G. Sivarajan, J.
1. These four reference cases arise out of a common order of the Income-tax Appellate Tribunal, Cochin Bench, referring the following questions of law for decision by this court, both at the instance of the assessee and at the instance of the Revenue.
2. The questions referred at the instance of the assessee are as follows :
'On the basis of materials available before it in the penalty proceedings, was the Appellate Tribunal justified in holding that there was no material or evidence before them to come to the conclusion, 'that the findings of the Tribunal rendered in quantum proceedings that there was unexplained investment to the extent of Rs. 2,60,000 required any alteration or modification ?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that after the introduction of the Explanation to Section 271(1)(c) of the Act, the burden is not on the Revenue to establish that the amount concealed was of income nature Did the Appellate Tribunal interpret Section 271(1)(c) of the Act properly and apply the proper law regarding the penalty in the instant case Is not the reasoning and conclusion of the Appellate Tribunal against the ratio of the decisions reported in Gumani Ram Siri Ram v. CIT ; CIT (Addl) v. Karnail Singh V. Kaleran ; Sohinder Singh and Bros. v. CIT ; CIT (Addl) v. Sawan Motor Stores : [1977]109ITR660(AP) ; CIT v. S.P. Bhatt : [1974]97ITR440(Guj) ; CIT v. Vinay Chand Harilal : [1979]120ITR752(Guj) and Khemka and Co. (Agencies) Pvt Ltd. v. State of Maharashtra : [1975]3SCR753 and hence unsustainable ?
As in the instant case, where the estimated addition regarding unexplained investments, is bifurcated and spread over a period of years is any penalty under Section 271(1)(c) of the Act exigible? Does not the reasoning and conclusion of the Appellate Tribunal militate against the ratio of the decisions of the Madras High Court reported in CIT (Addl) v. E. Bhoopathy [1978] 113 ITR 188 ; CIT v. Gordhandas Moolchand : [1979]116ITR893(Mad) and CIT (Addl.) v. V. Kanakammal (Smt.) : [1979]118ITR94(Mad) and so unsustainable?'
3. The question referred at the instance of the Revenue is as follows:
'Whether, on the facts and in the circumstances of the case, where more than one return is filed, one before April 1, 1968, and the other after April 1, 1968, and where some income is concealed in both the returns, the penalty is to be levied on the basis of the law in force on the date on which the first return was filed or on the basis of the law in force on the date on which the second return was filed ?'
4. The assessee is a private limited company. The assessment years concerned are 1966-67, 1967-68 and 1968-69. The assessee is a hotelier carrying on business in Willington Island in the name and style of 'Casino Hotel'. During 1958, it was running a restaurant. An addition of three rooms to locate a bar and to serve for lodging purposes were made in the first instance. Later, the assessee decided to construct an additional building and for that purpose, he acquired 100 cents of land adjacent to the old block, which was taken from the Cochin Port Trust on lease and a new hotel building with 36 rooms, lounge, dining hall, etc., were constructed. The construction of the said building was started in February, 1964, and was completed in December, 1966. In order to finance the construction, the assessee applied for a loan from the Kerala Financial Corporation by its letter dated February 5, 1965. In the said letter, the assessee stated that the estimated cost of the additional construction will be to the tune of Rs. 7,33,469 of which the assessee had already spent Rs. 1.5 lakhs and in support of the application for loan, the assessee also annexed an estimate prepared by Vellappally Brothers, construction engineers, and an expert in the line. The Corporation, while considering the assessee's application made on the spot valuation by one of their own engineers, one Sri K.B. Menon, a retired chief engineer, and approved valuer, for the Corporation. Sri K.B. Menon had conducted on the spot inspection on four occasions, i.e., on March 19, 1965, November 11, 1965, March 30, 1966, and July 23, 1966, and submitted four reports regarding the cost of construction as estimated by the assessee. According to the first report dated March 19, 1965, the cost of construction incurred till that date came to Rs. 2,60,000 and estimated the cost of construction of the building alone at Rs. 5.58 lakhs and also certified that the total cost of construction would be about Rs. 7.33 lakhs. The Corporation on the basis of the said report, sanctioned a loan of Rs. 4,00,000 on June 19, 1965. As per clause 13 of the indenture executed by the assessee in favour of the Corporation, true and regular accounts were to be maintained by the assessee and duly audited, and such audited annual statements were to be forwarded to the Corporation within six months. On the basis of the periodical statements submitted by Sri K.B. Menon, the Corporation had paid the entire loan amount sanctioned. Sri K.B. Menon had also conducted inspection in regard to the expenditure for the period from July 23, 1966, to September 5, 1966, and the additional constructions and fittings during this period were valued at Rs. 53,463. The ledger shows that Rs. 95,846 had been spent from September 6, 1966, to November 3, 1966, placing the total cost of construction according to these reports at Rs. 8,52,359.
5. For the assessment year 1967-68, the Income-tax Officer on verification of the books found that the books of account showed the cost of construction to be Rs. 6,07,133. The Income-tax Officer did not accept the book value of the construction as representing the correct cost. He then adverted to the estimate made by Vellappally Bros, as well as the reports submitted by Sri K.B. Menon, and in the light of these materials, he took the view that the total cost of construction must have been Rs. 9,00,000. The difference of Rs. 3,00,000, according to the officer, was due to understatement of the cost of construction.
6. The Income-tax Officer then called upon the assessee to explain the difference. The assessee then filed another valuation report prepared by one, Sri Zacharia, a consulting engineer, showing the total estimated cost of construction at Rs. 4,72,572. The Income-tax Officer was not prepared to accept his valuation report, as according to him, the said report is a perfunctory one and is prepared long after the construction was over. The officer was struck by the contemporaneous nature of the reports of Sri K.B. Menon and also the estimate initially made by Vellappally Bros. Since the assessee's explanation regarding the difference of Rs. 3,00,000 was not acceptable to the Income-tax Officer, he treated the same as undisclosed income of the assessee. As the cost of construction had occupied three different accounting years, the amount of Rs. 3,00,000 was spread over on the basis of the total cost of construction in each of the years in the ratio of 2:7:2. This worked out to an addition of Rs. 55,000 for the assessment year 1966-67 and Rs. 1,90,000 for the assessment year 1967-68 and Rs. 55,000 for the assessment year 1968-69. On appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer and on further appeal, the Income-tax Appellate Tribunal reduced the amount to Rs. 2,60,000. This was spread over among the three years in the same ratio as adopted by the Income-tax Officer.
7. Against the said order of the Income-tax Appellate Tribunal, the assessee sought reference of the question as to whether the Tribunal was justified in law in holding that there was understatement of the cost of construction of the building and other capital expenditure to the extentof Rs. 2,60,000. On reference of the aforesaid question to this court in Income-tax References Nos. 76, 77 and 78 of 1975 by judgment dated November 11, 1977, this court after due consideration of the entire matter answered the question in the affirmative and in favour of the Department.
