1. These four appeals by the assessee are directed against the separate but similar orders of the learned Commissioner of Income-tax (Appeals) of even date, i.e., August 28, 1989, in relation to the assessment years 1979-80 and 1980-81. Two of the appeals challenge the penalties levied and confirmed under Section 271(1)(c) and the other two appeals challenge the penalties levied and confirmed under Section 273(2)(c) of the Act.
2. The original return of income for the assessment year 1979-80 was filed on August 22, 1979, declaring a total income of Rs. 76,440. A revised return was filed on January 26,1986, declaring a total income of Rs. 2,18,860, which was further revised as per the return filed on January 30, 1986, declaring a total income at Rs. 2,36,540. For the assessment year 1980-81, the original return of income was filed on June 27, 1980, declaring the total income at Rs. 1,07,650. A revised return was filed on January 26, 1986, declaring a total income of Rs. 2,02,260, which was further revised as per the return filed on March 31, 1986, declaring a total income at Rs. 2,56,650. In reply to the show-cause notices, the assessee reiterated the facts of submitting the original return and two revised returns. It also submitted that the revised returns were filed under the Amnesty Scheme introduced by the Department. The assessee further stated that it had withdrawn the appeals filed against the assessment orders passed by the Income-tax Officer. The revised returns were filed to buy peace of mind and to avoid long-term litigation although the assessee had not accepted the addition, but only offered the same for taxation as per its letters dated January 30, 1986. The Income-tax Officer did not accept the assessee's contention. He found that the assessment for the assessment year 1979-80 was completed on February 19, 1986, and that for the assessment year 1980-81, on February 18, 1986, on the total incomes of Rs. 2,47,543 and Rs. 2,68,057 respectively, which included for the first year the income from undisclosed sources amounting to Rs. 1,30,000 and interest of Rs. 39,606 thereon and for the second year the income from undisclosed sources amounting to Rs. 1,07,000 and interest amounting to Rs. 51,908 thereon. The Income-tax Officer further found that the assessee had concealed the undisclosed incomes for the two years and was, therefore, liable to penalties under Section 271(1)(c) of the Act. He was further of the view that the assessee could not claim exemption from penalty on the ground that it had made a voluntary disclosure under the Amnesty Scheme. At the most the assessee could claim only leniency in the matter of quantum of penalty. Taking this view, the Income-tax Officer proceeded to impose the minimum penalty of Rs. 1,15,760 for the first year and a penalty of Rs. 1,14,420 for the second year.
3. During the course of the proceedings in the first appeal, it was submitted on behalf of the assessee before the learned Commissioner of Income-tax (Appeals) that the assessee had made a disclosure during the course of the assessment proceedings with a view to buy peace. The disclosure was made under the Amnesty Scheme and much before the concealment of income and interest was detected. No penalties were, therefore, justified either under Section 271(1)(c) or under Section 273(2)(c) of the Income-tax Act. The learned Commissioner of Income-tax (Appeals) has rejected the contention of the assessee and confirmed the penalties imposed under Section 271(1)(c). As a natural corollary, the minimum penalties of Rs. 2,790 for the assessment year 1979-80 and Rs. 2,940 for the assessment year 1980-81 levied under Section 273(2)(c) have also been confirmed.
4. The learned authorised representative of the assessee, while challenging the impugned orders of the learned Commissioner of Income-tax (Appeals), made two contentions before us. His first contention was that the assessee had not concealed any income inasmuch as it had disclosed all the primary and required facts during the course of the assessment proceedings themselves. At no stage of the proceedings had the assessee admitted that it had concealed any income.
The revised returns were filed with a view to buy peace and to put an end to the litigation. The second contention was to the effect that the assessee, vide its letters dated January 30,1986, had made a voluntary disclosure under the Amnesty Scheme with a view to buy peace. The disclosure was made before the detection of the alleged concealments.
This disclosure was in pursuance of the Amnesty Scheme introduced by the Department. There was thus no justification for imposing any penalty. In support of his arguments, the learned representative of the assessee relied upon the following decisions, viz. : 5. As against the above, it was urged by the learned Departmental Representative that, during the course of the assessment proceedings, the assessee was required to submit proof of the cash loans claimed to have been received during the two years. It is only when the assessee failed to produce any satisfactory evidence and felt that it could not substantiate its claim that it filed the revised returns showing higher incomes. The disclosure of the concealed income was thus neither voluntary nor made before the detection of the concealments. Merely by giving the particulars with regard to the identity of the lenders, the assessee could not be held to have discharged its burden. When the assessee failed to prove by satisfactory evidence the fact of its having borrowed amounts from the creditors and the capacity of those creditors to finance such loans, it could not be said to have discharged its burden. In these circumstances, the Revenue authorities were not unjustified in coming to the conclusion that the assessee, by showing bogus loans in its books of account, had concealed its income.
