G.S. Singhvi, J.
1. This order will dispose of all these applications filed by the petitioner under Section 256(2) of the Income-tax Act, 1961 (hereinafter to be referred to as 'the Act'), for directing the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, to refer the following question of law :
' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal could impose penalty under Section 271(1)(c) of the Income-tax Act '
2. The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has rejected the reference applications filed by the petitioner under Section 256(1) of the Act by a common order dated' August 23, 1988. The dispute between the parties relates to the assessment years 1967-68 and 1971-72 to 1975-76.
3. In order to decide the questions raised in these applications, it would be proper to refer to the facts given in Reference Application No. 1 of 1990.
4. The assessee-firm consisted of three partners, namely, Shri Devendra Kumar, Shri Mool Chand and Smt. Keval Devi. It used to carry on the business of manufacturing sized beams. According to the application, the firm awarded sole selling agency for selling sized beams produced by it to M/s. Luhadia Brothers, a proprietary concern of Smt. Ratan Devi, who was the wife of one of the partners, Shri Davendra Kumar. Smt. Ratan Devi used to carry on her business of sales through an expert person, namely, Shri Madanlal Sethi, who happened to be her sister's son. Shri Nirmal Kumar, son of Smt. Ratan Devi, also assisted her in the business. The assessee-firm claimed before the Income-tax Officer that it had paid the following commission to M/s. Luhadia Brothers :
Rs. 13,919 for 1967-68
Rs. 19,811 for 1971-72
Rs. 13,712 for 1972-73
Rs. 3,946 for 1973-74
Rs. 15,844 for 1974-75
Rs. 2,552 for 1975-76
5. According to the assessee, the Income-tax Officer did not make full inquiry and he did not take the material evidence of Shri Madanlal Sethi and Shri Nirmal Kumar. Nevertheless, he disallowed the gross amount of commission paid to Smt. Ratan Devi holding her to be the benamidar of the assessee and, in doing so, the Income-tax Officer invoked the provisions of Section 40A(2)(a) of the Act. The assessee preferred appeals before the Appellate Assistant Commissioner, 'B' Range, Jaipur, who allowed the appeals and quashed the order passed by the Income-tax Officer. The Revenue preferred appeals before the Income-tax Appellate Tribunal. The Tribunal accepted the appeals filed by the Revenue by its order dated June 28, 1983. The miscellaneous application for modification of this order filed by the assessee was partly allowed by the Tribunal, vide its order dated June 5, 1984. The Tribunal reiterated its view that Smt. Ratan Devi was the benamidar of the assessee, but amended its order to the extent that only the net income of commission should be added in the hands of assessee instead of the gross amount and thus the expenses incurred by Smt. Ratan Devi in earning the commission were admitted to be genuine. The assessee moved an application for reference under Section 256(1) of the Act before the Income-tax Appellate Tribunal, but the Tribunal declined to refer the matter. Thereafter, the assessee approached the High Court under Section 256(2) of the Act. The reference application filed by the assessee under Section 256(2) of the Act was dismissed by the High Court, vide its order dated September 18, 1985 (Rajasthan Textile Industries v. CIT ). In the meanwhile, the Income-tax Officer started proceedings under Section 271(1)(c) for imposition of penalty. The Income-tax Officer issued notice to the assessee and concluded that the assessee has concealed some facts and filed incorrect particulars of his income and thus liable for penalty under Section 271(1)(c) of the Act. The Appellate Assistant Commissioner before whom appeals were filed by the assessee allowed the appeals. The Appellate Assistant Commissioner has held that the Income-tax Officer has failed to prove any conscious disregard of the law by the assessee and involvement of any mens rea on the part of the assessee. It relied on the decision of the Supreme Court in CIT v. Anwar Ali : [1970]76ITR696(SC) and allowed the appeals filed by the assessee. Further appeals were filed by the Revenue before the Income-tax Appellate Tribunal and the Tribunal, vide its order dated January 15, 1988, allowed the appeals of the Revenue. It held thatthe Appellate Assistant Commissioner was wrong in coming to the conclusion that there was no conscious disregard of the law. The Tribunal came to the conclusion that there is more than sufficient evidence, which leads it to believe that this is a fit case for penalty as the assessee has furnished inaccurate particulars of its income. On that premise, the Tribunal allowed the appeals of the Revenue, but, at the same time, it directed the Income-tax Officer to recompute the penalty on the net addition made to the income of the assessee on account of bogus claim of commission. The assessee-firm, thereafter, filed applications under Section 256(1) of the Act and, as mentioned hereinabove, the Tribunal has dismissed these applications, vide its order dated August 23, 1988. In refusing to make reference, the Tribunal observed that Smt. Ratan Devi was a benamidar of the assessee-firm. The Tribunal proceeded to observe that whether there was concealment or not is a finding of fact and the Tribunal found this fact in the quantum appeal of the assessee as well as in his penalty appeal that Smt. Ratan Devi was a benamidar of the assessee and the assessee has shown payments of commission to Smt. Ratan Devi, which was not genuine and he is liable for penalty under Section 271(1)(c) of the Act and, therefore, no referable question of law arises.