8. In the referred case, this court was of the view that the valuation of the cost of construction and determination of the undisclosed income are essentially questions of fact and it is somewhat difficult to find out a question of law in the process. But counsel for the assessee submitted that there was a total inadvertence to certain material aspects of the evidence and that this would justify this court calling for a supplemental statement of the case from the Tribunal. It was submitted before this court that the assessee had produced a certificate of Vellappally Bros., marked as annexure-'M' in that case. But the Tribunal did not refer to the said certificate in the appellate order. With reference to the said submission made on behalf of the assessee, this court considered the matter and observed as follows :
'But it is seen that this report (annexure-'M') was filed only before the Income-tax Appellate Tribunal. We do not know whether the document was received by the Appellate Tribunal as additional evidence, nor have we been vouchsafed the grounds on which the document was tendered as additional evidence to the Tribunal and received if it ever was as such by the Tribunal. No reference is found to the document in the Tribunal's order. No reference is found to it either in the statement of the case, which refers to documents upto annexure 'L', but omits any reference to annexure 'M'. That is seen as item 13 of the list of annexures to the statement of the case and is also being cited as an annexure by the Tribunal. We are not in the circumstances impressed with the assessee's objection of the Tribunal not having referred to annexure 'M' certificate. Counsel for the Revenue pointed out that the Tribunal and the other two authorities had relied on the reports by Sri K.B. Menon, who had made an on-the-spot study and investigation ; and so long as the Tribunal's conclusions were based on some acceptable materials, there was no ground for this court to find that any question of law arises for determination of the court. We think that in the circumstances there is no scope to apply the principle of the decision in CIT v. Seshasayee Bros. (Travancore) P. Ltd. : [1976]102ITR372(Ker) , and we reject the assessee's prayer to do so.'
9. Regarding the overlooking of the other material, namely, the discarding of the balance-sheet of the assessee for the assessment years, this court observed that the Tribunal was aware of the existence of the balance-sheet and, therefore, the assessee's contention based on the same was not acceptable. This court also considered the submissions made on behalf of the assessee that an inflated figure of the cost of construction had to be shown in the correspondence with the Kerala Financial Corporation in order to persuade it to part with the loan actually required by the assessee and, therefore, it may not be appropriate to accept the figures stated to bring about this inducement as representing the correct cost of construction and also the decision in State of Tamil Nadu v. Indian Crafts and Industries [1970] 25 STC 466 (Mad) and observed that a different trend of thought is discernible in the same High Court in the decision in Coimbatore Spinning and Weaving Co. Ltd. v. C/r[1974] 95 ITR 375 (Mad) and again in V. Rajan v. CIT : [1974]96ITR64(Mad) and further observed that whatever be the purpose of inflation, on an examination of the details of the estimate furnished and a perusal of the on-the-spot study and reports, the Tribunal had worked out the cost of construction, on the basis of which, it proceeded to tax the assessee. This court further held that no question of law arises from the course pursued by the Tribunal.
10. On the basis of the additions made by the Income-tax Officer and confirmed by the Appellate Assistant Commissioner, the Inspecting Assistant Commissioner of Income-tax initiated penalty proceedings under Section 271(1)(c) read with Section 274(2) of the Income-tax Act, 1961, for the assessment years 1966-67, 1967-68 and 1968-69. The Inspecting Assistant Commissioner rejected the contention of the assessee regarding the imposition of penalty on the ground that the addition made by the Income-tax Officer is on a sound basis. It was also observed that the said addition made by the Income-tax Officer was confirmed by the Appellate Assistant Commissioner. The Inspecting Assistant Commissioner, therefore, took the view that this is a case to which the provisions of the Explanation to Section 271(1)(c) of the Act are attracted and observed that it is for the assessee to establish that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. He also held that the assessee has not discharged the burden. Accordingly, for the assessment year 1968-69 by order dated March 20, 1971, he imposed a penalty of Rs. 55,000 on the assessee under Section 271(1)(c) of the Income-tax Act. Similarly, for the assessment years 1967-68 and 1966-67 by orders dated March 20, 1971, and June 9, 1972 (annexures 'A-2' and 'A-1'), respectively, the Inspecting Assistant Commissioner imposed penalty of Rs. 50,000 and Rs. 47,270, respectively.
11. Aggrieved by the orders (annexures 'A-1' to 'A-3') the assessee filed appeals before the Income-tax Appellate Tribunal, Cochin Bench. Before the Income-tax Appellate Tribunal, the assessee submitted that he filed a reply to the penalty notice before the Inspecting Assistant Commissioner on May 9, 1972, relating to the assessment year 1966-67, wherein the assessee had brought to the notice of the Inspecting Assistant Commissioner that the assessee had filed before the Tribunal a report from Vellappally Bros, in which they had stated that there could have been possible savings to the extent of about Rs. 2,60,000 and, therefore, the addition made in the assessment was on pure surmise and no penalty was exigible. It was contended that this contention had not been dealt with by the Inspecting Assistant Commissioner. The assessee further asserted before the Tribunal that if the certificate given by Mr. Alexander Vellappally, the then managing director was acceptable, there could be no question of concealment at all.
12. The Tribunal noticed the fact that the certificate had been filed in the quantum proceedings before the Tribunal only on November 30, 1971, and it was a certificate obtained by the assessee just about two days earlier. The Tribunal was of the view that as the Inspecting Assistant Commissioner had not considered the certificate relied on, it was necessary that the certificate should be examined and the assessee should be heard on the submissions he had to make on it. The Tribunal, accordingly, passed a remand order dated June 29, 1979, and called upon the Inspecting Assistant Commissioner to submit a report after making any enquiries he considered necessary to arrive at a proper finding on the evidentiary value of the certificate sought to be relied on by the assessee.
13. In this connection, it will be advantageous to refer to the order, of remand passed by the Tribunal. The Income-tax Appellate Tribunal after quoting the observations of this court regarding the reliance to be placed on the certificate issued by Vellappally Bros, in Income-tax References Nos. 76, 77 and 78 of 1975 stated thus :
'It is trite law that the assessee is entitled to rely on evidence not relied on in assessment proceedings in penalty proceedings. The assessee has relied on this certificate before the Inspecting Assistant Commissioner in penalty proceedings and the Inspecting Assistant Commissioner has not discussed the same. There is, therefore, no question of our admitting any fresh evidence if we ask the Inspecting Assistant Commissioner to examine the certificate with reference to the contentions of the assessee.
We consider it necessary that the Inspecting Assistant Commissioner should examine this certificate (copy annexed) and hear the assessee on the submissions that the assessee has to make on it. It would be also open to the Inspecting Assistant Commissioner to make such enquiries as he deems fit or cause such enquiries to be done to test the veracity of such certificate, in particular, with reference to the earlier estimate given by Vellappally Bros., which was one of the items of evidence considered in arriving at the estimate of about Rs. 9 lakhs. The Inspecting Assistant Commissioner will also examine any parties whom the assessee may require to be examined or whom he himself may consider necessary to examine to arrive at a proper finding on the evidentiary value of the certificate sought to be relied on by the assessee.'
