiah & Co. v. CIT : 123ITR457(SC) of the report, that it is a matter for consideration by the taxing authority in each case whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year' (Underlining is ours).
29. In the above premises, we propose to hold, in agreement with the Tribunal, that the provision in Section 68 of the Act is confined to the assessment proceeding and cannot be extended to the penalty proceeding as well.
30. Mr. Deb also asks us not to answer the questions referred to us, as those, according to him, were questions of fact. A finding given by the Tribunal that an amount which represents cash credits or income from undisclosed sources would be final. But if the Tribunal rejects the evidence without sufficient grounds and fails to consider material evidence, the question of law, whether the Tribunal's order was valid would arise. On a perusal of the questions as framed, we find that these questions are mixed questions of fact and law.
31. Thus, on the findings of the Tribunal and also on the principle of law discussed above, we answer question No. If in the negative and question No. 2 in the affirmative and both in favour of the assessee.
Each party to pay and bear its own costs.
Sabyasachi Mukharji , J.
32. I agree.