Commissioner of Income-tax Vs. Gurbachan Lal - Court Judgment

Arijit Pasayat, C.J.

1. Pursuant to the direction given by this court under Section 256(2) of the Income-tax Act, 1961 (in short, the 'Act'), the following question has been referred for the opinion of this court by the Income-tax Appellate Tribunal, Delhi Bench 'A', New Delhi (in short, the 'Tribunal'):

'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in cancelling the penalty of Rs. 50,000 imposed by the Inspecting Assistant Commissioner under Section 271(l)(c) of the Income-tax Act, 1961 ?'

2. The factual position, as borne out by the statement of case, is essentially as follows :

The assessed, who was assessed in the status of an individual, filed a return showing income of Rs. 5,000 for the assessment year 1966 67. A sum of Rs. 48,500 was recovered in cash from his house during a search by the customs authorities. On being asked about the nature and source of the aforesaid sum, he explained it as follows : (i) Loan from Shri Babu Ram on 6-3-1966. Rs. 15,000(ii) Loan from Jain Bullion Company, Meerut, against ornaments pledged by the assessed on 10-3-1966. Rs. 10,000(iii) Sale proceeds of silver coins sold to Madan Lal Vinod Kumar Jain, Delhi, on 8-3-1966. Rs. 23,374

3. The Income-tax Officer, during the assessment proceedings, did not accept the evidence produced by the assessed in respect of the loans as mentioned at Seriall Nos. (i) and (ii) above and also in relation to the claim regarding sale of silver coins. He added the entire sum of Rs. 48,500 as income from undisclosed sources. An appeal was preferred by the assessed before the Appellate Assistant Commissioner (in short, 'the AAC') against the assessment and the said authority confirmed the addition. On further appeal, the Tribunal directed deletion of Rs. 23,374 on the ground that the evidence, both documentary and oral, produced by the assessed in respect of the sale of silver coins for Rs. 23,374 was satisfactory. It, however, did not accept the Explanationn in respect of the alleged loans and found that they were not genuine. In the meantime, proceedings under Section 271(l)(c) of the Act were initiated for concealment of income. Considering the quantum involved, the matter was referred to the Inspecting Assistant Commissioner of Income-tax (in short, 'the IAC'). A show-cause notice was issued by the Inspecting Assistant Commissioner and a reply was submitted by the assessed. The assessed's primary stand was that merely because there were some inconsistencies between the statements made before the customs authorities and the Income-tax Officer, the same was not sufficient to disbelieve the Explanationn offered as regards the genuineness of the loans. The Inspecting Assistant Commissioner did not accept the stand and felt that the assessed had made conflicting statements and the inconsistencies were not explained. The Explanationn offered was found to be not acceptable and penalty of Rs. 50,000 was imposed. The matter was carried in appeal before the Tribunal by the assessed. It was pointed out that the Tribunal, in the quantum appeal, had already deleted addition of Rs. 23,374 and maintained the remaining additions on the ground that it was not satisfied about the genuineness of loans. It was, further, pleaded that the loan was advanced by Shri Babu Ram on the basis of a pro note and Jain Bullion Company on the basis of ornaments pledged. It was further stated that Shri Babu Ram was produced before the Income-tax Officer and his statement was recorded, where he stated about the source from which the loan was given. Mere disbelief of the evidence was not sufficient for attracting penal consequences. The Tribunal was of the view that mere rejection of the Explanationn or disbelief of the Tribunal in the quantum appeal was not sufficient to prove concealment. There has to be some positive material or positive circumstance to suggest that the assessed had concealed his income. It was held that, on consideration of the facts and circumstances of the case, no concealment had been proved and, thereforee, penalty was directed to be deleted. The Revenue moved for reference under Section 256(1) of the Act, which was rejected. But pursuant to the direction given by this court under Section 256(2) of the Act, the question, as set out above, has been made.

4. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessed in spite of notice. The primary stand of learned counsel for the Revenue is that the effect of the Explanationn added to Section 271(l)(c) of the Act has been lost sight of by the Tribunal. After addition of the Explanationn, the position of law which emerged from the decision of the apex court in CIT v. Anwar Ali : [1970]76ITR696(SC) was no longer applicable. It is pointed out that the returned income was Rs. 5,000. Even after deletion of the addition made by the Income-tax Officer to the extent of Rs. 23,374, the Explanationn was clearly applicable as the assessed income was far above the permissible limit.