14. It is clear from the passage quoted above that the Income-tax Appellate Tribunal had clearly borne in mind the fact that the assessee is entitled to rely on evidence (not relied on in assessment proceedings) in penalty proceedings. In that view of the matter, since the assessee had relied on the certificate issued by Vellappally Bros, before the Inspecting Assistant Commissioner in penalty proceedings, it is necessary that the Inspecting Assistant Commissioner should examine the certificate and hear the assessee on the submissions that the assessee has to make on it. It is in that context that the Tribunal observed that it would be open to the Inspecting Assistant Commissioner to make such enquiries as he deems fit or cause such enquiries to be done to test the veracity of such certificate.
15. Based on this remand order, it is seen that the Inspecting Assistant Commissioner had referred the matter to the Executive Engineer (Valuation), Income-tax Department, Cochin, and gave a copy of the estimate dated November 16, 1964, prepared by Vellappally Bros, as well as the certificate issued by Sri Alexander Vellappally to him and requested him to make a verification to the extent possible of the actual construction and submit his remarks on the assertions made by Sri Alexander Vellappally in the certificate and to submit a report regarding the same. The report submitted by the Executive Engineer (Valuation) is available as annexure 'IV' to the remand report dated November 29, 1979, submitted by the Inspecting Assistant Commissioner to the Income-tax Appellate Tribunal. The Inspecting Assistant Commissioner, after obtaining the said report, considered the certificate issued by Vellappally Bros. Before proceeding to consider the correctness of the certificate, the Inspecting Assistant Commissioner observed that 'only if the reports submitted by Sri K.B. Menon were found to be defective on material points, could there arise a case for examining the question of savings pointed out by Vellappally Bros, in their report'. It is with this observation in mind that the Inspecting Assistant Commissioner proceeded to consider the veracity of the certificate issued by Vellappally Bros, with reference to the report submitted by the Executive Engineer (Valuation) and the original estimate submitted by Vellappally Bros. The Inspecting Assistant Commissioner, after referring to the various discrepancies in the certificate issued by Vellappally Bros, came to the conclusion that the certificate issued by Vellappally Bros, has little evidentiary value in the ascertainment of any savings in the construction of the building with reference to the original estimate dated November 16, 1964.
16. After obtaining the remand report, the Income-tax Appellate Tribunal proceeded to consider the matter on the merits. In paragraph 15 of the appellate order, the Income-tax Appellate Tribunal has noticed the fact that the Inspecting Assistant Commissioner had referred the matter to the Executive Engineer (Valuation) who was given a copy of the original estimate as well as the subsequent certificate of Sri Alexander Vellappally to make a verification to the extent possible of the actual cost of construction and the fact that the Executive Engineer (Valuation) inspected the building on October 26, 1979, and that he was of the view that the actual construction was at variance with the original estimate on several aspects. According to the Executive Engineer, there could be certain savings. The Tribunal also noticed the fact that according to the Executive Engineer, the aggregate savings possible was Rs. 2,08,490. The Tribunal then considered the fact that the Inspecting Assistant Commissioner had examined the executive engineer's certificate along with the other materials on record and finally reached the conclusion that the certificate issued by Vellappally Bros, has little evidentiary value in the ascertainment of any savings in the construction of the building with reference to the original estimate dated November 16, 1964. The Appellate Tribunal also noticed the fact that the assessee filed a detailed statement of objections dated January 10, 1980, to the remand report and stressed therein that the certificate of Vellappally Bros, was substantially confirmed by the inspection by the Executive Engineer (Valuation) of the Income-tax Department itself. This aspect is particularly made mention of by the Tribunal in paragraph 16 of its order.
17. The Income-tax Appellate Tribunal thereafter considered the matter in the light of the remand report and the materials furnished and the annexures thereto and observed as follows :
'In deciding the quantum proceedings the plea of the assessee that inflated figures were given in the estimate has not been accepted by the Tribunal. We cannot also accept that the estimate was given without reference to actual facts. The actual facts were all available by the time that estimate on November 16, 1964, was made and the plea that there would be probable savings from that estimate in respect of foundation is in our view with reference to the date of the structural drawings, etc., not acceptable. The subsequent certificate of Alexander Vellappally, therefore has no evidentiary value since it has been possible to establish by independent evidence that the estimate of November 16, 1964, was made after due consideration of all relevant data. Out of the total savings of Rs. 2,73,151 according to the certificate Rs. 58,322 are to be found as probable savings in foundation. This we have established conclusively is not acceptable. The plea that there could be savings for contractor's profit which is the other large amount of Rs. 1,10,000 is a general one and was considered by the Tribunal in paragraph 12 of its order in quantum proceedings where they had categorically stated that no evidence was available to support the plea and further had pointed out how the Income-tax Officer had shown to the assessee that certain figures given were erroneous. We have to state that Sri. K.B. Menon, a retired chief engineer of the Kerala Government came to the scene after the foundation stage had been completed and was submitting periodical reports to the Corporation dated March 19, 1965, November 11, 1965, March 30, 1966, and July 23, 1966, and he had corroborated the claims regarding the expenditure spent from time to time. As observed by the Tribunal there was no warrant to assume that Sri K.B. Menon was also acting in collusion with the assessee and furnishing highly inflated figures to the Corporation and as a matter of fact the Tribunal stated that this was not even the case of the assessee before the Tribunal. We, therefore, come to the final conclusion that the subsequent certificate of Vellappally Bros, dated November 30, 1971, has no evidentiary value for the reason stated by us.'
18. Regarding the evidentiary value of the report of the Executive Engineer (Valuation), which is a report submitted at the instance of the Inspecting Assistant Commissioner of Income-tax with reference to the original estimate submitted by Vellappally Bros, and the certificate issued by Vellappally Bros, regarding the possible savings and on inspection by an array of officers, the Income-tax Appellate Tribunal observed as follows :
'In this background merely because the Executive Engineer (Valuation) may have considered with reference to some trial pits, etc., taken that there would have been savings it could not in our view, lead to acceptance of the plea of counsel for the assessee that it would take the case outside the pale of the penalty provisions. This is because to reiterate, the contemporaneous evidence of investment much in excess of that recorded in the books is so compelling and does not stand vitiated in any manner.'