6. We have considered the facts and circumstances of the case and have come to the conclusion that these appeals by the assessee cannot succeed. The chronological history of the assessment proceedings is available in the respective assessment and penalty orders. The notes made in the assessment orders show that, before finalising the assessments, a number of opportunities were given to the assessee requiring it to produce evidence as was available with it to show that these loans were genuine. The last such opportunity for both the years was given through letter(s) sent on January 13, 1986, requiring the assessee to produce the evidence with regard to the genuineness of the loans. It is only after such repeated opportunities and the letter(s) dated January 13, 1986, that the assessee revised the returns for both the years on January 27, 1986, declaring the amounts of loans and the interest thereon as the income of the assessee. For the assessment year 1980-81, this declaration of higher income was made in respect of only two loans. Such declaration in respect of the third loan of Rs. 40,000 alleged to have been received from M/s. Alka Trading was made only by way of a second revised return filed on March 31, 1986. This was done only after it was pointed out to the partner of the firm on January 27, 1986, that M/s. Alka Trading had also failed to confirm the advance of loans to the assessee. Similarly, in relation to the assessment year 1979-80, the assessee filed the first revised return on January 27, 1986, showing the loans to the extent of Rs. 1,00,000 and interest thereon as its miscellaneous income. It was only when it was again pointed out to the assessee that the alleged loan from M/s. Savita International of Rs. 20,000 was also not genuine that the assessee filed the second revised return on January 31, 1986. In the context of this chronological history of the case, it would not be correct to contend that the assessee had furnished all material particulars and evidence and had not made any concealment of its income. Moreover, the letters dated January 30, 1986, for both the years, seeking the benefit of the Amnesty Scheme were filed only after the filing of the first revised returns. Even after the filing of the first revised returns, the assessee had persisted with its claim of the remaining loan being genuine for each of the two years. It was only after it was pointed out to the assessee's partner that the remaining loan was also not genuine that he chose to file the second revised return for each of the two years. In view of these facts and circumstances, we do not feel persuaded to accept the assessee's contention that there was no concealment of income or that the disclosure was made by the assessee voluntarily. Indisputably, the disclosure was made only in compelling circumstances when the assessee, on being required to furnish proof of the genuineness of the loan, failed to furnish any satisfactory evidence.
7. As regards the second contention of the assessee, here again, we do not find any force in it. The learned representative of the assessee referred to the departmental circulars on the Amnesty Scheme.
Particular reference was made by him to question No. 19 and its answer, which are part of Circular No. 441 (F. No. 225/86/85-I.T. (A-II) dated November 15, 1985. That part of the circular reads as under : " Question No, 19 : Kindly clarify the expression ' before detection by the Department' " Answer : If the Income-tax Officer has already found material to show that there has been concealment, that would mean the Department has detected the concealment. If the Income-tax Officer only had prima facie belief that would not mean that concealment has been detected." ( emphasis * provided ) 8. The learned representative of the assessee contended that the declaration was made by the assessee much before the detection of the alleged concealments by the Income-tax Officer and, therefore, the assessee is entitled to the benefit of the Amnesty Scheme. We find that it would be difficult to accept such a view of the matter in the present case. As is evidenced by the assessment orders for the two years, the Income-tax Officer had found that, in the earlier years also, claims of bogus loans were made by the assessee. Some of such loans were alleged to have been received from the same parties from whom the loans were claimed to have been received during the two years under appeal. The Income-tax Officer had formed an opinion to the effect that these loans were not genuine and had accordingly required the assessee, long before the filing of the revised returns by it, to produce evidence to the effect that these loans were genuine. For the production of the evidence on the point, the assessee was given repeated opportunities, but it failed to substantiate its claim.
Finally, on January 13, 1986, the Income-tax Officer gave a last opportunity to the assessee to produce the evidence. It is only when the assessee felt that it had no evidence or that the evidence, if any, could not prove to be satisfactory, that it filed its revised returns including therein the amounts of some of those questioned loans. Even at that stage of the proceedings the amounts of all the questioned loans were not included in the first revised returns. On the next date of hearing, i.e., on January 27, 1986, the partner of the assessee was further questioned about the remaining loans and was told that those loans were also not genuine. It was only after this exercise that the assessee chose to file the second revised returns including therein the amounts of those remaining loans. In this historical background of the assessment proceedings, it would be difficult to accept the assessee's contention that the declaration made by it with regard to the loans was voluntary and that the declaration was made before the detection of the concealments by the Department. The facts and circumstances clearly show that the Department had found material to show that there had been concealment and it was for this reason that the assessee was repeatedly required and given opportunities to file evidence to show that the loans were genuine. The assessee filed the revised returns only in compelling circumstances and as such we do not feel inclined to accept the assessee's contention to the effect that the declaration of enhanced incomes in the revised returns was made voluntarily. As regards the court/Tribunal decisions cited above, we find that they do not offer any material assistance to the assessee in the present case.
