Raghuvir Soni Vs. Assistant Commissioner of Income Tax, Bikaner - Court Judgment

Balia, J.

1. Heard learned counsel for the appellant.

2. The appellant has sought to challenge the order passed by the Income Tax Appellant Tribunal sustaining the levy of penalty Under Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act of 1961') in respect of additions made in the income of the appellant as a result of cash found in his possession, source of which was not explained to the satisfaction of the Assessing Authority.

3. The facts relevant for the present purposes, which need to be noticed are That the assessee was found in possession of a sum of Rs. 2,30,000/- during the previous year relevant to assessment year 1990-91 by the Customs Authorities.

4. The statement of assessee was recorded by the Customs Authorities on 24.5.89 in which the assessee admitted the said amount to be his own, which he has acquired by indulging in purchase and sale of contraband gold. The said amount was handed over to the Income Tax Authorities Under Section 132A of the Income Tax Act, 1961 for taking proceedings in that regard under the Income Tax Act. This led to assessment of the said sun in the hands of the assessee by rejecting his explanation by invoking of deeming provisions Under Section 69A of the Act of 1961 by treating the assessee to be owner of the amount found in his possession and the same having not been explained, to be income of the assessee of the previous year during which he was found to be in possession of the said amount. The additions made of Rs. 2,30,000/- in the income of the assessee over and above returned by the assessee in pursuance of notice led to initiation of proceedings Under Section 271(1)(c) of levying penalty for concealment of the particulars of the income by the assessee.

5. The assessee furnished explanation that the said amount of Rs. 2,30,000/-represented amount given to him by some third parties, which has also been confirmed by the third party named by the assessee. However, the Assessing Authority rejected the said explanation, in view of his admission before the Customs Authorities on 24.5.89 admitting it to be his income by rejecting the explanation of the assessee.

6. The penalty proceedings were also terminated by holding the assessee guilty of concealing the particulars of such income and the penalty in a sum of Rs. 1,05,208/-was levied.

7. The said order has been affirmed by the Income Tax Appellate Tribunal, after CIT (A) has dismissed the assessee's appeal.

8. Learned counsel for the assessee contends that the assessee having furnished explanation and produced the relevant evidence of the persons, to whom he attributed the source of found found in his possession, he has discharged his burden and thereafter he could not have been held liable for levy of penalty by invoking the provisions of Section 69A of the Act of 1961 nor he could be held responsible by relying on the provisions of Explanation 1 to Section 271(a)(c) because the Assessing Authority has not invoked the same for initiating the penalty proceedings.

9. Having carefully considered the contention of the learned counsel for the assessee, we are unable to sustain it.

10. It is a case in which recovery of Rs. 2,30,000/- from the possession of the assessee is not in dispute. In the first instance, before the Customs Authority he owned the proprietorship of the said sum which he derived from his sale or purchase of gold including contraband gold. The fact that later on he retracted the statement connecting the said amount with the contraband gold before the Customs Authorities and because of that it was held by the Customs Authorities that it is not proved that amount found in possession of the assessee is linked with the contraband gold, and that resulted in his exoneration from the proceedings under the Customs Act would not detract from the fact that he made the said admission before the Customs Authorities owning the amount to be his own and not belonging to somebody else. Before the Income Tax Authorities, the assessee disowned amount to be his own at all but has attributed the ownership or its source to five different parties by way of cash credits. It was claimed by the assessee that money has been borrowed from 5 different persons ranging between Rs, 30,000/- to Rs. 80,000/-. The enquiry was directed to each of the five alleged lenders of money. The Assessing Authority in a detailed order found that none of the five persons were in a position to advance the stated sum respectively. It was found that each one of the lenders in his turn stated that he has borrowed money from others. Radhey Shyam was alleged to have lent Rs. 80,000/- He in turn stated to have arranged Rs. 70,000/- from others. Shankar lal Soni had arranged Rs. 50,000/- from others out of Rs. 60,000/- attributed to him. Likewise Shri Bhanwarlal Soni shifted his source to others for Rs. 37,000/- out of Rs. 40,000/- attributed to him and Shri Bhagirath Soni arranged entire Rs. 30,000/- from others. In most of the cases the lenders to these respective persons as named by them have not supported the story.