19. With reference to the question raised at the instance of the Revenue for completion sake, it is necessary to refer to certain facts leading to the question referred at the instance of the Revenue. This is with reference to the assessment year 1966-67 only. For the assessment year 1966-67, the original return was filed on July 1, 1966. Thereafter in compliance with the notice issued in connection with the proceedings under Section 147, the assessee filed another return on May 1, 1970. According to the Department, the concealment was not only in the first return submitted, it was there in the second return also. The assessee contended that the concealment, if any, had occurred when the original return was filed and if penalty is exigible, it should be tax based. On the other hand, the Department contended that since there is concealment in the second return also, the penalty, if exigible, must be with reference to the law as applicable on the date of filing of the second return. The Income-tax Appellate Tribunal relying on the decision of the Supreme Court in Brij Mohan v. CIT : [1979]120ITR1(SC) observed that there is unanimity among High Courts that concealment took place when the original return is filed and merely because there are subsequent returns, where also the omission may continue, it does not alter the date of concealment. In support of the said view, the Income-tax Appellate Tribunal referred to various decisions of the other High Courts also.
20. The Income-tax Appellate Tribunal finally considered the question regarding the quantum of penalty to be imposed for these three years. On a consideration of the facts and circumstances of the case, the Income-tax Appellate Tribunal took the view that the imposition of minimum penalty would meet the requirements of the case. Accordingly, the Appellate Tribunal ordered that for each of the assessment years 1966-67 and 1967-68, the penalty to be imposed should be computed at 20 per cent. of the difference in tax between that on the income as finally assessed and that on the income as originally returned. For the assessment year 1968-69, the Appellate Tribunal directed imposition of penalty equal to the income concealed at Rs. 47,270.
21. Thereafter, the assessee moved the Income-tax Appellate Tribunal to refer certain questions of law said to arise out of the appellate order dated March 26, 1980, and that is how the Appellate Tribunal has referred the above questions for the decisions of this court.
22. We heard learned counsel for the assessee, Mr. Joseph Kodianthara, and also learned senior counsel for the Revenue, Mr. P.K.R. Menon, at length. Learned counsel for the assessee submitted that the estimate prepared by Vellappally Bros., construction engineers was only the expected cost of construction of the additional building according to the specifications therein, that the construction effected was not strictly in accordance with the specifications, that there were savings on various counts such as contractors' profits, non-execution of certain items of work shown in the original estimate, using country wood such as anjali wood, jack wood, etc., in the place of teak and other superior quality wood originally planned, that the actual expenses incurred for the cost of construction of the building was truly depicted in the accounts maintained by the assessee, that the audited balance-sheet was sent to the Kerala Financial Corporation also as it is one of the conditions in the agreement executed in favour of the Corporation, that the valuation report of Sri Zacharia also showed the estimated cost of construction of the building at Rs. 4,72,572 and that the certificate issued by Vellappally Bros, after verification of the original estimate prepared by them and after inspection of the additional construction showed an estimated saving of Rs. 2,73,151. Learned counsel for the assessee further submitted that the report of the Executive Engineer (Valuation Cell), Income-tax Department, clearly supports the certificate of Vellappally Bros, in that excepting small variations in the figures arrived at substantially the items of work tally and that the executive engineer had also stated that there can be a possible saving to the tune of Rs. 2,08,490 as against the savings estimated by Vellappally Bros. It is also submitted that the evidence afforded by the remand report of the Inspecting Assistant Commissioner also effectively dilutes credibility of the reports submitted by Sri K. B. Menon and that the aforesaid facts and circumstances clearly establish that the failure to return the correct income was not due to any fraud or gross or wilful neglect. Learned counsel for the assessee accordingly submitted that the orders imposing penalty based on the findings in quantum proceedings and the reasoning and conclusion of the Appellate Tribunal for sustaining the said orders are wholly erroneous in law and unreasonably wrong.
23. Mr. P.K.R. Menon, on the other hand, submitted that in the quantum proceedings, it has been finally decided that the assessee had spent a sum of Rs. 2,60,000 in the construction of the additional building by way of unaccounted investment and the said amount was included in the income of the assessee under Section 69 of the Act for the years 1966-67, 1967-68 and 1968-69, that since as a result of these additions the returned income for the above assessment years was far below 80 per cent. of the assessed income, the Explanation to Section 271(1)(c) of the Act is automatically attracted and a presumption is raised against the assessee that the assessee is guilty of fraud or gross or wilful neglect as a result of which he has concealed the income, that though the said presumption is a rebuttable one, the assessee failed to discharge the said burden and that the Tribunal on a consideration of the entire materials available on record had found that there is no reason to take a different view from that taken in the quantum proceedings. Learned counsel also with reference to certain decisions of the Calcutta High Court and the Madras High Court, submitted that the penalty can be levied even in cases of estimated additions and with reference to the decision of the Supreme Court, it submitted that it is not necessary for the Department to prove conscious concealment. With regard to the submission of the assessee's counsel based on the report of the Executive Engineer (Valuation Cell) of the Income-tax Department itself and the contents of the remand report Sri P.K.R. Menon submitted, again with reference to the decisions of the Supreme Court and other High Courts, that it is for the Tribunal, the final fact finding authority to judge the relevancy and sufficiency of the materials and to enter a finding and that if this court finds that the Appellate Tribunal has not borne in mind the relevant principles and/or ignored a relevant piece of material or evidence the proper course would be to decline to answer the questions referred and to remand the matter to the Appellate Tribunal for de novo consideration. Learned counsel finally submitted that the Income-tax Appellate Tribunal had relied on the original estimate of Messrs. Vellappally Bros, and the contemporaneous on-the-spot inspection reports submitted by Sri K.B. Menon, retired chief engineer of the Kerala Government engaged by the Kerala Financial Corporation, that the certificate issued by Vellappally Bros, was held to be of no evidentiary value after due consideration and that the Appellate Tribunal was perfectly justified in relying on the reports of Sri K. B. Menon for holding that the assessee had invested undisclosed income in the construction of the building warranting imposition of penalty, that all these are findings of fact arrived at by the Tribunal and that this court sitting in reference will not interfere with such findings of fact arrived at by the Tribunal and accordingly pleaded for sustaining the order of the Tribunal. Having heard the rival submissions, we are of the view that the plea of the assessee commends for our acceptance and the assessee is entitled to succeed in these penalty appeals.
24. Before we proceed to analyse the factual details of the case, it will be profitable to bear in mind the scope of Section 271(1)(c) of the Income-tax Act read along with the Explanation as it stood during the assessment years in question. Section 271(1)(c) read with the Explanation as it stood after the amendment by the Finance Act, 1964, with effect from April 1, 1964, the relevant portion reads as follows :
'271. Failure to furnish returns, comply with notices, concealment of income, etc. -- (1) If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person-- . . .
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,
he may direct that such person shall pay by way of penalty.-- ...
Explanation. -- Where the total income returned by any person is less than 80 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 sub-section.'
