S. S. BYAS J. - In pursuance of the directions issued by this court under section 256(2) of the Income-tax Act, 1961 (for short 'the Act'), the Income-tax Appellate Tribunal, Jaipur, has referred the following question of law for our opinion :
'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in cancelling the penalty of Rs. 15,500 levied by the Inspecting Assistant Commissioner under section 271(1)(c) of the Income-tax Act, 1961, for concealment of income ?'
Briefly recounted, the material facts giving rise to this reference are that the assessee is an individual. The assessment year in dispute is 1967-68. The assessee filed the return for the aforesaid year on September 14, 1967, declaring an income of Rs. 3,986. Subsequently, she filed a revised return on July 29, 1971, declaring an income of Rs. 11,703 therein. The Income-tax Officer determined the income of the assessee at Rs. 67,907 by his order, annexure 1, dated March 28, 1972. He also held in his assessment order that the assessee was the owner of a truck RJY 1600. But she has neither shown the income earned from this truck in the original nor in the revised returns. He, therefore, took it to be a case under section 271(1)(c) of the Act where the assessee had concealed the particulars of her income or had furnished inaccurate particulars of the income. According to the Income-tax Officer, the assessee had earned Rs. 3,000 as income by plying the truck. He also added a sum of Rs. 12,119 as profit under section 41(2) of the Act. The total income from the truck was thus determined to be Rs. 15,119. But he was not competent to impose penalty; hence he referred the matter to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner issued notice to the assessee and heard both the parties at length. The assessee contended before the Inspecting Assistant Commissioner that she was not the owner of the truck RJY 1600. The truck belonged to one Behari Lal. Behari Lal had shown the income from this truck in the return filed by him and tax was assessed thereon. This contention did not find favour with the Inspection Assistant Commissioner. He held that this contention of the assessee that the truck did not belong to her was rejected by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal earlier in the assessment proceedings. The Inspecting Assistant Commissioner, therefore, rejected the contention of the assessee that the truck did not belong to her. He further held that the assessee was guilty of concealing her income which she earned from this truck. He, therefore, imposed a penalty of Rs. 15,500 on the assessee under section 271(1)(c) of the Act. The assessee went in appeal before the Tribunal. The Tribunal set aside the order of the Inspecting Assistant Commissioner. The Tribunal took the view that penalty proceedings are independent proceedings and the Inspecting Assistant Commissioner should have, therefore, examined the explanation submitted by the assessee and the evidence on record independently of the finding given in the assessment proceedings. The Commissioner of Income-tax thereafter submitted an application before the Tribunal to make a reference to this court, but the Tribunal rejected that application also. The Commissioner thereafter come to this court under section 256(2) of the Act. This court directed the Tribunal to state the case and refer to this court the question of law. It is thus that we have the reference before us.
We have heard Mr. B. R. Arora, learned counsel for the Revenue, and Mr. J. L. Daga, learned counsel for the assessee.
It was contended by Mr. Arora that the view taken by the Tribunal is wholly erroneous and unsustainable. The assessment year is 1967-68. section 271(1)(c) had undergone a change and an Explanation was added in 1964. The word 'deliberately' occurring clause (c) was deleted and the onus was kept on the assessee to show that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. The Tribunal did not take this Explanation into consideration while deciding the appeal. It was argued that if the Tribunal had taken into consideration the Explanation, the error would not have crept in. It was argued that the bare and bald submission of the assessee that she was not the owner of the truck was given undue weight and importance at the cost of the Explanation occurring in the section. It was further argued that the Tribunal did not record a finding whether the submission made by the assessee was sufficient to show that she was not guilty of any fraud or any gross or wilful neglect in not disclosing her income for the year 1967-68 which she earned from the plying of the truck and its sale. Reliance, in support of the contention, was placed on CIT v. Ketini Krishnamurty : [1976]103ITR487(Orissa) , CIT v. Puranmal Prabhudayal : [1977]106ITR675(Orissa) , CIT v. Gyan Prakash : [1979]116ITR513(All) , Vishwakarma Industries v. CIT and Addl. CIT v. Mangalsen Mohanlal : [1982]136ITR905(All) . It was, on the other hand, contended by Mr. Daga that the question whether the assessee was guilty of any fraud or any gross or wilful neglect in concealing the particulars of her income or furnishing inaccurate particulars, was a question of fact. Since the Tribunal has held this question against the Revenue, this question of fact should not be reopened in this reference proceeding. He strived his best to sustain the order of the Tribunal. We have taken the respective submissions into consideration.