The facts in those cases before the court/Tribunal were clearly distinguishable and materially different from the facts of the case before us. In the present case the original returns were filed on August 22, 1979, and June 27, 1980, respectively. In the course of the assessment proceedings, the assessee persisted that the questioned loans were genuine ones. It is only after the failure of the assessee to produce satisfactory evidence in spite of repeated opportunities given for the purpose that the assessee found itself in a helpless situation. It was only in such compelling situation that the assessee chose to file its first revised returns declaring therein the amounts of some of those loans. Even at that stage of the proceedings, the assessee did not make any voluntary disclosure of the remaining loans.
Those remaining loans were covered by the declaration only in the second revised returns. In the face of these facts and circumstances, we do not feel persuaded to accept the contention of the assessee to the effect that it made voluntary disclosures under the Amnesty Scheme and that such disclosures were made much before the detection of the alleged concealed incomes.
9. From the above discussion of the matter, we conclude that the assessee had concealed the particulars of its income and/or furnished inaccurate particulars of such income in the original returns filed by it and, therefore, was liable to penalties under Section 271(1)(c) of the Income-tax Act for both the years under appeal. The two Revenue authorities were, therefore, not unjustified in levying and upholding the penalties. The amounts levied are the minimum provided under the law. No grievance on that score is, therefore, possible.
10. As regards the penalties under Section 273(2)(c), as a natural corollary to our findings on the question of the penalties under Section 271(1)(c), those penalties are also liable to be sustained.
11. In the result, these four appeals are found to be having no force and shall, therefore, stand dismissed.
12. I have gone through the order passed by my learned brother. I am unable to agree with his conclusions for the reasons mentioned herein.
13. The assessee is a registered firm. For the assessment year 1979-80, it filed its return of income on August 22, 1979, declaring a total income of Rs. 76,440. The first revised return was filed on January 26, 1986, declaring a total income of Rs. 2,18,860. This was followed by the second revised return filed on January 31, 1986, declaring a total income of Rs. 2,36,540. Similarly, for the assessment year 1980-81, the first return was filed on June 27, 1980, declaring an income of Rs. 1,07,650. The first revised return was filed on January 26, 1986, revising the total income to Rs. 2,02,260. The second revised return was filed on January 31, 1986, declaring a total income of Rs. 2,56,650. The assessee filed the revised returns, admittedly, under the Amnesty Scheme introduced by the Income-tax Department. While filing its second revised returns on January 31, 1986, the assessee filed a letter, which reads as under : Ref : GIR No. CV/238-B(1)-Assessment year 1979-80--Without prejudice.
We are revising the return of income by adding the unsecured loans, treating the same as income of the year covering all the additions and disallowances of the year. We are revising the return of income voluntarily to buy peace without admitting any concealment whatsoever... We hope no adverse inference will be drawn by your honour.
We have also to state that while taking loans, we have complied with all the conditions laid down under the law. From which source the loan is given by the parties cannot put the firm into problem. Since the cost of litigation will be more than the tax payable and relying upon the assurance given by the Chairman, Central Board of Direct Taxes in their circular, we are revising the return of income.
14. These returns were accepted by the Department. According to the assessee, no penalties were, therefore, justified either under Section 271(1)(c) or under Section 273(2)(c) of the Act. The Commissioner of Income-tax (Appeals) has rejected the contention of the assessee and confirmed the penalties imposed.
15. The assessee's main contention was that the returns were revised under the Amnesty Scheme and the assessee had not concealed any income inasmuch as it has disclosed all the primary and required facts during the course of the assessment proceedings. At no stage of the proceedings, had the assessee admitted that it had concealed any income. The revised returns were filed with a view to buy peace and put an end to litigation. The second contention was to the effect that such disclosure was made before the 'detection of the alleged concealment.
As this disclosure was made in pursuance of the Amnesty Scheme introduced by the Department, according to him, there was no justification for imposing any penalty. Reliance was placed on Circulars Nos. 423, 432, 439 to 441 regarding declaration of higher income or wealth. Our attention was drawn to question No. 19 of the clarification issued by the Board on this issue.
" Question No. 19 : Kindly clarify the expression 'before detection by the Department' Answer : If the Income-tax Officer has already found material to show that there had been concealment, that would mean the Department has detected the concealment. If the ITO had only prima facie belief, that would not mean that concealment had been detected." 16. According to the assessee, the Assessing Officer did not find any material to show that there has been concealment. In fact, the assessee has been taking steps to show that the creditors were genuine and were identifiable. The Income-tax Officer was only making enquiries and has not even formed a prima facie belief that there was concealment of income. Only to avoid further litigation in the matter since the issue related to some years back, the assessee thought it fit to declare the same under the Amnesty Scheme and all this was done, according to the assessee's submissions, to buy peace and to avoid protracted litigation. Relying upon voluminous paper books filed for each of the years, it was strongly contended that the Department was not justified in levying penalties as was done in the present case.
