Hansaria, J.
1. This tax reference relates to the assessment year 1970-71, and has arisen out of these facts. The assessee is an HUF carrying on business of purchase and sale of watches and repairing them. It appears that the upper floor of the building wherein business was carried on, was used as residence by the assessee. On March 4, 1970, the customs authorities conducted a search of the premises and recovered the following articles :
Rs.
(i) 84 Swiss made wrist watches valued
at
11,384
(ii) Hair and main springs valued at
19
(iii) Indian currency notes for
91,6822. A notice under Section 139(2) of the I.T. Act, 1961, for short the Act, was
served on the assessee on June 5, 1970, and on April 19, 1971, he submitted a return of income of Rs. 4,140. The ITO, however, assessed the
total income at Rs. 1,02,610 of which Rs. 98,446 was assessed as deemed
income under Section 69A of the Act. This amount of Rs. 98,446 has the
following break up :
Rs.
(i) Value of 84 Swiss made watches
11,384
(ii) Cost of hair and main springs
19
(iii) Cash amount
87,043 (which was arrived at by
deducting Rs. 4,639 as recorded in the account books from
the total amount of
Rs. 91,682 found on raid).3. The ITO simultaneously started penalty proceedings under Section 271(1)(c) of the Act. As the minimum penalty leviable exceeded Rs. 1,000, the penalty matter was referred to the IAC under Section 274(2) and he being satisfied that it was a definite case of concealment by the assessee imposed a penalty of Rs. 99,000, the minimum penalty leviable being Rs. 98,470 according to him.
4. The assessee had in the meantime preferred an appeal against the assessment order to the AAC who confirmed the assessment as made by the ITO. The Appellate Tribunal was thereafter approached by the assessee both against the assessment order as well as the levy of penalty by the IAC. The Tribunal confirmed the order of the AAC as regards the assessment and that of the IAC in so far as the penalty is concerned.
5. The assessee prayed for a reference to this court on the following question of law having arisen out of the order of the Tribunal; and a reference has accordingly been made to us. The question reads :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the penalty order of the Inspecting Assistant Commissioner imposing a penalty of Rs. 99,000 against the assessee, Patoa Brothers, under Section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1970-71 '
6. The learned counsel for the assessee has advanced three submissions before us to satisfy us that the Tribunal was not justified in confirming the order of penalty. These are : (i) that the deemed income tinder Section 69A had not
arisen in the financial year 1969-70, and so the same could not have been assessed in the assessment year 1970-71 ; (ii) the order of confirmation of penalty is not sustainable because the assesseehad not been given a reasonable opportunity of being heard as required by Section 274(1) of the Act; and (iii) that, on the facts and circumstances of the case, the assessee cannot be said to have concealed the particulars of his income or furnished inaccurate particulars of his income.
7. To appreciate his first submission, Shri Bhatra stated that the following dates would be relevant:
4-3-70--Search
5-6-70--Notice under Section 139(2) of the Act
19-4-71--Return filed
28-5-71--Final order of the Collector, Central Excise
25-8-71 -- Assessment order of the ITO
8. Before proceeding further we may refer to the provisions of Section 69A of the Act, material portion of which reads :
' 69 A. Unexplained moneys, etc.--Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable articles... ...the money and the value of bullion, jewellery or other
valuable article may be deemed to be the income of the assessee for such financial year. '
9. The submission of Shri Bhatra is that as the financial year relevant to the assessment year 1970-71 is 1969-70, that is, from April 1, 1969, to March 31, 1970, it cannot be said that the assessee was found to be the owner of the money, etc., in the financial year 1969-70, inasmuch as the first finding in this regard was on August 25, 1971, by the ITO, which was definitely not in the financial year 1969-70. Shri Bhatra contended that even if the date of filing of the return, or for that matter the order of the Collector is taken to be the relevant date, the same was not in the financial year 1969-70. Thus, the income could not have been assessed in the year 1970-71, said the counsel.