As stated earlier, the assessment year is 1967-68. In that year, section 271(1)(c) of the Act was (and is still) as under :
'271. Failure to furnish returns, comply with notices, concealment of income, etc. - (1) If the Income-tax Officer or the Appellate Assistant Commissioner (or the Commissioner Appeals) in the course of proceedings under this Act, is satisfied that any person - ...
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,...'
There was an Explanation to sub-section (1), which was engrafted in 1964. It read as under :
'Explanation. - Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this subsection.'
A bare reading of the aforesaid Explanation makes it amply clear that where the income returned by any person is than eighty per cent. of the income assessed, such person shall be deemed to have concealed the particulars of his income, etc., for the purpose of clause (c) of section 271(1) unless he establishes that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. Thus, when the Explanation was attracted to a given situation, the shifted to the assessee to show the lack of fraud or gross or wilful or wilful neglect. The Explanation came into play as soon as it was found that the total income returned by the assessee was less than eighty per cent. of the total income assessed under the Act. As soon as this condition of eighty per cent. is fulfilled, the other provisions of the Explanation will be automatically attracted for their applicability. We may now refer to a few decisions on the point.
In CIT v. K. C. Behera : [1976]103ITR479(Orissa) , considering the effect of the Explanation to section 271(1)(c), it was observed (p. 486) :-
'That decision (Anwar Alis case : [1970]76ITR696(SC) has no application to initiation of penalty proceedings subsequent to April l, 1964. The Explanation brought in radical changes. The object of the Explanation was to get over the difficulty created by decisions which placed the burden of proving concealment of the particulars of the income on the Revenue as was done in Anwar Alis case. The Explanation now places the burden of proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect of the assessee. The object of the Explanation is to create a presumption in favour of the Revenue in a certain contingency. That is to say, where the total income returned is less than eighty per cent. of the total income assessed, the presumption would apply. The presumption is a rebuttable one and can be displaced by the assessee by proving that the failure to failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part.'
The aforesaid decision was followed by the same High Court in CIT v. Ketini Krishnamurty : [1976]103ITR487(Orissa) , and it was observed (p. 488) :
'It would be sufficient to say that this court laid down in unmistakable terms that the onus was under the Act on the assessee to establish that the suppression was not deliberate. This onus, doubtless, is not, as in a criminal case, to be established beyond reasonable doubt, but is to be in accordance with the preponderance of probabilities as applicable to a civil suit. We would, accordingly, answer the question in the negative by saying that in the facts and in the circumstances of the case, the levy of penalty could not be deleted on the footing that it was not exigible.'
Again, in CIT v. Puranmal Prabhudayal : [1977]106ITR675(Orissa) , the same view was reiterated by the Orissa High Court.
In CIT v. Patna Timber Works : [1977]106ITR452(Patna) , the learned judges of the Patna High Court observed (p. 462) :
'The assessee, within the meaning of the Explanation, is required to prove that the failure to return correct income did not arise from any fraud or gross or wilful neglect on his part, that means, there is absence of fraud or gross or wilful neglect. Ordinarily and generally, there cannot be any direct evidence to prove such a fact. The assessee merely has to place materials of the primary facts of the circumstances which in all reasonable probability would show that he was not guilty of any fraud or gross or wilful neglect. He may discharge this onus by placing the facts found in the assessment order to show that the facts found therein had not in the least given an inkling of fraud or gross or wilful neglect on the part of the assessee and, therefore, it must be held without proof of any other fact that there was no fraud committed by the assessee in his failure to return the correct income nor was he acting grossly or wilfully negligently.'
The aforesaid view was followed later on by the same High Court in CIT v. P. A. Patel : [1981]127ITR390(Patna) and CIT v. Central Kooridih Colliery Co. : [1985]153ITR311(Patna) . In Central Kooridih Colliery Companys case, it was observed that after the addition of the Explanation with effect from April 1, 1964, the position in this respect has changed and the decision rendered in Anwar Alis case : [1970]76ITR696(SC) has no application.
