Bimal Chandra Basak, J.
1. This reference under Section 256(2) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), is at the instance of the revenue. The question referred to is as follows:
'Whether, on the facts and in the circumstances of the case, and on a proper interpretation of the order of penalty passed by the Inspecting Assistant Commissioner, the Tribunal was right in holding that the factual foundation for the levy of penalty was not established and that the levy of penalty was, therefore, wrong?'
2. The facts admitted and/or found by the Tribunal are as follows. Theassessment year under consideration is 1959-60. The relevant previousyear ended on the March 31, 1959. The assessee is a partnership firmcarrying on business in jute and cloth, with its head office at No. 4,Dayehatta Street, and branches in Dhubri and Agartalla. In its books atthe head office the assessee had shown receipt of commission for sale of juteon account of Tilokchand Jain of Alipurduar and Santokchand Jain ofAluabati. At the assessment the assessee could not produce the statementof accounts showing the details of the said sales, the commission andexpenses therefor and the net amount remitted nor the accounts of thesaid parties in respect of such sales. It was also conceded that the partiesthemselves would not be available. The ITO came to the conclusion thatTilokchand Jain and Santokchand Jain were the employees of the assesseeand that the profit on sales on their account actually accrued to the assessee.He added Rs. 28,750 as such profit in the assessment made on the assessee-firm.
3. The first point urged before the AAC was regarding the transactions in the names of Tilokchand Jain and Santokchand Jain. In the course of the hearing before him, the AAC examined the account of these twoparties. He found that the remittances were made almost in all cases only after sales except for Rs. 8,000 and Rs. 10,000 in the name of Santok-chand Jain remitted before the sale of the goods. Before the AAC, an affidavit had been filed by Sri Dwipchand Jain who was carrying on business in Alipurduar in the name of Tilokchand Jain confirming the sales of jute effected on his behalf. Sri Rajmal Banthia who carried on the business in the name of Santokchand Jain also filed an affidavit confirming the commission on sale. As the remittances were through banks, the AAC deleted the said amount of Rs. 28,750 from the assessment. Regarding the cash credits, the AAC gave reduction to the extent of Rs. 19,000 and upheld the addition of the balance.
4. The matter thereafter came before the Tribunal which by its order gave some further reduction in the assessment.
5. The ITO thereafter took proceedings for the levy of penalty and referred the question of levy of penalty to the IAC as the minimum penalty leviable exceeded Rs. 1,000. What happended in this connection would appear from the order of the IAC which we quote hereinbelow :
'A show-cause notice was issued by the ITO on 11-3-63 under Section 274(1) in accordance with the provision of Section 297(g) of the I.T. Act, 1961, requiring the assessee to show cause why penalty should not be imposed under Section 271(1)(c) of the I.T. Act, 1961. No explanation was submitted to the ITO in response to the show-cause notice.
After the case was referred to me, another opportunity was given by me. Shri S. Roy Chaudhury, Advocate, appeared before me on 20-9-63 in obedience to my letter dated 11-9-63. It was contended that the parties whose credits had been added were all genuine parties and the transactions could be verified by the ITO. The addition was, therefore, unjustified. It was further argued that the ITO should give an opportunity to the assessee to give particulars of the parties and then verify the transactions from the books of these parties and also examine those parties.
The ITO was thereafter directed by me to give the assessee a further opportunity to furnish particulars of the parties and then examine those parties. In obedience to ITO's letter dated 14-10-1963 assessee-firm had filed a written note on 20-11-1963 denying that any concealment was made but the parties were not produced for examination. The addresses of the parties had also not been furnished.'
6. Accordingly, the IAC passed the following order:
'From the non-co-operative attitude of the assessee it appears that the assessee was in no mood to furnish either the details of the parties or to produce them for examination. Thus the case attracts penal provisions of the Act and I think that the case deserves deterrent penalty in the circumstances of the case.
Having regard to the facts and circumstances of the case, I feel that imposition of penalty of Rs. 25,000 would be adequate and justified therefore, impose a penalty of Rs. 25,000 under Section 271(1)(c) read with Section 274(2) of the I.T. Act, 1961, in the case for the assessment year 1959-60.'
7. Being aggrieved by the said order the assesaee preferred an appeal beforethe Tribunal. The Tribunal by its order dated 9th February, 1968, allowed the appeal. Before the Tribunal various submissions were made on behalf of the assessee including the submission that there was no justification for the levy of the penalty on the facts and that they were bad in law. After referring to the facts in this case and the contentions made on behalf of the assessee and the department, the Tribunal allowed the appeal. While allowing the appeal the Tribunal held as follows :
'We have quoted the relevant passage from the order of the Inspecting Assistant Commissioner. It clearly goes to show that the penalty has been levied because the assessee did not co-operate or he was in no mood to furnish either the details of the parties or to produce them for examination. Penal provisions even under Section 271(l)(c) will be attracted only if concealment of the particulars of income or deliberately furnishing inaccurate particulars thereof is established. The above passage from the order of the IAC does not show that the department has made any attempt at trying to establish the factual foundation for this purpose. Section 271(l)(c) is not attracted by the non-co-operative attitude of the assessee or by the assessee being in no mood to furnish the details or produce the parties for examination. As the relevant factual foundation for the levy of penalty has not been established, we have to hold that the levy of penalty is wrong. In this view, we do not think it necessary to go into the legal aspects. Any discussion on the legal objections would arise only if there is a foundation of facts for the levy of penalty. When the factual' foundation is not there, there will be no point in entering into an academic discussion of the legal question. We delete the penalty of Rs. 25,000.'