17. As against these submissions of the assessee, the submissions made by the Departmental representative are reproduced in para 4 of the order of the Judicial Member.
18. Considering the facts and circumstances of the case, I am of the opinion that the returns were revised by the assessee taking the benefit of the Amnesty Scheme announced by the Department. In fact, the purpose of the Amnesty Scheme was to exonerate the assessees from the levy of interest, penalty and prosecution and protracted litigation over the tax matters concerning the assessees. The Scheme was open to those who made such declaration before detection by the Department. In these cases, in my view, the assessee filed the returns in pursuance of the Amnesty Scheme simply to take the benefit of the Amnesty circulars announced by the Government. The clarifications made in this regard amply substantiate the assessee's contentions. The Department has not proved concealment of income beyond relying upon the assessee's revised return filed in pursuance of the Amnesty Scheme. In my view, it would be incorrect to attribute any motives to the assessee declaring higher incomes on each of the occasions in pursuance of the enquiry made by the Assessing Officer on the matter. It was possible for it to do so and the Department did nothing except making enquiries. By simply raising certain queries, the Department has not detected any concealed incomes. The assessee, in fact, -has been persistently claiming that all its cash credits were genuine. It is reasonable to expect the assessee to file the revised returns in pursuance of the Amnesty Scheme as it could be seen that the assessments were being framed after January 31, 1986, and it is probable that the assessee in most of the cases may not be able to substantiate fully the queries as may be made by the Department with regard to the cash credits. I fully accept the assessee's contention that the returns were revised under the Amnesty Scheme announced by the Department just to buy peace. There is nothing on record to show that the facts were otherwise. The assessee, in my view, is justified in claiming immunity from penalty in pursuance of the Amnesty Scheme announced by the Government. The Department has not placed any material to show that the cash credits were, in fact, bogus, non-genuine or non-existing. The mere fact that the assessee was agitating over the issue amply clarifies the stand of the assessee that they were not, in fact, concealed income. I find much force in the arguments made by the assessee. The conduct of the assessee during the assessment year should not be viewed from its own conduct in the earlier years, as in the earlier years there were no Amnesty Schemes and the Amnesty Schemes were announced to enable the assessees to declare certain incomes without the risk of interest, penalty or prosecutions. It is quite possible, looking to the dates of hearing by the Assessing Officer, that the Department could have persuaded the assessee to file the declarations under the Amnesty Scheme. I do not agree with the finding that the Department had found some material to show that there had been concealment and it was for this reason I accept the assessee's contention.
19. From the above discussion of the matter, I conclude that the assessee is not liable to any penalties levied under the Act for the assessment years 1979-80 and 1980-81 as, in my view, the returns were filed under the Amnesty Scheme announced by the Department. It is fair and proper for the Department not to have levied any penalties in the facts and circumstances of the case, keeping its own promise made to the assessees through the Amnesty Schemes and clarifications in the matter.
20. In the result, all the penalties are liable to be cancelled. For these reasons, I allow the appeals.
21. Since there is a difference of opinion between the learned Judicial Member and the learned Accountant Member on the grounds of appeal raised by the assessee in its appeals, we hereby frame the points of difference for the opinion of the President under Section 255(4) of the Income-tax Act, 1961, as under : " 1. Whether, on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in upholding the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961, for the assessment years 1979-80 and 1980-81 2. Whether, on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in upholding the penalty imposed under Section 273(2)(c) of the Income-tax Act, 1961, for the assessment years 1979-80 and 1980-81 ?" 22. These appeals have come before me for my opinion as a third Member under Section 255(4) of the Income-tax Act, 1961, as the members who heard the appeals originally could not agree on the conclusion and referred the points of difference to me : " 1. Whether, on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in upholding the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961, for the assessment years 1979-80 and 1980-81 2. Whether, on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in upholding the penalty imposed under Section 273(2)(c) of the Income-tax Act, 1961, for the assessment years 1979-80 and 1980-81 ?" 23. The facts in this case are not in dispute and I will take them from the order of the learned Judicial Member. The assessee, which is a partnership firm dealing in the manufacture and sale of grey cloth, filed for the assessment year 1979-80 its return of income on August 22, 1979, declaring a total income of Rs. 76,000. This return was revised on March 20, 1982, by showing a further income of Rs. 76,940.