10. We do not, however, think that any of the dates mentioned by Shri Bhatra is relevant in this regard. The learned standing counsel submitted that the order of assessment or, for that matter, of the Collector, should be regarded as a determination of the ownership ; but as the recovery was on March 4, 1970, which was within the financial year 1969-70, the income was rightly assessed in the assessment year 1970-71. The words of the section being 'the assessee is found to be the owner', we are satisfied that the relevant date in this regard would be the date on which the assessee is physically found to be in possession of the money, etc., and this date would not be the one on which the finding about ownership is recorded. Such a finding, whenever recorded, would refer back to the date
of recovery. The learned standing counsel gave a befitting illustration in this regard. He stated that if a theft is committed on a particular date but a finding relating to this is given subsequently, may be after one or two years, the commission of the offence of theft would relate back to the date on which it had been committed, and it would not be connected with the date of the finding arrived at in this context. The decision of Mathuradas Gokuldas v. CIT : [1976]102ITR425(Bom) , cited in this connection by Shri Bhatra, does not assist him inasmuch as the declaration in that case was on January 19, 1946, which fell in the financial year 1945-46, and as such the income from the undisclosed source could have been assessed only in the assessment year 1946-47, and not in the assessment year 1947-48, as was sought to be done in that case. The first submission of the learned counsel for the assessee has, therefore, to be rejected which, we hereby do.
11. The second grievance, as already noted, is related to the non-affording of reasonable opportunity by the IAC. What had happened on this score was that, in response to the notice of show cause issued by the IAC, the assessee had filed a written reply on July 21, 1971. The notice had been issued by the IAC who has passed the ultimate order. But during the period as this particular officer was on leave, the case had come to be fixed for hearing before another incumbent in the office. When notice of the hearing was given by that officer, the assessee stated that he had already filed a reply on July 21, 1971, and the copy of that reply was sent for ready reference. Thereafter, the assessee prayed to stay the penalty proceedings until the appeal against the assessee was disposed of by the AAC. By this time the IAC who was on leave had rejoined and he asked the assessee to see him on October 20, 1971, to discuss the stay matter. The assessee then filed a petition asking for two months' time on the plea that his lawyer or karta was not available. This prayer was rejected. The grievance relating to non-affording of reasonable opportunity is related to this refusal to adjourn the case. As this had nothing to do with the hearing of the penalty proceeding, we do not read any failure to give reasonable opportunity to the assessee in so far as the penalty is concerned. The second submission on behalf of the assessee cannot, therefore, be accepted.
12. The main point which needs determination at our. hands is whether the case of the assessee is covered by Section 271(1)(c) of the Act or not. The submission in this regard, relying on Anwar Ali's case : [1970]76ITR696(SC) and Khoday Eswarsa's case : [1972]83ITR369(SC) , is that the department has merely relied on the falsity of the explanation given by the assessee to impose the penalty which is not sufficient to fasten the penal liability. Both these cases were under the Act of 1922 and it was stated that a finding in the assessment order that the disputed amount represented
the income of the assessee cannot be regarded as conclusive for the purpose of the penalty proceeding which is penal in nature, though that finding would constitute a good evidence. We have noted that the ratio of these two decisions has been followed by the Supreme Court in Anantharam Veerasinghaiah & Co. v. CIT : [1980]123ITR457(SC) , which is a case under the new law. Pathak J. has stated in this case that the law understood by the Supreme Court in Anwar Ali's case : [1970]76ITR696(SC) is the law even under the new Act.
13. Even this decision of the Supreme Court has not examined the matter in the context of the Explanation to Section 271(1)(c), which was inserted by the Finance Act, 1964, and was holding the field at the relevant time. The material portion of the Explanation reads :
' Explanation,--Where the total income returned by any person is less than 80 per cent. of the total incom3......as assessed.........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 sub-section.'
14. The Explanation has thus made a significant difference in the burden which the department had to discharge before levying penalty under Clause (c). Where the returned income be less than 80 per cent. of the total assessed income, the Explanation has created a legal fiction by saying that the assessee shall be deemed to have concealed the particulars of his income or to have furnished inaccurate particulars, 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. The scope and significance of the Explanation has been the subject-matter of a legion of cases by this time. It is not, possible, indeed not necessary, to refer to a large number of them, as the purpose would be well served by dealing with a few of them. Before this is done we may clear the ground by stating that as the returned income in the present case was Rs. 4,140 and the total assessed income ultimately stood at the figure of Rs. 1,02,610, the applicability of the Explanation is apparent, as the returned income was much less than 80 per cent. of the total assessed income. We have felt it necessary to mention about this aspect, though it is apparent, because on the last day of the hearing when Shri V. K. Bhatra had argued the case he had submitted by referring to Padma Ram Bharali v. CIT and Burmah-Shell v. ITO : [1978]112ITR592(Cal) that the Explanation would not apply. In Padma Ram Bharali, the Explanation was held not to be attracted because after the income of revised returns was taken into account, the total income validly returned was not found to be less than 80 per cent. of the
total income assessed. In the present case, however, the difference is staggering. Burmah-Shell was sought to be pressed into service because when the penalty proceeding had been initiated by the ITO, there was no reference about the Explanation, It was, therefore, observed that the facts clearly indicated that the satisfaction of the ITO was not based on the Explanation. But the Calcutta High Court did not rule out the applicability of the Explanation on this ground. It was rather of the view that there was an absence of fraud or gross or wilful neglect on the part of the assesses in not returning the correct income, as what had happened there was that the assessee, which was a sterling company, claimed certain deductions and loss in consequence of devaluation of the rupee which was not accepted by the assessing officer.