8. Mr. B. L. Pal, learned advocate appearing on behalf of the revenue, has submitted before us that the finding of the Tribunal to the effect that the relevant factual foundation for the levy of the penalty has not been established, is not correct. He has submitted that the IAC in this case has given all the opportunities to the assessee as could be given. After issue of the show-cause notice no explanation was submitted to the ITO. After the case was referred to the IAC, though another opportunity was given, nothing came out of it. The advocate for the assessee appeared and tried to contend that the parties whose credits had been added were all genuine and that the transactions could be verified. Pursuant to the direction of the IAC to that effect, a further opportunity was given to the assessee and in reply to that the assessee-firm wrote a letter on 20th November, 1963, denying that any concealment was made but did not produce any party for examination. The addresses of the parties were also not furnished. Mr. Pal submitted that various opportunities were given to the assessees, various attempts were made by the IAC as would appear from his order and those were sufficient attempts. He has submitted that the IAC was relying on the materials subsequent to the order of assessment including the conduct of the parties and this was sufficient material from which the conclusion could be drawn as was done by the IAC. Mr. Pal submitted that though there was no direct evidence in this case regarding concealment, there was circumstantial evidence arising out of the facts as stated by the IAC. Those arose after the show-cause notice, in connection with the penalty proceedings, was issued. Accordingly, the Tribunal was not justified in holding that the factual foundation for the levy of penalty was not established.
9. Mr. Sanjay Bhattacharya, learned advocate appearing on behalf of the assessee, disputed the correctness of the contentions of Mr. Pal. He has submitted that the law in this case now stands well settled by the decision of the Supreme Court in the case of CIT v. Anwar Ali : 76ITR696(SC) and other subsequent decisions. He has referred to in this connection the following other decisions : CIT v. Khoday Eswarsa and Sons : 83ITR369(SC) , Hindustan Steel Ltd. v. State of Orissa : 83ITR26(SC) , D. M. Manasvi v. CIT : 86ITR557(SC) . In this connection he has also drawn our attention to three decisions of this High Court, Sikri & Co. Pvt. Ltd. v. CIT : 106ITR682(Cal) , CIT v. Lalit Mohan Deb : 107ITR84(Cal) and CIT v. Bhowanipur Motor Accessories Agency P. Ltd. : 113ITR703(Cal) . He has submitted that there must be some positive material on the basis of which such penalty can be imposed under Section 271(1)(c). Mr. Bhattacharya has further submitted that it is now well settled that penalty proceedings are quasi-criminal in nature and the burden is on the department. He has submitted that the department in the present case had not produced any material and failed to discharge its burden. In purported discharge of that burden, it has merely relied on the absence of co-operation on the part of the assessee. The assessee had no such duty. The revenue could not act on the basis of absence of cooperation. It was submitted that it was clear from the IAC's order that he did not rely on any material at all but merely relied on the 'mood' of the assessee. He has also submitted that there is nothing on record to show that the department has taken any step under Section 131 of the Act in this connection.
10. The law in this connection is now well settled. In Anwar Ali's case : 76ITR696(SC) , the Supreme Court pointed out that penalty proceedings under Section 28 of the old Act are penal in character. In this context the Supreme Court observed as follows (p. 700):
'The next question is that when proceedings under Section 28 are penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable to payment of penalty. As has been rightly observed by Chagla C.J. in Commissioner of Income-tax v. Gokuldas Harivallabhdas : 34ITR98(Bom) , the gist of the offence under Section 28(1)(c) is that the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and, therefore, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income.
Another point is whether a finding given in the assessment proceedings that a particular receipt is income after rejecting the explanation given by the assessee as false would, prima facie, be sufficient for establishing, in proceedings under Section 28, that the disputed amount was the assessee's income. It must be remembered that the proceedings under Section 28 are of a penal nature and the burden is on the department to prove that a particular amount is a revenue receipt. 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. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.
In the present case, it was neither suggested before the High Court nor has it been contended before us that, apart from the falsity of the explanation given by the assessee, there was cogent material or evidence from which it could be inferred that the assessee had concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount was a revenue receipt. The question was, therefore, rightly answered by the High Court.
The appeal fails and it is dismissed with costs.'
11. In the case of Khoday Eswarsa and Sons : 83ITR369(SC) , the Supreme, Court referred to the decision of Anwar Ali : 76ITR696(SC) , and thereafter held as follows (p. 376):
'From the above it is clear that penalty proceedings being penal in character, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. Apart from the falsity of the explanation given by the assessee, the department must have before it before levying penalty cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is a revenue receipt. No doubt the original assessment proceedings, for computing the tax, may be a good item of evidence in the penalty proceedings but the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment.