6. The assessee has argued that the Tribunal's order refusing to refer the question for determination by the High Court suffers from an error of law. The Tribunal has completely ignored the relevant provisions of law and the various decisions of the Supreme Court as well as of the High Courts. The Tribunal has passed the order merely on the ground that Smt. Ratan Devi was held to be a benamidar of the assessee and that by itself was a sufficient ground for imposition of penalty and that once it had come to the conclusion in the quantum appeals that Smt. Ratan Devi was a benamidar of the assessee and the assessee has shown payment of commission to Smt. Ratan Devi, they must be deemed to be not genuine and, therefore, penalty is liable to be imposed on the assessee. According to Shri Luhadia, who is a partner of the firm and who has argued in person, the Tribunal has misdirected itself in refusing to make a reference. He argued with vehemence that a clear question of law arises for consideration in this case.
7. Shri Singhal, learned counsel for the Revenue, has argued that the Tribunal has considered the entire matter objectively and, after taking into consideration the material which was placed before it, the Tribunal had found as a matter of fact that Smt. Ratan Devi was a benamidar of the assessee. That finding of fact has not been disturbed even by the High Court. The earlier reference applications filed by the applicant in the matters arising out of the original assessment order were declined by theHigh Court. That being the position, the Income-tax Officer was fully justified in initiating proceedings against the petitioner for imposition of penalty by invoking the provisions of Section 271(1)(c) of the Act. Shri Singhal argued that the Tribunal has given cogent reasons for declining to make a reference on the applications filed by the assessee under Section 256(2) of the Act and that there was no ground for interference by the High Court. He argued that no question of law calls for reference by the High Court.
8. The question as to under what circumstances penalty can be imposed under the provisions of the Income-tax Act was considered by the apex court in CIT v. Anwar Ali : [1970]76ITR696(SC) . Their Lordships of the Supreme Court were considering the provisions of Section 28 of the Indian Income-tax Act, 1922, which are pari materia with the provisions contained in Section 271(1)(c) of the Act. Their Lordships of the Supreme Court held as under (headnote) ;
'Proceedings under Section 28 of the Indian Income-tax Act, 1922, are penal in character. The gist of the offence under Section 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and the burden is on the Department to establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of 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.'
9. In CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) , their Lordships again held that although the original assessment proceedings for computing tax may be a good item of evidence in penalty proceedings, no penalty can be levied strictly on the basis of the reasons given in the original order of assessment. Relying on the decision in Anwar Ali's case : [1970]76ITR696(SC) , their Lordships observed as under (headnote) :
'Penalty proceedings being penal in character, the Department must establish that the receipt of the amount in dispute constitutes incomeof the assessee. Apart from the falsity of the explanation given by the assessee, the Department must have before it before levying penalty cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is a revenue receipt. No doubt, the original assessment proceedings for computing the tax may be a good item of evidence in the penalty proceedings ; but penalty cannot be levied solely on the basis of the reasons given in the original order of assessment.'
10. This view has also been followed by a Division Bench of the Rajasthan High Court in CIT v. Sohan Lal Brij Lal . In that case, the Division Bench held that the mere explanation given by the assessee is not sufficient for imposition of penalty under Section 271(1)(c) of the Act. In that case, the Tribunal had found that the assessee could not explain the discrepancy in the stock pledged with the bank and that recorded in its account books. The Tribunal quashed the penalty imposed on the assessee and the reference made at the instance of the Revenue was answered in favour of the assessee and it was held that the Tribunal was justified in recording the aforesaid finding.
11. In CIT v. Patna Timber Works : [1977]106ITR452(Patna) , a Division Bench of the Patna High Court considered the Explanation below Section 271(1)(c) and propounded the following exposition of law (headnote) :
'Under the provisions of Section 271(1)(c) of the Income-tax Act, 1961, as soon as it is found that there was a difference of more than 20% between the income returned and the income assessed, Clause (c) comes into operation by the rule of presumption engrafted in the Explanation and it is for the assessee to prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. If he succeeds in discharging that onus, no penalty can be imposed under Section 271(1)(c), When a case is covered by the Explanation, then, on the failure of the assessee to discharge the onus of proving absence of certain ingredients, the rule of presumption not only covers the matter of conscious concealment or furnishing inaccurate particulars on the part of the assessee, but on a plain and grammatical meaning of the provision, it also ropes in the presumption of the assessed income being that of the assessee. It is difficult to bifurcate the rule of presumption into two and say that it only affects the first part and not the second. If the Explanation is not attracted, then the onus to prove all the ingredients which are required to be proved even under the amended law is on the Department, including the burden of proving that the income is that of the assessee.The charge of furnishing inaccurate particulars of such income can be found by recording a finding that the assessee had furnished such particulars as a result of his fraud, that means, deliberately or consciously, or that such furnishing was as a result of gross or wilful neglect on his part. The word 'furnished' also imports some positive act on the part of the assessee. If, therefore, the assessee, while supplying the particulars of his income, gives inaccurate particulars as a result of his fraud or gross or wilful negligence, then and then only he can be subjected to the imposition of penalty under the second part of Clause (c). Unless such ingredients are found, on the finding of a mere difference in the particulars of the income and the figure of income assessed, it cannot be said that the assessee furnished inaccurate particulars of such income.'