15. It has to be seen in the present case whether the failure on the part of the assessee was or was not due to any fraud or gross or wilful neglect on its part. At this stage it would be useful to refer to a recent decision of the Andhra Pradesh High Court in Addl. CIT v. Krishnamurthy : [1980]121ITR326(AP) , wherein the nature and scope of proof required of the assessee has been reviewed in the context of the Explanation to Section 271(1)(c), by referring to a large number of cases. The Division Bench has stated, and rightly, that the Explanation has only placed an initial burden on the assessee, which is not absolute, to prove that there was no fraud, etc., on his part in returning the correct income. This burden is akin to that of one in a civil case. The assessee need not prove the same by any positive evidence and he may rely upon the materials already on record. Thus, the onus placed on the assessee is rebuttable,
16. We do not, however, agree with the holding in this case 'that, in spite of the Explanation, the penalty proceeding being penal in character, the original statutory onus cast on the department that the assessee had concealed his income or furnished consciously inaccurate particulars of his income Still remains to be discharged, and that there has to be positive proof that the disputed income was the income of the assessee, in spite of the Explanation. If it were to be so, the Explanation would be eroded of its significance, nay it would become otiose, because if the burden remains as it is, despite the Explanation, to serve what purpose was the Explanation inserted The Explanation having stated that on the assessee not proving that the failure to return the correct income was not due to any fraud, etc., he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, how can it be said that even on the Explanation getting attracted and on failure of the assessee to discharge his onus, the department must further prove that the disputed income was the income of the assessee by bringing some further material on record, apart from the falsity of the explanation of the assessee. Of course, where
the assessee discharges his onus, for which proof by preponderance of probability would be enough, the department shall have to satisfy its burden of establishing that : (1) the disputed income was .really that of the assessee, and (2) there was conscious concealment of the income, and this burden is akin to that of the prosecution in a criminal case. But where the assessee fails to throw back the ball in the court of the department, the legal fiction created by the Explanation would take care of both the above ingredients necessary to bring home the penal provision. It deserves to be pointed out that the legal fiction created by the Explanation is the very same which is required by Clause (c) of Section 271(1), namely, that the assessee has 'concealed the particulars of his income or furnished inaccurate particulars of such income'. It is well settled that a legal fiction created by law must be taken to its logical conclusion for the purpose for which it is created, though it cannot be extended beyond its legitimate field.
17. We have thought it fit to refer to a decision of this court in F. C. Agarwal v. CIT . The Explanation had also come up for examination in that case. There, the assessee had initially filed returns for the assessment year 1963-64 showing income of Rs. 30,750, which was raised to Rs. 2,74,189 by filing a revised return. Similarly, for 1964-65, a sum of Rs. 36,315 was initially shown as income which was raised to Rs 3,35,181, For 1965-66, the return showing 'nil' income was filed, which was said to be Rs. 81,030 subsequently. The Bench took note of the staggering difference between the original and revised returns and was satisfied that the revised returns were not merely the result of inadvertent mistakes or omissions. The totality of the circumstances clearly pointed out, according to the Bench, that it was a case of gross or wilful neglect on the part of the assessee, which the assessee had not been able to disprove. The Explanation to Section 271(1)(c) was, therefore, held to be applicable. In referring to this decision, we may not be understood to say that, in all cases of revised returns, fraud, etc., can be read on the part of the assessee.