5. At this juncture, it is necessary to refer to the legislative history so far as Section 271(l)(c) is concerned. There are three stages of amendment of Section 271(l)(c). The periods are : (a) prior to April 1, 1964, (b) April 1, 1964, to March 31, 1976, and (c) after April 1, 1976, which have relevance to the present dispute. Originally, the word 'deliberately' existed which was omitted by the Finance Act, 1964, with effect from April 1, 1964. An Explanationn was inserted at the end of sub-section (1) of Section 271, by the said Finance Act (section 40 of the Finance Act, 1964). In between, by the Finance Act, 1968, the base for levy of penalty became the amount of concealment as against the quantum of tax sought to be avoided under the then existing provisions. Subsequently, further amendments were brought by the Taxation Laws (Amendment) Act, 1975 (section 61 of the said amending Act). Four Explanationns were substituted for the Explanationn introduced by the Finance Act, 1964. The effect of the said amendment, so far as we are concerned, is that where, in respect of facts material to the computation of the total income of the assessed, he furnishes no Explanationn or he cannot substantiate the Explanationn offered by him or the Explanationn offered by him is found to be false, the relevant income shall be deemed to be his concealed income. Another change was the base for levy of penalty for concealment. The base which was made, viz., the concealed income, was again changed to tax sought to be evaded. We are not very much concerned with the other changes.

6. The question of onus is of primary and added importance in legal acre mony. In Anwar Ali's case : [1970]76ITR696(SC) , the apex court laid down that, before a person could be visited with a penalty for concealment, etc., the Revenue must prove that the amount in question was the income of the assessed and that he had concealed it with a motive. It was further held that the penalty could not be imposed merely because the Explanationn given by the assessed in regard to items in question was not believed to be true.

7. Section 271(l)(c) is attracted where, in the course of any proceedings under the Act, the Assessing Officer or the first appellate authority is satisfied that (a) any person has concealed the particulars of his income, or (b) has furnished inaccurate particulars of such income. The expression 'has concealed' and 'has furnished inaccurate particulars' have not been defined either in the Section or elsewhere in the Act. However, notwithstanding the differences in the two 'circumstances, they lead to the same effect, viz., keeping off a certain portion of the income. The former is direct while the latter may be indirect in its execution. The word 'conceal' is derived from the Latin word 'conceal' which implies 'to hide'. In Webster's New International Dictionary, the word has been equated 'to hide or withdraw from observation ; to cover or keep from sight ; to prevent discovery of; to withhold knowledge of'. The meaning of the word, 'concealment' as fraud in Shorter Oxford English Dictionary is : 'In law, the intentional suppression of truth or fact known, to the injury or prejudice of another'. There may be cases where the facts may attract both the offences, and in some cases there may be overlapping of the two offences.

8. If, in the facts and circumstances of a particular case and on the materials before it, the Tribunal reaches a conclusion that concealment was not proved, it is a question of fact and no question of law arises from such order. Similarly, whether the burden in a given case has been discharged on a set of facts or not is a question of fact. Where a finding of fact arrived at by the Tribunal is based on no material or is perverse or is based on irrelevant, extraneous or inadmissible considerations or is arrived at by the application of wrong principles of law, a question of law arises. Where the Tribunal fails to arrive at its own conclusion of fact after due and proper consideration of the entire materials for and against the assessed and cancels the penalty, a question of law arises. Similar is the case where conclusions of the Tribunal suffer from infirmity on account of relevant materials and evidence being ignored.

9. A conspectus of the Explanationn added by the Finance Act, 1964, and the subsequent substituted Explanationns makes it clear that the statute visualized assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. In essence, the Explanationn (after 1964) is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessed. The rationale behind this view is that the basic facts are within the special knowledge of the assessed. Section 106 of the Indian Evidence Act, 1872 (in short, the 'Evidence Act'), gives statutory recognition to this universally accepted rule of evidence. There is no discretion conferred on the Assessing Officer as to whether he can invoke the Explanationn or not. Explanationn 1, which primarily concerns the case at hand, automatically comes into operation when, in respect of any facts material to the computation of the total income of any person, there is failure to offer an Explanationn or the Explanationn is offered which is found to be false by the Assessing Officer or the first appellate authority, or an Explanationn is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which the particulars have been concealed. As per the proviso to Explanationn 1, the onus to establish that the Explanationn offered was bona fide and all facts relating to the same and material on the computation of his income have been disclosed by him will be on the person charged with concealment. Mere failure to substantiate the Explanationn is not enough to warrant penalty. The Revenue has to establish that the Explanationn offered was not substantiated. The proviso to Explanationn 1 is concerned only with cases coming under clause (B) of the Explanationn where the assessed offered an Explanationn which he was not able to substantiate. The Explanationn of the assessed for purposes of the avoidance of penalty must be an acceptable Explanationn ; it should not be a fantastic or fanciful one. As indicated above, the consequence follow as a matter of law. The burden is on the assessed. If he fails to discharge that burden, the presumption that he had concealed income or furnished inaccurate particulars thereof is available to be drawn.