The assessment was completed ex parte on a total income of Rs. 1,77,000, which was arrived at by enhancing the rate of gross profit from 4.5% to 5.8%. On appeal, that assessment was set aside and a fresh assessment was ordered to be made. In the meantime, on January 22, 1986, the return was again revised by admitting a total income of Rs. 2,18,860. At the relevant time, the Amnesty Scheme promulgated by the Government in the Ministry of Finance, Department of Revenue, was in force. I do not have to dwell upon this Amnesty Scheme except to this extent that, if assessees come forward disclosing voluntarily undisclosed income, the Department held out promises and undertakings to take a lenient view about the penal consequences which included even non-levy of penalties, exemption from prosecution, etc. Subsequently, on January 30, 1986, this return was again revised for the fourth time disclosing a total income of Rs. 2,36,540. In these returns revised on January 22, 1986, and January 30, 1986, the assessee offered for assessment certain loans said to have been borrowed by it together with the interest claimed to have been paid on them. Similarly, for the assessment year 1980-81, the original return was filed on June 27, 1980, declaring a total income of Rs. 1,07,650. This return was also revised on January 26, 1986, declaring a total income of Rs. 2,02,260, which was further revised on March 31, 1986, declaring a total income of Rs. 2,56,650. The assessments were completed for both these assessment years accepting the incomes shown as per the latest revised returns. The Income-tax Officer simultaneously instituted penalty proceedings under Section 271(1)(c) for levy of penalty for concealment of income. In response to these notices, the assessee submitted that it had filed the revised returns admitting the loans as income not because the loans constituted its concealed income but because, at that distance of time, it was not possible for it to prove the loans to the hilt and the admission was therefore more by way of purchasing peace with the Department to avoid protracted litigation and also to take advantage of the Amnesty Scheme. It was also brought to the notice of the Income-tax Officer that, while filing the revised return on January 31, 1986, the assessee made its intention very clear in a letter of that date as to why it was offering the loans as income and how it requested the Department that no adverse inference should be drawn from the surrender of the loans and that the assessee was able to prove the genuineness of the loans and actually complied with all the conditions laid down under the law in the direction of proving the genuineness of the loans. Ultimately, it was mentioned in that letter that, since the cost of litigation would be more than the tax payable and relying upon the assurances given by the Chairman, Central Board of Direct Taxes, in their circular, no penalty should be imposed. The Income-tax Officer rejected this explanation and by his orders dated March 28, 1988, levied penalty of Rs. 1,15,760 for the assessment year 1979-80 and Rs. 1,14,420 for the assessment year 1980-81. He also levied penalties under Section 273(2)(c) for both these years of Rs. 2,790 and Rs. 2,940, respectively. The main reason that prevailed with the Income-tax Officer to levy penalty was that, under the Amnesty Scheme, there was no assurance given that for surrender of the amounts of concealed income detected by the Income-tax Officer, no penalty would be levied.
However, only a lenient view would be taken and it was taking a lenient view that only the minimum penalties were imposed. The Income-tax Officer categorically mentioned in his orders that the revised returns filed by the assessee were only after the Department had detected concealment of income and, in any case, not before it, and in neither case were they voluntary.
24. Aggrieved by the imposition of these penalties, the assessee appealed to the Commissioner (Appeals), who confirmed these penalties agreeing with-the Income-tax Officer's view that the imposition of penalties was only after the detection of concealed income by the Department. He mentioned that when the Income-tax Officer was repeatedly asking the assessee to produce proof in support of the loans claimed to have been borrowed, the assessee came forward with the revised returns taking advantage of the Amnesty Scheme. Under the Amnesty Scheme, the assessee was not to be exonerated from the penal consequences unless the surrender was voluntary and not in a case where the Department had cornered the assessee beyond the point of no return.
The surrendered loans amounted to Rs. 1,20,000 and the interest claimed to have been paid thereon was Rs. 39,606 and the assessee could not have surrendered these amounts but for the active investigation launched by the Department. Having thus recorded a categorical finding that the revised returns were filed after the Income-tax Officer had detected concealment of income and the bogus nature of the claim for the allowance of interest, he held that the assessee could not be said to have absolved itself from the penal consequences even under the Amnesty Scheme.
25. Aggrieved by these orders, the assessee appealed to the Tribunal.
The learned Judicial Member held, agreeing with the view expressed by the Department, that the filing of the revised returns was not voluntary and it was only after the Department had detected the concealment of income that the penalties were rightly imposed. To support his view, the learned Judicial Member referred to three aspects : one, the Income-tax Officer found that, in the earlier years also, claims of bogus loans were made by the assessee and some of the loans alleged to have been borrowed this year were from the same parties from whom the loans were claimed to have been received in the earlier years.
Secondly, the Income-tax Officer, long before the filing of the revised returns, had been insisting that the assessee should produce evidence to prove the genuineness of these loans. The assessee was given repeated opportunities but it failed to avail of them. It was only finally on January 13, 1986, that the Income-tax Officer gave a last opportunity to the assessee to produce evidence. As the assessee had no evidence, it filed the revised returns surrendering these loans and by way of a cloak set up a smoke-screen of voluntary surrender under the Amnesty Scheme. Thirdly, even in the first return filed on January 26, 1986, all the loans were not surrendered. A hearing took place on January 27, 1986, between the assessee, its partner and the Income-tax Officer, at which meeting the Income-tax Officer questioned the assessee about the genuineness of the remaining loans. It was only thereafter that the assessee filed revised returns surrendering the balance of the loans also. In these circumstances, it could not be said that the filing of the revised returns was voluntary so as to confer upon the assessee the benefit of the Amnesty Scheme. In the Amnesty Scheme, in response to the question put by the assessee public to the Chairman of the Central Board of Direct Taxes as to what was meant by detection by the Department, the Chairman replied that, if there was material before the Department to lead to the conclusion of concealment of income, that would mean detection but not a mere prima facie feeling entertained by the Income-tax Officer. The Judicial Member held that the pursuit of inquiry repeatedly made by the Income-tax Officer to let in evidence to prove the genuineness of the loans was material before the Department to show that there had been concealment of income.