12. The same view has been expressed by the two Division Benches of the Madhya Pradesh High Court in Ratanlal Ramprasad v. CIT : [1983]139ITR64(MP) and in CIT v. Ratanlal Mishrilal : [1983]143ITR929(MP) . In CIT v. Shivlal Desai and Sons : [1978]114ITR377(Bom) , a Division Bench of the Bombay High Court has held that merely because a certain payment has been disallowed in the assessment proceedings of the assessee, it will not necessarily bring in its ambit a levy of penalty unless the assessee is found to have concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. In CIT v. Bhimji Bhanjee and Co. : [1984]146ITR145(Bom) , another Division Bench of the Bombay High Court had held that merely because the assessee was unable to produce evidence to prove the genuineness of cash credits and the amount was assessed as income from undisclosed sources, it cannot lead to the conclusion of concealment of income. In Ratanlal Mishrilal's case, : [1983]143ITR929(MP) , the Madhya Pradesh High Court also held that merely because the explanation of the assessee was not believed in respect of certain income and the amount was assessed as income, it was not sufficient for levy of penalty. In Girdharilal Soni v. CIT : [1989]179ITR111(Cal) , a Division Bench of the Calcutta High court has held that merely because the assessee had admitted that certain amount was part of his income and that he could not disclose the source of income, it is not sufficient to impose penalty. The burden is on the Revenue to prove deliberate concealment or furnishing of wrong particulars by the assessee. In Addl CIT v. Gokal Chand Jagan Nath : [1986]157ITR187(Delhi) , a Division Bench of the Delhi High Court also held that failure to disclose a particular income as the assessee's income does not amount to concealment.
13. Shri Singhal, learned counsel for the Revenue, has referred to a number of decisions to which we may briefly advert. In Rai Bahadur Mohan Singh Oberoi v. CIT : [1973]88ITR53(SC) , their Lordships of the SupremeCourt held that the finding that the purchase was benami and that the dividends from the benami purchase of shares were to be included in the assessable income of the assessee constituted a question of fact which did not call for interference by the High Court. A similar view has been expressed in CIT v. Shri Ram Niwas and Parasmal Kanaji v. CIT [1988] 172 ITR 568.
14. In Smt Gulab Sundari Bai Bapna v. CIT , a Division Bench of this court held that when a decision of the Tribunal was based not merely on the doctrine relating to burden of proof, but on the totality of the facts and circumstances on record, the Tribunal was justified in holding that the amount represented concealment of income. The facts were that, during the course of assessment, the Income-tax Officer found two items for which the assessee was unable to furnish a reasonable explanation. One related to the alleged claim of loan from the Life Insurance Corporation and the other was that the assessee had explained that it was kept in her tijori. The Income-tax Officer assessed the two items as income of the assessee from undisclosed sources and penalty was also imposed on the assessee. The Tribunal found that there was no evidence against the alleged loan from the Life Insurance Corporation and the explanation regarding the other item was not proved. From the report, it is clear that even the High Court had given opportunity to show any material in possession of the assessee so as to indicate as to whether any loan was at all taken from the Life Insurance Corporation during the relevant accounting year, but learned counsel for the assessee expressed his inability to produce any such material and the court further found that the explanation given by the assessee in respect of the second item was on the face of it not plausible.
15. We have considered the rival submissions and the law laid down by the apex court as well as by this court and have perused the order passed by the Tribunal. A perusal of the order dated January 15, 1988, shows that the Tribunal has passed its order on its earlier findings in the quantum appeals. Even in the order dated August 23, 1988, the Tribunal has referred to the order passed by it in the quantum appeals where the commission issue was discussed. It observed that, in the said order, the assessee had not been able to establish the nature of service as well as the extent of service rendered by Smt. Ratan Devi and, therefore, Smt. Ratan Devi was the benamidar of the assessee-firm. The Tribunal, however, did not examine the question whether the assessee was guilty of deliberate concealment of income or of furnishing wrong particulars before the assessing authority. The sole ground on which the Tribunal has upheld the order passed by the assessing authority is itsearlier finding in the quantum appeals that Smt. Ratan Devi was a benamidar of the assessee-firm and that the explanation given by the assessee regarding commission paid to M/s. Luhadia Brothers was not satisfactory and acceptable. The Tribunal has not examined the explanation below Section 271(1)(c) of the Act while accepting the appeals filed by the Revenue or while refusing to make a reference to this court. In our opinion, the applicant has been able to make out a case for making a reference on the question of law. We, therefore, direct the Tribunal to refer the following question for being answered by this court :
'Whether, on the facts and in the circumstances of the case, the assessing authority was justified in imposing penalty under Section 271(1)(c) of the Act on the assessee and as to whether the Tribunal was justified in upholding the order passed by the assessing authority with the modification made by it in the order dated January 15, 1988?'
16. Costs made easy.