In CIT v. Gyan Prakash : [1979]116ITR513(All) , it was observed by the Allahabad High Court that (p. 515) :
'By the amendment of 1964, the word deliberately was omitted from the phrase has concealed the particulars of income or deliberately furnished inaccurate particulars of such income occurring in clause (c). Further, an Explanation was added. From the assessment year 1964-65 onwards, the Explanation applied to the proceedings. In cases covered by the Explanation, namely, where the returned income is less than 80 per cent. of the assessed income, the concealment on the part of the assessee is presumed. The presumption is rebuttable by the assessee proving that the failure to return the correct income was not due to fraud of gross or wilful negligence on his part.'
It was further stated that Anwar Alis case : [1970]76ITR696(SC) has no application where the provisions of the Explanation are attracted. The aforesaid view was followed by the same High Court later on in Addl. CIT v. Mangalsen Mohanlal : [1982]136ITR905(All) and it was observed that in a case where the provisions of the Explanation are attracted, the propositions of Anwar Alis case have no applicability.
In Vishwakarma Industries v. CIT , the Full Bench of the Punjab and Haryana High Court had occasion to consider the effect of the Explanation. After noticing the various decisions, the learned judges observed (p. 671) :
'To conclude, it must be that held that the parent intent of the legislature in amending section 271(1)(c) and in inserting the Explanation thereto by the Finance Act of 1964 was to bring about a change in the existing law. Consequently, the ratio of Anwar Alis case : [1970]76ITR696(SC) , which had considered the earlier provisions of section 28(1) of the 1922 Act, is no longer attracted. The true legal import of the Explanation is to shift the burden of proof from the department on the shoulders of the assessee in the class of cases where the returned income was less than 80 per cent. of the income assessed by the department. In this category of cases, the Explanation raises three rebuttable presumptions against the assessee as spelt out in detail above in para. 16 of this judgment. The onus of proof for rebutting these presumptions lies on the assessee. This burden, however, can be discharged (as in civil cases) by the preponderance of evidence. Equally, it would be permissible in the penalty proceedings for the assessee to show and prove that on the existing material itself the presumption raised by the Explanation stands rebutted.'
In CIT v. Ratanlal Mishrilal : [1983]143ITR929(MP) , the learned judges of the Madhya Pradesh High Court observed (p. 932) :
'But if the total income returned was less than 80 per cent. of the total income assessed, the burden is on the assessee to prove that the failure to return the correct income did not arise from fraud or any gross or wilful neglect. The proof necessary under this Explanation was not as required in a criminal case.'
We are in respectful agreement with the principles laid down in the aforesaid decisions.
The legal position, which thus emerges is that : (1) Penalty proceedings are distinct from assessment proceedings and are independent therefrom. The levy of penalty is not an automatic concomitant of the assessment. The Act provides separate provisions for the manner of imposition of penalty. The assessee is to be served with a separate notice under section 274 of the Act and is to be heard in pursuance of it;
(2) where the total income returned by the assessee is less than eighty per cent. of the total income assessed by the authority, the provisions of the Explanation would at once be attracted;
(3) in the aforesaid situation, it will be presumed that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income for the purpose of clause (c) of section 271(1);
(4) this presumption is a rebuttable one. In order to rebut this provision, the assessee should prove and establish that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part;
(5) the burden to prove the lack of fraud or gross or wilful negligence is, no doubt, on the assessee, but he can discharge this burden in more than one way. This onus is not so heavy as is in a criminal case. The onus may be discharged by the assessee by leading evidence or by pointing out the materials available on record in the assessment proceedings or the penalty proceedings. At times, even the explanation of the assessee, its nature and probabilities arising therefrom may be sufficient to discharge the burden provided the explanation is not unfounded. The quantum of proof necessary would be that required in a civil case, having preponderance of probabilities; and
(6) in a case where the provisions of the Explanation are attracted, the ratio of Anwar Alis case : [1970]76ITR696(SC) is inapplicable.