25. This court had occasion to consider the nature of penalty proceedings with reference to Explanation to Section 271(1)(c) added by the Finance Act, 1964, with effect from April 1, 1964, in CIT v. Saraf Trading Corporation [1987] 167 ITR 909 and on a review of the entire position. His Lordship, Justice K.S. Paripoornan, as he then was, speaking for the Bench neatly summarised the position thus (page 915) :
'Penalty proceedings are penal in nature. The elementary principles of criminal law will apply. It is a quasi-criminal proceeding. There should be conscious concealment. The provisions should be construed strictly. Penalty proceedings are distinct and different from assessment proceedings. The findings in the assessment proceedings are not conclusive but are relevant. The entire materials available should be considered afresh by the authorities before imposing the penalty. Even after the addition of the Explanation to Section 271(1)(c), conscious concealment is necessary. The Explanation provides only a rule of evidence raising a rebuttable presumption in certain circumstances. No substantive right is created or annulled thereby. The substantive law relating to levy of penalty is preserved. The initial burden of proof is cast on the assessee to displace the presumption arising in certain cases. The assessee can discharge the onus, either by direct evidence or circumstantial evidence, or both. The cumulative effect of all the facts should be taken into consideration. The assessee is entitled to show and establish by the material and relevant facts which may go to affect his liability or the quantum of penalty. As to whether there is concealment to make the penalty exigible is normally a question of fact. Whether the burden of proof in a given case has been discharged on a set of facts, is also a question of fact. To similar effect is the question, as to whether the presumption under the Explanation to Section 271(1)(c) has been rebutted, in a particular case, by evidence, is a question of fact.
Section 271(1)(c) of the Act as it stood then before the Taxation Laws (Amendment) Act of 1975, but after the insertion of the Explanation by the Finance Act of 1964 with effect from April 1, 1964, specified that in cases where the total income returned by any person is less than 80 per cent. of the total income as assessed, such person, 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, will be deemed to have concealed the particulars of such income or furnished inaccurate particulars of such income.
Proceeding on the basis that the income returned by the assessee is less than 80 per cent. of the total income as assessed, it should be stated that the assessee should initially prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. Unless it is so shown, the assessee shall be deemed to have concealed the particulars of the income or furnished inaccurate particulars of such income. It is only a presumption. The burden is cast on the assessee to prove a negative fact. This can be discharged either by independent evidence led during the penalty proceedings or by a close scrutiny or appraisal of the existing facts and data available. This will take in even the materials available at the assessment stage. The presumption under the Explanation to Section 271(1)(c) can be displaced by the assessee proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect and the quantum of proof necessary would be that required in a civil case, namely, preponderance of probabilities--CIT v. Sankarsons and Co. : [1972]85ITR627(Ker) .'
26. These principles have been reiterated by this court in CIT v. Shri Pawan Kumar Dalmia : [1987]168ITR1(Ker) .
27. The scope of the penalty proceedings under Section 271(1)(c) of the Act after the deletion of the word 'deliberately' and the introduction of the Explanation by the Finance Act, 1964, with effect from April 1, 1964, came up for consideration before the Supreme Court in CIT v. Mussadilal Ram Bharose : [1987]165ITR14(SC) . After quoting the section, the Supreme Court held at page 19 of the report as follows:
'Before the amendment, difficulty arose and it is not necessary to trace the history. Under the law as it stood prior to the amendment of 1964, the onus was on the Revenue to prove that the assessee had furnished inaccurate particulars or had concealed the income. Difficulties were found in proving the positive element required for concealment under the law prior to the amendment and this had to be established by the Revenue. To obviate that difficulty, the Explanation was added. The effect of the Explanation was that where the total income returned by any person was less than 80 per cent. of the total income assessed, the onus was on such person to prove that the failure to file the correct income did not arise from any fraud or any gross or wilful neglect on his part and unless he did so, he should be deemed to have concealed the particulars of his income or furnished inaccurate particulars, for the purpose of Section 271(1), The position is that the moment the stipulated difference was there, the onus to prove that it was not the failure of the assessee or fraud of the assessee or neglect of the assessee that caused the difference shifted to the assessee but it has to be borne in mind that though the onus shifted, the onus that was shifted was rebuttable. If in an appropriate case, the Tribunal or the fact-finding body was satisfied by the evidence on the record and inference drawn from the record that the assessee was not guilty of fraud or any gross or wilful neglect and if the Revenue had not adduced any further evidence, then, in such a case, the assessee cannot come within the mischief of the section and suffer the imposition of penalty. That is the effect of the provision.'
28. Again at page 21 of the report, the Supreme Court after considering the decision of the Punjab and Haryana High Court (Full Bench) in Vishwakarma Industries v. CIT proceeded to observe as follows :
'Once the Explanation is held to be applicable to the case of an assessee, it straightaway raises three legal presumptions, viz., (i) that the amount of the assessed income is the correct income and it is in fact the income of the assessee himself ; (ii) that the failure of the assessee to return the correct assessed income was due to fraud ; or (iii) that the failure of the assessee to return the correct assessed income was due to gross or wilful neglect on his part. But it must be emphasised that these are presumptions and become a rule of evidence but the presumptions raised are not conclusive presumptions and are rebuttable.
We are of the opinion that the view of the Full Bench of the Punjab and Haryana High Court is a correct view when it states that it only makes a presumption but the presumption is a rebuttable one and if the fact-finding body on relevant and cogent materials comes to the conclusion that in spite of the presumption the assessee was not guilty, such conclusion does not raise any question of law.'
29. The Supreme Court thereafter summarised the position at page 22 of the report as follows :
'The position, therefore, in law is clear. If the returned income is less than 80 per cent. of the assessed income, the presumption is raised against the assessee that the assessee is guilty of fraud or gross or wilful neglect as a result of which he has concealed the income but this presumption can be rebutted. The rebuttal must be on materials relevant and cogent. It is for the fact-finding body to judge the relevancy and sufficiency of the materials. If such a fact-finding body, bearing the aforesaid principles in mind, comes to the conclusion that the assessee has discharged the onus, it becomes a conclusion of fact. No question of law arises. In this case, the Tribunal has borne in mind the relevant principles of law and has also judged the facts on record. It is not a case that there was no evidence or there was such evidence on which no reasonable man could have accepted the explanation of the assessee.'
30. This court again had occasion to consider the case where the Appellate Tribunal on a consideration of the same materials or evidence as available in the assessment proceedings took a contrary view in penalty proceedings in CIT v. T. Govindanhutty Menon : [1989]178ITR509(Ker) and held that in the light of the principles discernible from the decision of the Supreme Court and the earlier Bench decisions of this court referred to above, it was open to the Appellate Tribunal to advert to the materials or evidence available during the assessment proceedings afresh and make an independent or closer or more intelligent analysis. In that case, the Appellate Tribunal has so done to come to the conclusion that the assessee has discharged the onus cast on him under the Explanation to Section 271(1)(c) of the Act.