In the case before us we have already pointed out that in the order levying penalty the Income-tax Officer has categorically stated that the reasons for adding the disputed amounts in the total income of the assessee have been already discussed in the original order of assessment and that they need not be repeated again. The Appellate Assistant Commissioner, we have already pointed out, has made only a guess work. That clearly shows that except the reasons given in the original assessment order for including the disputed items in the total income, the department had no other material or evidence from which it could be reasonably inferred that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.
For all the reasons given above, it follows that there is no merit in the appeal and it is accordingly dismissed. As the respondent has not appeared, there will be no order as to costs.'
12. In the case of Hindustan Steel Ltd. : 83ITR26(SC) , it was a question of levy of penalty under the Orissa Sales Tax Act. The Supreme Court observed that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances.
13. In the case of D. M. Manasvi : 86ITR557(SC) , the Supreme Courtagain referred to its earlier decision in Anwar Ali's case : 76ITR696(SC) , and in this connection observed as follows (p. 565):
'On the basis of the dictum laid down in the above case, it is urged by Mr. Chagla that from the mere fact that the explanation of the assessee in the present case was found to be false it did not follow that the disputedamount represented his income and that the assessee had consciously concealed the particulars of Ms income or had deliberately furnished inaccurate particulars. In this respect we find that in the present case the inference that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars is based not merely upon the falsity of the explanation given by the assessee. On the contrary, it is made amply clear by the order of the Tribunal that there was positive material to indicate that the business of Kohinoor Mills belonged to the assessee and the whole scheme was to disguise the profits of the assessee as those of a firm of four partners. The present is not a case of inference from mere falsity of explanation given by the assessee, but a case wherein there are definite findings that a device had been deliberately created by the assessee for the purpose of concealing his income. The assessee as such can derive no assistance from Anwar Ali's case : 76ITR696(SC) .
Reference has also been made to the observations in the case of CIT v. Khoday Eswarsa and Sons : 83ITR369(SC) , that penalty cannot be levied solely on the basis of the reasons given in the original order of assessment. It is, however, not necessary to go into this aspect of the matter because the penalty in the present case has not been levied solely on the basis of the reasons given in the original order of assessment. The Tribunal in this respect has mainly taken into account the facts brought to light by the order made in appeal arising out of the refusal of the income-tax authorities to register the Kohinoor Mills.
As a result of the above, we dismiss the appeals with costs. One hearing fee.'
14. The principles laid down are now well settled. Penalty proceedings are penal in nature. The burden is on the department to prove that the assessee is liable to penalty. There must be some positive cogent material or evidence. If the only evidence on record is an explanation submitted by the assessee which has been found to be false, that is not sufficient material for attracting the penal provisions. The finding in the assessment proceeding may be prima facie evidence but that is not conclusive. Penalty cannot be imposed solely on such finding. The entirety of circumstances must point to that conclusion, as stated, before a penalty can be imposed.
15. Keeping in mind the principles laid down in the aforesaid cases, it appears to us that, in the facts and circumstances of this case, the Tribunal was right in coming to the conclusion that the relevant factual foundation for the levy of penalty has not been established. In this particular case the IAC imposed the penalty only because he was of the opinion that there was a non-co-operative attitude on the part of the assessee. It appeared to him that the assessee was in no mood to furnish either the details of theparties or to produce them for examination. This, in our opinion, does not constitute a cogent or positive material to enable the IAC to impose any penalty. Further, as already stated, the explanation of the assessee, if found to be false is not by itself sufficient for this purpose. In the present case what has merely happened is that the assessee has not produced any material. The assessee has merely denied any concealment. At the most it can be said that the assessee has taken up the stand not to offer any explanation ; but that, in our opinion, is not sufficient. Moreover, in this case the assessee has written a letter denying concealment. In fact what has happened is that .the IAC has rejected such explanation but that is not sufficient. In our opinion, what the IAC has done in the present case is that he has put the burden on the assessee. He had no material before him and he has merely relied on the attitude or conduct of the assessee in not having produced materials in support of his case in spite of opportunity being given to that effect. In our opinion, it was not open to the IAC to impose such penalty on the basis of such conduct of the assessee alone. That, in our opinion, is not sufficient. Accordingly, in our opinion, the Tribunal was justified in passing the order as it did. We may also point out in this context that Mr. Bhattacharya was justified in pointing out that as the IAC did not take any step under Section 131 of the Act, it cannot be said that the revenue has made all attempts to prove its case.
16. 'Accordingly, we answer the question in the affirmative and in favour of the assessee. We hold that, in the facts and circumstances of the case, and on a proper interpretation of the order of penalty passed by the IAC, the Tribunal was right in holding that the factual foundation for the levy of penalty was not established and the levy of penalty was, therefore, wrong. There will be no order as to costs.
Sudhindra Mohan Guha, J.
17. I agree.