Reference may also be made to Anantharam Veerasinghaiah & Company v. CIT : [1980]123ITR457(SC) and Col. H. H. Sir Harinder Singh v. CIT : [1972]83ITR416(SC) decided by their Lordships of the Supreme Court. We have carefully gone through these decisions and find nothing therein to come to the rescue of the assessee. In both these authorities, there was no occasion for their Lordships to consider the effect of the Explanation.
Coming to the case on hand, the assessment year is 1967-68. The total income returned by the assessee in the revised return is Rs. 11,703 and the total income assessed by the Department is Rs. 67,960. Thus, the total income returned by the assessee is less than eighty per cent. of the total income assessed by the Department. Naturally, therefore, the provisions of the Explanation are applicable. This income included the amount of Rs. 15,119 as the income or profit from truck RJY 1600. The Income-tax Officer as well as the Inspecting Assistant Commissioner held that the assessee had concealed this income of Rs. 15,119 and did not show it in her return. The contention of the assessee that the truck did not belong to her was rejected by both the authorities. The Income-tax Appellate Tribunal set aside this finding and held that the Explanation given by the assessee was not taken into consideration by the Income-tax Officer as well as by the Inspecting Assistant commissioner. It would be useful to reproduce the following passage from the Tribunals order :
'The learned Inspecting Assistant Commissioner did not give a finding on these points. As a matter of fact, the learned Inspecting Assistant Commissioner imposed penalty solely on the basis of the finding given in assessment proceedings. Looking to the facts and the explanation given by the assessee in penalty proceedings, the learned Inspecting Assistant Commissioner should have independently examined the explanation of the assessee and all evidence on record. Since the learned Inspecting Assistant Commissioner failed to do so, as such, in our opinion, the penalty order could hardly be sustained.'
The Tribunal thus set aside the order of the Inspecting Assistant Commissioner but without assigning any reasons. The Tribunal, no doubt, took the explanation of the assessee into consideration but failed to record a finding that the explanation was sufficient to discharge the onus lying on the assessee under the Explanation that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. It was incumbent on the Tribunal to record a finding on the aforesaid question of lack of fraud, negligence, etc. It appears that the Tribunal took the view that the bare explanation of the assessee was sufficient. The bare explanation may be sufficient but then it was obligatory on the Tribunal to record a finding that the explanation was sufficient to dislodge the onus lying on the assessee. Unfortunately, the Tribunal has not done so. It appears from the order of the Tribunal that all that was in the background of its mind was the decision rendered in Anwar Alis case : [1970]76ITR696(SC) . The order of the Tribunal does not show at all that the provisions of the Explanation were in the background of its mind when it was considering the case. It may be reiterated even at the fault of repetition that the ratio of Anwar Alis case has no applicability in view of the Explanation to section 271(1)(c) of the Act. As soon as the provisions of the Explanation are attracted, penalty is exigible.
It is, no doubt, true that the question whether there was fraud or gross or wilful negligence on the part of the assessee in disclosing the correct income, is a question of fact. But the Inspecting Assistant Commissioner as well as the Tribunal committed serious legal errors and omissions in deciding this question of fact. The Inspecting Assistant Commissioner did not take into consideration the explanation of the assessee and thus committed a grave legal error. The Tribunal also failed to take into consideration the provisions of the Explanation and thus committed a grave error of law.
The next question which arises for our consideration is what should be our approach in such a case. The Tribunal has not taken into consideration the fact whether there was any material on record to support the explanation of the assessee. If we answer the reference in the negative, i.e., that the approach of the Tribunal was erroneous and the levy of penalty could not be deleted on the ground that it was not exigible, our answer would cause serious injustice to the assessee for no fault of hers. The Tribunal is the final court of fact. It did not examine the facts or the explanation of the assessee, keeping the Explanation to section 271(1)(c) in view. The only proper course for us is, therefore, to send back the case to the Tribunal with a direction to look into the record and dispose of the appeal on the basis of the same and in the light of the observations which we have made above. This is a fit case which the Tribunal should hear again. The case would, therefore, go back to the Income-tax Appellate Tribunal, Rajasthan, Jaipur, to hear the parties after giving them notice and thereafter to dispose of the appeal in the light of the observations made by us above.
The reference is accordingly answered. In the circumstances of the case, we pass no order as to costs.