31. To arrive at the said conclusion, this court had also relied on the following observations of M.S. Menon C. J., delivering the judgment of the Bench in Annamalai Reddiar v. CIT : [1964]53ITR601(Ker) :
'The assessment in each year is a separate proceeding under the Indian Income-tax Act, 1922, and the view adopted by the Department in any particular year cannot possibly bind it in respect of a year subsequent thereto. New materials may produce a change of approach; the old materials themselves, on a more careful or intelligent analysis, may effect the same result. . . .'
32. The very same question again came up for consideration before the Supreme Court in the context of the Explanation as it stood at the relevant period in CIT v. K.R. Sadayappan : [1990]185ITR49(SC) and the Supreme Court applied the principles laid down in its earlier decision reported in CIT v. Mussadilal Ram Bharose : [1987]165ITR14(SC) .
33. The matter regarding imposition of penalty again came up before the Supreme Court in CIT (Addl) v. Jeevan Lal Sah : [1994]205ITR244(SC) , where the question was as to whether the Tribunal was right in holding that no penalty could be imposed with reference to the cash deposits on the principle of Anwar Ali's case : [1970]76ITR696(SC) even after the amendment of Section 271 in 1964. The Supreme Court after quoting the Explanation and the provisions of Section 28(1)(c) of the Indian Income-tax Act, 1922, considered the question whether the principles laid down by the Supreme Court in Anwar All's case : [1970]76ITR696(SC) rendered under the provisions of the 1922 Act, which is similar to the unamended provisions of Section 271(1)(c) of the Income-tax Act, 1961, continue to be good law even after the amendment of the said law by the Finance Act, 1964. In that context, the Supreme Court noted the following principles laid down in Anwar Ali's case : [1970]76ITR696(SC) ) :
'(a) The proceedings under Section 28 are penal in character.
(b) It is for the Department to establish that the receipt of the amount in dispute constitutes income of the assessee and that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. If there is no evidence on record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income.
(c) The finding recorded in the assessment proceedings that a particular receipt is his income after rejecting the explanation given by the assessee as false, would (not ?) prima facie be sufficient for establishing in proceedings under Section 28 that the disputed amount was the assessee's income. The finding recorded in the assessment proceedings may be good evidence but is not conclusive.
(d) Before penalty can be imposed, the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.'
34. With reference to the decision in Anwar Ali's case : [1970]76ITR696(SC) , the Supreme Court observed that it was a case where an undisclosed cash deposit was discovered and the explanation offered by the assessee in that behalf was rejected but the Revenue did not adduce any further material from which it could be inferred that the assessee had concealed the particulars of his income or had deliberately furnished inadequate particulars in respect of the same or that the disputed amount was a revenue receipt. It is in that situation, the Supreme Court agreed with the High Court that the levy of penalty was not warranted.
35. The Supreme Court then considered the circumstances which necessitated the amendment and observed as follows (page 248 of 205 ITR) :
'Evidently, with a view to making the task of the Revenue in such matters less difficult, Parliament effected the said amendments by the Finance Act, 1964. Not only the word 'deliberately' was omitted in Clause (c), but the Explanation aforestated was added. The Explanation creates a presumption of law--which is no doubt rebuttable. The presumption of law created by the Explanation is to the following effect: where the total income returned by any person is less than 80 per cent. of his total assessed income, such person shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) 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 Explanation thus, shifts the burden of proof to the assessee in the situation covered by it. Once the returned income is shown to be less than 80 per cent. of the total income assessed, the presumption conies into play and then the burden shifts to the assessee to establish that his failure to return the correct income was not on account of any fraud or gross or wilful neglect on his part. If he fails to establish the same, the presumption will become a finding--and it would be open to the authority to levy the penalty. But if the assessee establishes that his failure to return the correct income was not on account of any fraud or any gross or wilful neglect on his part, it is evident, no penalty can be levied.
Even after the amendment of 1964, the penalty proceedings, it is evident, continue to be penal proceedings. Similarly, the question whether the assessee has concealed the particulars of his income or has furnished inaccurate particulars of his income continues to remain a question of fact. Where the Explanation has made a difference is while deciding the said question of fact the presumption created by it has to be applied, which has the effect of shifting the burden of proof. The entire material on record has to be considered keeping in mind the said presumption and a finding recorded. The rule regarding burden of proof enunciated in Anwar Ali's case : [1970]76ITR696(SC) is no longer valid. This is the view taken by this court in two decisions rendered with reference to the said Explanation. In CIT v. Mussadilal Ram Bharose : [1987]165ITR14(SC) , this court summarised the position in the following words (page 22) : The position, therefore, in law is clear. If the returned income is less than 80 per cent. of the assessed income, the presumption is raised against the assessee that the assessee is guilty of fraud or gross or wilful neglect as a result of which he has concealed the income but this presumption can be rebutted. The rebuttal must be on materials relevant and cogent. It is for the fact-finding body to judge the relevancy and sufficiency of the materials. If such a fact-finding body, bearing the aforesaid principles in mind, comes to the conclusion that the assessee has discharged the onus, it becomes a conclusion of fact. No question of law arises'.'
36. The Supreme Court then considered the observations in CIT v. K.R. Sadayappan : [1990]185ITR49(SC) as follows (page 249 of 205 ITR) :
'It is true that the presumption that arose was a rebuttable presumption that there was concealment of income and if there was cogent material to rebut the evidence that was acceptable, then the presumption would not stand. In the instant case, the falsity of the explanation given by the assessee has been accepted by the Tribunal. The Tribunal stated that, in the instant case, no doubt the Income-tax Officer was justified in saying that not only the explanation was not convincing but false because there was no cash available to the assessee for payment of the extra money paid. Therefore, no explanation was put forward as to wherefrom the extra money came. If that was the position and the further presumption was that the assessee was guilty of fraud, then the subsequent presumption followed that the assessee has concealed the income and that can be rebutted only by cogent and reliable evidence. No such attempt in this case was made. In that view of the matter, in our opinion, it cannot be said that, in this case, the Tribunal was justified in rejecting the claim and penalty may be imposed. The presumption raised as aforesaid, that is to say, that the assessee was guilty of fraud or wilful neglect as a result of which the assessee has concealed the income, would be there. This presumption could have been rebutted by cogent, reliable and relevant materials. There was none, at least neither the Tribunal nor the High Court has indicated any. If that is the position, the High Court, in our opinion, was in error in not correctly applying the principles laid down by this court in CIT v. Mussadilal Ram Bharose : [1987]165ITR14(SC) , and the principles of law applicable in a situation of this type to the facts of this case and, therefore, the decision is not sustainable.'
37. It was then concluded by the Supreme Court (page 250) :
'It is thus clear that the question referred to the High Court in this case is no longer res Integra. The decisions of this court aforesaid , clearly point out the change that has been brought about by the introduction of the said Explanation.