18. In the present case, the stand of the assessee was that the cash in question had belonged to Kaushalya Devi, widow of Parboti Sankar, whose sons are the major coparceners and members of the HUF. According to the assessee the cash had been bequeathed to Kaushalya Devi by her husband before his death on December 9, 1965, and had been seized from the box by the bed side of Kaushalya Devi. It was alternatively stated that the money represented the accumulated small savings over a period of 50 years by Kaushalya Devi. As to the watches, the case of the assessee was that some interested persons might have placed these articles in the back room in order to harass the assessee. Both the IAC as well as the Tribunal have gone into the explanations of the assessee and have rejected
the same by giving good reasons ; for coming to these findings the authority have taken note of the fact that Parboti Sankar was not an income-tax assessee and his income being within taxable limit, he could not have bequeathed the heavy amount to his wife. It has also been noted that in 1973 B.S. Kaushalya Devi had introduced cash of Rs. 7,000 in the account books of the HUF of which Rs. 2,000 was accepted as her past savings and the balance was added as income of the HUF. Then certain statements made by the customs officials on the date of seizure were taken note of, which belied the case of the assessee that the amount had belonged to Kaushalya Devi. As to the watches, the explanation given before the IAC that these were planted was not believed. The Tribunal agreed with these findings and came to the conclusion that the case of the assessee is fully covered by the Explanation.
19. Before us the same explanations were repeated and it was sought to be impressed on us that the non-disclosure was not due to any fraud or gross or wilful neglect on the part of the assessee. We cannot accept this submission as the explanation does not inspire confidence and the same has been rightly disbelieved by the Tribunal. On the facts as they are, we cannot but hold that the assessee did not dischargee his onus or that the failure to return the correct income was not due to any fraud or gross or wilful neglect on his part.
20. We1 would now deal with CIT v. Vinaychand Harilal : [1979]120ITR752(Guj) , cited by Shri Bhatra, in this connection. That was also a case where, under the deeming provision of Section 69A of the Act, the assessee was assessed on a sum of Rs. 60,000. A penal proceeding had also been initiated wherein the assessee concerned denied that the addition represented his concealed income. What happened there was that in the appeal against the assessment before the AAC the assessee had conceded that the amounts belonged to him and might be assessed in his hands. The IAC rejected the contention that the addition did not represent the concealed income and imposed penalty. The Tribunal, however, set aside the penalty order. On a reference, it was held by the Gujarat High Court, that the revenue could assess the sum of Rs. 60,000 on the basis of the admission made by the assessee, but the same did not discharge the onus on the revenue of proving that the amount of Rs. 60,000 represented the income of the assessee of the particular financial year. The admission of the assessee was not held to be that the amount was his income in the particular year in question. It was further stated that it had not been established by the revenue that there was accretion to the net wealth of the assessee during the relevant year under consideration. There was nothing on record to show what was the wealth of the assessee before the commencement of the year under
consideration and what was the accretion to his wealth in the course of the particular year. These materials being lacking, it was held that the burden cast by the Explanation upon the assessee must be held to have been discharged. The decision of the Tribunal was, therefore, confirmed.
21. The facts of the present case are different. Herein certain articles were found, relating to which the explanation of the assessee has been found unacceptable. The fraud on the part of the assessee is almost apparent according to us. It is not a case of the type which the Calcutta High Court had dealt with in Burma-Shell : [1978]112ITR592(Cal) . The claim in the present case is not based on any legal contention as was in Burma-Shell : [1978]112ITR592(Cal) . This apart, to be candid, we do not, with respect, agree with what had been said by the Gujarat High Court in the above case. If the burden of proof that the income in question was earned in the particular year were to rest with the department despite the applicability of the Explanation, we would think that the Explanation would become nugatory. The onus placed on the assessee cannot be held to be discharged, in our considered view, because of the failure of the department to place those materials on record about which mention has been made in Vinaychand : [1979]120ITR752(Guj) . The lack of fraud, etc., of the assessee has to be proved by him. Any weakness of the department to prove that the income was relatable to the particular year and that the conduct of the assessee was contumacious, cannot be pressed into service by the assessee in this regard, according to us.
22. Because of all the above, we would reject the third submission advanced on behalf of the learned counsel for the assessee, as its case is squarely covered by the Explanation.
23. The reference is, therefore, answered in affirmative, i. e., in favour of the department. Let a copy of this judgment be sent under the seal of this court and under the signature of the Registrar to the Tribunal to enable it to pass such orders as are necessary to dispose of the case conformably to such judgment.
D. Pathak, Actg. C.J.
24. I agree.