Eventually, he held that it was only in compelling circumstances that the assessee filed the revised returns and they could not be said to be voluntary.
26. But, the learned Accountant Member had taken a diametrically opposite view. By laying emphasis upon the letter written by the assessee to the Income-tax Officer along with the revised returns, he concluded that the filing of the revised returns was voluntary. He held that the assessee had disclosed all the primary and required facts during the course of assessment proceedings and had held back nothing from the Department. The Amnesty Scheme applied with full force to the assessee. The Department having held out a promise that it would not levy penalties if incomes were surrendered voluntarily, would not be justified in going back on their promise and levy penalties. According to him, the inquiry pursued by the Income-tax Officer would not amount to detection of concealment of income, much less even material leading to the conclusion of concealment of income. When the assessee categorically stated that it was surrendering the loans only to avoid litigation and to buy peace, the Department was not justified in accepting the surrender but in still levying the penalties. He discussed at great length the Amnesty Scheme and held that, from simply raising certain queries, it could not be said that the Department had detected any concealment of income more particularly when the assessee had been persistently claiming that all its credits were genuine. He justified the claim of the assessee that it was not liable for the levy of penalties. According to him, the conduct of the assessee should not be viewed with reference to its conduct in the earlier years.
Ultimately, he held that the finding that the Department had found some material to show that there was concealment of income was not correct and he would accept the assessee's contention and would cancel the penalties.
27. Thus, the above points of difference of opinion arose and were referred to me. I have carefully heard learned counsel for the assessee, Shri I. C. Jain, and the learned Departmental Representative, Shri Keshav Prasad. Though this is not a very easy case to decide, nevertheless, on the facts found by the learned Judicial Member, I find it difficult to agree with the assessee's contention that the filing of the returns was purely or fairly or wholly voluntary. If one traces the case history of the assessee, there were as many as four revised returns. As rightly pointed out by the learned Judicial Member, the last and final revised return was filed, not on the assessee's own volition, but on the Income-tax Officer's further questioning as to what would happen and how the assessee would proceed to prove the genuineness of the remaining loans not surrendered earlier. If the assessee wanted to purchase peace as it claimed, I see no reason why the assessee had not offered all the loans at one time and why it chose to offer those loans for assessment in instalments or piecemeal. It was on record that the Income-tax Officer had either at the request of the assessee or on his own initiative issued summonses to the creditors but some of the summonses came back unserved. Even in respect of those creditors who were served with summons they did not appear. The result was that no creditors appeared before the Income-tax Officer to satisfy him about their creditworthiness. It is no doubt true that the assessee obtained confirmatory letters from all the creditors along with their GIR numbers and filed them before the Income-tax Officer. May be that from the GIR numbers, the' Income-tax Officer would have been able to trace the creditors but mere filing of confirmation letters and GIR numbers would not prove the other essential requirement, namely, creditworthiness of the creditors. The obligation of the assessee extends not only to file confirmation letters and furnish GIR numbers, if they are assessed to income-tax, but also to establish their creditworthiness. If the law is that the assessee need not establish the creditworthiness of the creditor, then it is easy for an assessee to say that he borrowed a huge amount of money from an indigent person and produce a confirmatory letter and also a GIR number if he had meagre income and was assessed to income-tax. I do not think the requirements of Section 68 are satisfied with the furnishing of this incomplete information. The information would be complete only when the creditworthiness also is established. The decision of the Bombay High Court in the case of Lata Mangeshhar v. CIT [19731 88 1TR 336 is to this effect. Therefore, the mere filing of confirmation letters and furnishing of GIR numbers does not absolve the assessee of its obligation to prove the genuineness of the credits. It is only to satisfy the credit-worthiness of the creditors that the Income-tax Officer had been insisting upon their production which the assessee was not able to do. May be that they were not available at the relevant time. But, that is no answer to the legal requirement. As early as on December 16, 1985, the Income-tax Officer required the assessee to produce the creditors and to produce further proof to establish the genuineness of the loans for both these assessment years as under : " 4. It is seen that the assessee-firm is paying substantial interest on its borrowings. The assessee-firm has filed some confirmation letters with regard to loans raised during the year.
However, the identity of the parties advancing loans and their capacity to advance the amounts is to be clarified/verified. I would, therefore, request you to produce the following parties with their books of account (their loan accounts appear in your books for the assessment years 1979-80 and 1980-81) so as to enable me to verify the genuineness of these loans : It is requested that the above details may be furnished on December 30, 1985, and also produce the parties whose names have been given above for verification of genuineness of the loans along with their books of account.