The question referred to the High Court in this case speaks of cash deposits. Whether it is a case of undisclosed or unexplained cash deposit or any other concealment, the standard is the same. The principle enunciated in Anwar Ali's case : [1970]76ITR696(SC) , that mere rejection of the Explanation of the assessee is not sufficient for levying penalty and that the Revenue must go further and establish that there has been a conscious concealment of particulars of income or a deliberate failure to furnish accurate particulars, is no longer necessary. The cases to which the said Explanation is attracted have to be decided in the light of the law enunciated in Mussadilal Ram Bharose's case : [1987]165ITR14(SC) and Sadayappan's case : [1990]185ITR49(SC) .'
38. Now, coming to the factual situation emerging from the materials on record and considered by the Income-tax Appellate Tribunal, we find that the assessee for the purpose of an additional construction to the existing hotel applied for a loan from the Kerala Financial Corporation. In support of the said application, the assessee filed an estimate prepared by Messrs. Vellappally Bros., construction engineers, showing the cost of construction approximately at Rs. 7.33 lakhs, that the Kerala Financial Corporation conducted periodical inspection of the progress of the construction through its engineer, one, Sri K.B. Menon, who is a retired chief engineer of the Kerala Government, that he partly on inspection of the premises and partly on verification of the vouchers obtained from the assessee submitted various reports agreeing with the estimate made by Vellappally Bros, and that on the basis of the report so submitted by Sri K.B. Menon, the Kerala Financial Corporation has sanctioned a loan of Rs. 4,00,000 to the assessee. We also find that the assessee had maintained accounts in the regular course of its business regarding the cost of construction of the building, and that as per the said accounts so maintained, the actual expenses incurred for the construction of the said building came to Rs. 6,07,133. The assessing authority, namely, the Income-tax Officer, found that the estimate submitted by Vellappally Bros, and the report submitted by Sri K.B. Menon showed a higher amount, namely, Rs. 7.33 lakhs and Rs. 8,52,359, respectively, and assumed that the assessee had invested more amount than what is shown in the accounts for the purpose of the additional construction and he took the difference between the cost of construction as reported by Sri K.B. Menon and the actual amount shown in the accounts, in this case Rs. 3,00,000 as the unaccounted income of the assessee and apportioned the amount for three years under consideration in the ratio 2:7:2. Notwithstanding the fact that the assessee by way of explanation to the proposed addition of Rs. 3,00,000 submitted a valuation report by one, Sri Zacharia, an engineer, he rejected the said report as perfunctory and one made long after the construction of the building, and added the same as the undisclosed income of the assessee for the aforesaid three years. These orders of the assessing authority for the years 1966-67, 1967-68 and 1968-69 were confirmed in appeal by the Appellate Assistant Commissioner. The Income-tax Appellate Tribunal also sustained the orders of the authorities below with the modification that the addition for all the three years is reduced to Rs. 2,60,000. This order of the Income-tax Appellate Tribunal was confirmed by this court by its judgment dated November 11, 1977, in Income-tax References Nos. 76, 77 and 78 of 1975.
39. We have also seen that this court while coming to the above conclusion had rejected the contention of counsel for the assessee that relevant documents and materials have been ignored by the Tribunal and held that the findings regarding the cost of construction arrived at by the Tribunal is a finding of fact.
40. In penalty proceedings, in the appeal filed before the Income-tax Appellate Tribunal, the assessee contended that in reply to the penalty proceedings for the assessment year 1966-67, the assessee, in order to substantiate his explanation to the penalty notice, had also produced a certificate obtained from Vellappally Bros., construction engineers, showing a possible saving of Rs. 2,73,151 and that if that certificate was considered, no penalty can be levied in the instant case. On the basis of the submission made by the assessee, the Income-tax Appellate Tribunal thought that instead of admitting the said certificate as additional document, it will be proper to call for a remand report from the Inspecting Assistant Commissioner with reference to the certificate of Vellappally Bros. The Income-tax Appellate Tribunal accordingly passed a remand order, the relevant portion of which we have already extracted at the outset for the purpose of finding any support to the certificate of Vellappally Bros. For that purpose, the Inspecting Assistant Commissioner was also given the freedom to conduct further enquiries in the matter.
41. When the assessee had submitted before the Income-tax Appellate Tribunal that along with the explanation to the penalty notice, the assessee had filed copy of the certificate issued by Mr. Alexander Vellappally to the effect that the construction of the additional building was not effected strictly in accordance with the specifications contained in the original estimate submitted by his firm and that on account of this, there is possible saving to the tune of Rs. 2,73,151 and that the certificate produced before the Inspecting Assistant Commissioner was not considered by him in the penalty proceedings, the Appellate Tribunal, according to us, has rightly thought that instead of admitting the said certificate as additional evidence in the appeal and considering the same, it is proper that an opportunity is given to the Inspecting Assistant Commissioner to examine the veracity or the correctness of the certificate issued by Mr. Alexander Vellappally after conducting proper enquiries in the matter and has called for a report. But pursuant to the remand order, the Inspecting Assistant Commissioner had submitted a report, accompanied by the report of the executive engineer, valuation. What the Appellate Tribunal directed the Inspecting Assistant Commissioner to do was to find out whether there are materials to support the certificate issued by Mr. Alexander Vellappally. We find from the discussion in the appellate order, which we have already set out earlier in this judgment, that the Appellate Tribunal has referred to the report of the executive engineer, valuation, and the observations made by him in regard to the certificate issued by Vellappally Bros, and in support of the possible savings estimated by him (vide paragraphs 15 and 22 of the appellate order). We find that this report of the Executive Engineer (Valuation Cell) of the Income-tax Department substantially supports the contents of the certificate of Mr. Alexander Vellappally except regarding the slight variations in the figures under various counts. In other words, both the certificate of Mr. Vellappally and the report of the executive engineer, valuation, submitted to the Inspecting Assistant Commissioner on reference clearly shows that the construction of the building was not in accordance with the original estimate of Vellappally Bros, and that there are possible savings under different counts. There is no dispute with regard to that. Thus, from the report of the executive engineer, valuation, it is clear that there is strong support to the certificate issued by Mr. Alexander Vellappally.
42. Apart from the above, the observations made by the Inspecting Assistant Commissioner in his remand report also shows that the reports submitted by Sri K.B. Menon, retired chief engineer, who conducted contemporaneous on-the-spot inspections also state that the construction of the additional building was not entirely in accordance with the specifications contained in the original estimate. This is evident from the discussion of the results of the study made by the Inspecting Assistant Commissioner himself available as follows :
'The Executive Engineer (Valuation) has mentioned that marble flooring was not done as given in the original estimate and that only mosaic flooring was done. In Shri K.B. Menon's report dated July 23, 1966, also only mosaic flooring has been taken into account while fixing the value. The cost of mosaic flooring was given in that report as Rs. 21,600, whereas in the original estimate, the estimated cost for marble and mosaic flooring was Rs. 42,700.
The Executive Engineer (Valuation) has reported that water-proof with tarfelt as per items 17 and 18 (First floor) of the original estimate was not carried out. No such item has been taken into account by Shri K.B. Menon in any of the reports submitted.