10. The principal logical import of the Explanationn is to shift the burden of proof from the Revenue on to the assessed. 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 assessed has discharged the onus, it becomes a conclusion of fact, and no question of law arises. As observed earlier, the initial burden is on the assessed. Once the initial burden is discharged, the assessed would-be out of mischief unless further evidence is adduced. It is plain on principle that it is not the law that the moment any fantastic or unacceptable Explanationn is offered, the burden placed would be discharged and the presumption rebutted. As pointed out by the apex court in the case of CIT v. Mussadilal Ram Bharose : [1987]165ITR14(SC) , the burden placed upon the assessed is not discharged by any fantastic Explanationn. It must be an Explanationn acceptable to the fact-finding body. These aspects were highlighted by one of us (Arijit Pasa-yat, Chief Justice) in the cases of CIT v. A. Sreenivasa Pai : [2000]242ITR29(Ker) and CIT v. Kishorekumar Shamji : [2000]244ITR702(Ker) .

11. The apex court had considered the effect of change of law by the Finance Act, 1964, in the case of CIT (Addl) v. Jeevan Lal Sah : [1994]205ITR244(SC) . With reference to the case of CIT v. Mussadilal Ram Bharose : [1987]165ITR14(SC) , the apex court had approved the interpretation placed upon the Explanationn by a Full Bench of the Punjab and Haryana High Court in Vishwakarma Industries v. CIT . The same issue was also dealt with by the apex court in the case of CIT v. K. R. Sada-yappan : [1990]185ITR49(SC) of the said case, it was observed as follows (see [1994] ITR 205 :

' '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 Explanationn given by the assesses 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 Explanationn was not convincing but false because there was no cash available to the assessed for payment of the extra money paid. thereforee, no Explanationn was put forward as to wherefrom the extra money came. If that was the position and the further presumption was that the assessed was guilty of fraud, then the subsequent presumption followed that the assessed 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 assessed was guilty of fraud or willful neglect as a result of which the assessed 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. Mussa-dilal Ram Bharose : [1987]165ITR14(SC) , and the principles of law applicable in a situation of this type to the facts of this case and, thereforee, the decision is not sustainable.'

It is thus clear that the question referred to the High Court in this case is no longer rest integra. The decisions of this court aforesaid clearly point out the change that has been brought about by the introduction of the said Explanationn.'

12. Ultimately, it was observed that the principle initiated in Anwar Ali's case : [1970]76ITR696(SC) that mere rejection of the case is not sufficient for levying penalty and Revenue must go further and establish that there has been concealment of particulars of income or a deliberate failure to furnish accurate particulars is no longer necessary. The cases to which the said Explanationn is attracted have to be decided in the light of the law enunciated in Mussadilal Ram Bharose's case : [1987]165ITR14(SC) and K.R. Sadayappan's case : [1990]185ITR49(SC) . Undisputedly, in the case at hand, the Tribunal has proceeded to place the onus on the Revenue to prove by some positive material or positive circumstance to suggest that the assessed had concealed his income. That was not necessary to be done by the Revenue in view of the Explanationn to Section 271(l)(c). What the Revenue was required to do was to consider the Explanationn, if any, offered by the assessed and decide upon its acceptability. The burden was on the assessed to prove that there was no concealment. That is the main import of the Explanationn added to Section 271(l)(c) of the Act with effect from April 1, 1964.

13. The Tribunal was not justified in its conclusion in cancelling the penalty. However, the quantum of penalty has to be fixed by taking into account the unexplained incomes to the extent of Rs. 25,000. This exercise shall be taken up by the Tribunal while dealing with the matter under Section 260 of the Act. Our answer to the question referred is in the negative, in favor of the Revenue and against the assessed.

14. This reference is disposed of.