28. There was no response to this. I do not know what happened thereafter but on January 13, 1986, the Income-tax Officer again wrote this letter : " Kindly refer to this office letter of even No. dated December 16, 1985, calling for various details for finalisation of your assessment for the above assessment years. It had been pointed out to you that various parties whose loan accounts were to be verified may be produced. The letter was duly served on your authorised representative. But the parties have not been produced.
Your representative, vide letter dated 4-1-1986, has pointed out that summons may be issued to various parties whose loan accounts appear in the accounts for which necessary confirmation letters have been filed. I have issued summons to various parties whose loan accounts are appearing in your balance-sheet. But I regret to point out that in most of the cases, the summonses have been received back from the postal authorities as the parties have not been found at the given address and in the few cases where the summonses were served, the parties have not attended.
I give you a final chance to produce the parties so that the loan accounts can be verified. Further the information called for at Serial Nos. 1, 2 and 3 in my letter 16-12-1985, may also be furnished.
The requisite information should reach the undersigned within a week of receipt of this letter. In case you fail to comply with the requirements, the assessments shall be completed on the basis of data available on records. Since time-barring assessments are involved, no further time can be given which please note.
29. It is only thereafter that the assessee came forward with the filing of the revised returns admitting the income in two instalments.
Can it be said that the Department has no material before it to conclude that the loans were not genuine Can it be said in this background that the Department has only a prima facie feeling of concealment of income In my opinion, the Department had material before it to conclude that the loans were not genuine and it was only when the assessee was forced with this unanswerable situation that it came forward with the filing of the revised returns taking advantage of the Amnesty Scheme and making the filing of the revised returns appear as though it was to buy peace claiming that the loans were genuine. I fail to see how when the loans were so genuine they were all offered for assessment as income. There was no obligation on the part of the assessee to offer genuine loans as income unless there was some flaw or falsity in the claim of the loans.
30. Learned counsel for the assessee, Shri I.C. Jain, argued that, even though the assessee had surrendered the loans for assessment, still the Department has to prove with reference to some material or evidence or at least by an enquiry by the Income-tax Inspector that these loans were the concealed income of the assessee. He laid the greatest amount of emphasis at his command to urge that the responsibility was squarely upon the Department to prove that these loans were the concealed income of the assessee notwithstanding the fact that those loans were surrendered as the income of the assessee. I fail to see how the Department can still be saddled with the responsibility of proving the loans as concealed income of the assessee when the assessee itself surrendered it as its income. The Bombay High Court, as rightly pointed out on behalf of the Department by Shri Keshav Prasad, held in Western Automobiles (I) v. CIT [1978] 112 ITR 1048 that, where the cash credits are discovered in the accounts and the assessee accepts the amounts as his income for the year in question, that would be sufficient to discharge the onus that lay on the Revenue in penalty proceedings by relying upon that admission. At that stage, the Bombay High Court held that the onus would shift to the assessee to show in the penalty proceedings that the admission made by him was incorrect or that it was wrongly or illegally made, or that it was made for a reason which would suggest that it was not really the concealed income of the assessee. It was only when an opportunity to explain this aspect was not afforded to the assessee that the penalty levied would be unjustified and illegal.
This decision of the jurisdictional High Court is, therefore, an authority for me on the facts proved in this case for the proposition that no onus on the Revenue any more lay in the penalty proceedings and that the Revenue was entitled to rely upon the admission of the assessee. The Department could be faulted if it did not give an opportunity to the assessee to prove concealment of income. It is no doubt true that the assessee might be able to show that the admission by it was incorrect or illegally made. That was not the case here. No doubt, the assessee stated in the covering letter filed along with the revised returns that the amount surrendered was not its concealed income, but this averment in the circumstances of the case is only an escape route thought of by the assessee to avoid penal consequences.
When the return was filed by the assessee in 1979, I see no reason why the assessee had filed the revised return surrendering the loans in 1986, about six years thereafter. It is not as if in these six years' period the Department was keeping quiet. The Department was making enquiries after enquiries. But the assessee somehow or the other allowed the proceedings to lie over and when suddenly the Amnesty Scheme was announced, thought of taking advantage of the same and surrendering the sum by making a plea of exoneration from the levy of penalty.