Regarding doors and windows, the certificate speaks of a saving to the tune of Rs. 13,309 for the reason that doors and windows originally planned were with teak wood and steel but on actual execution, they were done with anjili wood. In the report submitted by Shri K.B. Menon, the value of door frames and window frames and ventilators were taken only at Rs. 9,250. It is admitted that frames were made mostly of teak and that only the shutters were made of anjili wood, Shri K.B. Menon, is found to have made the valuation on actual verification.'
43. These observations of the Inspecting Assistant Commissioner also dilute the credential of the report of Shri K.B. Menon which according to the authorities and the Tribunal represents gospel truth.
44. We have already set out the provisions of Section 271(1)(c) read with the Explanation thereto introduced with effect from April 1, 1964, by the Finance Act, 1964, as applicable to the assessment years in question and also the legal principles governing the situation. To recapitulate for the purpose of this case, in a case where the returned income is below 80 per cent. of the assessed income, the provisions of the Explanation are automatically attracted and a presumption against the assessee is drawn to the effect that he has concealed the particulars of income or that he has furnished inaccurate particulars of income warranting imposition of penalty. It has at once to be noted that this presumption available under the Explanation is a rebuttable one and the burden of proof in such circumstances is on the assessee to establish that the non-returning of the correct income is not on account of any fraud or gross or wilful neglect on the part of the assessee. It is also well-settled that the burden of proof cast on the assessee is to be discharged as in a civil case, that is, on a preponderance of the probabilities of the case. It is also settled by the decisions of this court that in penalty proceedings, the finding's entered in the assessment proceedings are not conclusive and that it is only relevant. It is open to the authorities and the Tribunal to consider the entire materials on the record of the assessment proceedings and to have a closer scrutiny of the same for the purpose of ascertaining whether the assessee has discharged the burden cast on it under the Explanation to Section 271(1)(c). It is also open to the assessee to let in further materials in penalty proceedings to establish that the non-furnishing of the correct income is not on account of any fraud, gross or wilful neglect on the part of the assessee. In this case, apart from the materials already available in the quantum proceedings, the assessee had also let in evidence in the form of certificate issued by Mr. Alexander Vellappally (annexure 'M' in Income-tax References Nos. 76, 77 and 78 of 1975). In order to find out whether there is any support to the said certificate, the Tribunal, in our judgment, has rightly directed the Inspecting Assistant Commissioner to conduct enquiries and find out whether there is any support to the said documents and in fact pursuant to the said direction, the Inspecting Assistant Commissioner not only had a closer look to the existing materials, but also had obtained additional materials or evidence in the form of a report from the Valuation Cell of the Department itself. The report submitted by the Executive Engineer (Valuation Cell) unambiguously and without leaving any scope for imagination clearly dealt with the different items on which there are probable savings and also estimated the probable savings at Rs. 2,08,490. The Inspecting Assistant Commissioner, as we have already stated, has also noted that Shri K.B. Menon also has not taken into account certain items of work, which was available in the original estimate but not executed and also took into account only the value of the materials actually used for arriving at the estimate. These facts are as clear as the day light.
45. Thus, the materials furnished by the report of Shri K.B. Menon, the certificate of Vellappally and the report of the Executive Engineer (Valuation Cell) of the Department all point to the fact that the construction was at variance with the original estimate.
46. Now, when we consider the question as to whether the assessee had discharged the burden cast on it to establish that the non-furnishing of the correct income is not on account of any fraud, gross or wilful neglect, we have to hold that there were abundant materials on record in the penalty proceedings to establish that there was no fraud, gross or wilful neglect on the part of the assessee and that the assessee had discharged the burden cast on it. We are of the view that the Income-tax Appellate Tribunal had also very lightly brushed aside the report of the Executive Engineer (Valuation) of the Department which supports the certificate of Vellappally Bros, and doubts the credentials of the report of Shri K.B. Menon as also probabilises the correctness of the accounts maintained by the assessee. These factors clearly establish that the non-furnishing of the correct return cannot be attributed to any fraud or gross or wilful neglect on the part of the assessee and the finding entered by the Tribunal to the contra are unreasonable. The Appellate Tribunal according to us has misdirected itself.
47. Learned senior counsel appearing for the Revenue has contended before us that even in cases of estimates, it is open to the income-tax authorities to impose penalty under Section 271(1)(c) of the Act and that in cases where this court finds that the Appellate Tribunal has omitted to consider the relevant materials available on records, the proper course would be to remand the matter back to the Tribunal for de novo consideration. In support of the said contention, he, inter alia, relied on the decision of the Madras High Court in CIT v. A.S.K. Rathinasamy Nadar : [1995]212ITR527(Mad) to the effect that one of the settled principles of law is that the High Court while answering any question shall not record the issues of fact and only refer the matter back to the Tribunal for consideration.
48. As already discussed in cases where the Explanation to Section 271(1)(c) is attracted what is required to be considered is whether the assessee has discharged the burden cast on it to establish that the non-returning of the correct income is not on account -of any fraud or gross or wilful neglect. We have already found that the materials on record clearly established absence of any fraud or negligence. It is also relevant to note that this is not a case where the Tribunal has omitted to consider any material. This is a case where the Tribunal adverted to the materials which clearly establish the case pleaded by the assessee, but lightly brushed aside their effect in an unreasonable manner. In the light of the above, we do not find any merit in the submissions made in the preceding paragraph by the learned senior Central Government standing counsel.
49. We accordingly answer the first limb of the question referred at the instance of the assessee in the negative, that is, in favour of the assessee and against the Revenue. The second limb of the question, namely, after the amendment of Section 271(1)(c) and the introduction of Explanation thereto by the Finance Act, 1964, with effect from April 1, 1964, whether the burden of establishing concealment continues to be on the Revenue. Our answer to the said question is to the effect that the burden is on the assessee to establish the ingredients of the Explanation. In view of our finding on the first limb of the question, it is unnecessary for us to decide the third limb of the question.
50. Now coming to the question referred to at the instance of the Department, though it is unnecessary to decide the said question in view of our answer to the question referred to at the instance of the assessee, it has been brought to our notice that the said question is concluded by the decisions of the apex court in Brij Mohan v. CIT : [1979]120ITR1(SC) and in CIT v. Onhar Saran and Sons : [1992]195ITR1(SC) against the Revenue and in favour of the assessee to the effect that the penalty under Section 271, if any, has to be levied with reference to the law applicable as on the date of the original return and not based on any subsequent returns. We, accordingly, hold so.
51. We make it clear that the orders of the Inspecting Assistant Commissioner (annexures 'A-1' to 'A-3') and the appellate order of the Income-tax Appellate Tribunal (annexure 'B') shall stand quashed and set aside. We order accordingly.
52. A copy of this judgment under the seal of this court and the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal, Cochin Bench, for passing consequential orders.