31. Learned counsel for the assessee placed reliance upon the judgment of the Supreme Court in the case of CIT v. Orissa Corporation P. Ltd. [1986] 159 ITR 78 for the proposition that, if confirmation letters and GIR numbers were furnished, no more responsibility lay on the assessee to prove the genuineness of the loans and, therefore, no penalty should be imposed on the assessee. The facts of this case are that (headnote) : " In the accounts of the respondent, a private limited company, for the accounting year ending December 31, 1961, relevant to the assessment year 1962-63, there were three cash credits aggregating to Rs. 1,50,000. The three amounts were shown to have been received by way of loans from three individual creditors of Calcutta under hundis. By way of explanation, the respondent produced before the Income-tax Officer the letters of confirmation and the discharged hundis and gave particulars of those creditors who were assessees and whose general index numbers were with the Department. Since the respondent, after making attempts, could not produce the parties, the Income-tax Officer, on its request, issued summonses under Section 151 of the Income-tax Act, 1961, to the creditors, which however were returned unserved with the remark 'left'. The Tribunal further found that the creditors, while being assessed, had admitted that they had allowed their names to be lent without giving loans and also gave a list of assessees but the respondent's name did not figure in it. The Income-tax Officer treated the sum of Rs. 1,50,000 as unexplained income and added it to the respondent's income and the Inspecting Assistant Commissioner also imposed a penalty of Rs. 50,000 under Section 271(1)(c). But the Tribunal held that because the respondent could not produce the parties, it did not follow automatically that an adverse inference should be drawn that the amount represented undisclosed income of the respondent and that the Revenue was not justified in drawing the adverse inference and adding the amounts of the cash credits to the income of the respondent and also deleted the imposition of penalty. Both the Tribunal and the High Court rejected the applications of the Department for reference. On appeal to the Supreme Court : Held, that in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case. " 32. Thus, the Supreme Court affirmed the judgment of the Orissa High Court. It will be seen from the above that this was a case where the Income-tax Officer treated the sum in question as unexplained income of the assessee and added it to the income and the Inspecting Assistant Commissioner even levied a penalty for concealment of income. The Supreme Court there laid down, and rightly too, that when the names and addresses of the alleged creditors were furnished along with their GIR numbers, the Revenue should have pursued the matter to find out whether the alleged creditors were creditworthy or not. In other words, for the default of the Department to pursue the creditworthiness of the creditors, the Supreme Court held that it was not open to the Department to draw an adverse inference and treat the loans as unexplained income. This ruling, therefore, is an authority for the proposition that, unless the Department pursues the creditworthiness of the creditors, the amounts should not be added. In the case before the Supreme Court, it is also very significant to note that there was no surrender of the amounts as in this case before me. When there was a surrender, there is no question of the Department pursuing to establish or otherwise the creditworthiness of the parties. This decision rendered on the facts of that case does not, in my opinion, advance the assessee's case any further because there was no surrender in the case before the Supreme Court as in the case before me. I wish to make it clear even at the cost of repetition to show how, on the facts, the case before the Supreme Court was distinguishable. The Supreme Court there laid down that the Department should have made efforts to pursue the so-called creditors to establish their creditworthiness. Thus establishment of creditworthiness of the creditors was made a condition precedent by the highest court of the land before the credits could be added as income or otherwise. The creditworthiness of the creditors is thus an. essential ingredient for accepting the loans borrowed as loans. This decision is thus an affirmation of the Bombay High Court decision referred to above. In this case, the Department was pursuing to establish the creditworthiness of the creditors. It was only then that the assessee being unable to establish the creditworthiness came forward with the surrender.
33. There is another aspect on which I would like to make a brief mention. The learned Departmental Representative pointed out that, on the question of voluntary filing of the revised returns, there was no difference of opinion between the Members. The learned Judicial Member said in his order that the filing of the revised returns was not voluntary. The learned Accountant Member did not dispute this fact and even did not touch upon this aspect and thereby accepted this proposition. Thus it was an admitted fact between the Members that the filing of the revised return was not voluntary. What then became the bone of contention between the two Members was, as to whether the Amnesty Scheme applied or not. The Judicial Member said that the Amnesty Scheme did not apply because there was material before the Department that led to the conclusion of concealment of income, while the learned Accountant Member held that that material was not sufficient to come to that conclusion. This being the real difference of opinion, he submitted, that I should address myself to this question and express my opinion thereon.
34. As I have pointed out earlier, to my mind, it appeared that the filing of the revised returns was not voluntary and there was material on record to show that the Department was pursuing the genuineness as well as the credit worthiness of the loans to be able to arrive at a conclusion adverse to the assessee at which point of time the assessee came forward with the filing of the voluntary returns preventing thereby the Department from pursuing the matter further. Having prevented the Department from pursuing the matter further, I don't think it is open to the assessee to say, leaving aside the legal authorities, that the Department is still to establish that the loans surrendered represented the concealed income of the assessee.
35. For these reasons, I am of the opinion that (1) on the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) was justified in upholding the penalties imposed under Section 271(1)(c) of the Income-tax Act for the assessment years 1979-80 and 1980-81. (2) Since it was urged that the levy of penalties under Section 273(2)(c) was consequential, in my opinion, the Commissioner of Income-tax (Appeals) was also justified in upholding the penalties imposed under Section 273(2)(c).
36. The matter will now go before the regular Bench for the final disposal of the appeals in accordance with the opinion of the majority.