11. The Assessing Authority noticed further different stand taken by these learned before the Custom Authorities and the Income Tax Authorities. He also examined financial status of each of lenders and persons from whom the so-called lenders of money to assessee have stated to have arranged money and found them of petty means, hardly in a position to lend any money. The Assessing Authority has noticed that though the assessee has later on retracted his admission, but his companion Jugal Kishore, who has fully corroborated first admission made by the assessee has not retracted his statement and that stand as it is, With such detailed enquiry the said amount was held to be income of the assessee of the previous year relevant to assessment year in question from undisclosed source with the aid of Section 69A.

12. This led to initiation of penalty proceedings Under Section 271(1)(c) The assessee did not respond to show cause notice issued to him time and again and did not lead any evidence. In the absence of any explanation furnished by the assessee, the Assessing Officer, again by discussing the entire material that was before him reached the conclusion that assessee has concealed particulars of said income and levied penalty of Rs. 1,05,208/-, which was the minimum on imposable penalty.

13. The CIT(A) found on discussing the material that the assessee has not furnished any explanation in penalty proceedings and explanation furnished by him during the assessment proceedings and now pressed in service 'to be false' and not merely 'not substantiated', and affirmed the order of Assessing Authority.

14. On further appeal, the Tribunal has agreed with the findings recorded by GIT(A) and affirmed the order.

15. The assessee, in aid of his appeal has contended that merely because for the purpose of assessment of income, a legal fiction has been created Under Section 69A to treat the unexplained cash found in the possession of the assessee by Custom Authorities, to be income of the assessee of the previous year relevant to assessment year in question, this deeming provision cannot extend to penalty proceedings Under Section 271(1)(c) and that since Assessing Officer of the CIT (A) have not invoked the Explanation I to Section 271(1)(c) specifically, the penalty cannot be sustained with its aid. It needed, assessee contends, that a clear notice of intention to invoke Explanation I is required to be given to the assessee.

16. It is true that the provisions of Section 69A by itself cannot be invoked for holding it to be the income of the assessee of the previous year in question for the purpose of penalty proceedings Under Section 271(a)(c) However, w.e.f. 1.4.76 Explanation I was substituted in the following terms, which was in force during the relevant assessment year in question. The relevant provisions of the Act for the present purposes read as under-

Section 271. Failure to furnish returns, comply with notices, concealment of income etc.

(1) If the Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person-

(a).........

(b) ........

(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-

(i) .......

(ii).......

(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of the concealment of particulars of his income or furnishing of inaccurate particulars of such income:

Explanation 1. - Where in respect of any facts material to the computation of the total income of any person under this Act,-

(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing officer or the Commissioner (Appeals) to be false, or

(b) such person offers an explanation which is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him.

then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.

17. The provisions of the Income Tax Act w.e.f. 1.4.76 relating to levy of penalty for concealment of income has been materially altered.

18. It clearly postulates that where any amount is added in computing the totalincome of the assessee and in the penalty provision the assessee fails to offer anexplanation or offers an explanation which is found to be false or where on furnishingan explanation he is not able to substantiate the same and fails to prove that suchexplanation is bonafide then for the purposes of Clause (c), the said addition made ordeduction disallowed has to be deemed to represent the income in respect of whichparticulars have been concealed.

19. Explanation in force w.e.f. 1.4.76 is clear in itself as to its operative field. It does not provide a rule of rebuttable presumption to start with further enquiry in which such rebuttable presumption could be displaced, whether by leading new evidence or from existing material. But it clearly comes into operation when enquiry into correctness of additions made or deductions disallowed during the course of assessment proceedings is completed by calling upon the explanation from the assessee. On particular conclusion reached, the operative part of legal Fiction comes to life and not otherwise. Thus, it is a deeming provision for reaching conclusion and not for starting an enquiry with a presumption against the assessee.

20. In this connection further distinction is clearly noticeable between the two clauses of the Explanation I. Clause (A) refers to a case where no explanation is furnished by the assessee about such additions made or deduction disallowed, or if explanation is furnished by the assessee, it is found to be false. Finding an explanation to be false is akin to a fact disproved in contrast to a fact 'not proved' as defined in Evidence Act. In such event the conclusion that is to be arrived at is that amount added or disallowed in computation is deemed to represent the income in respect of which petitioners have been concealed.

21. Clause 'B' comes into picture only when some explanation is furnished by the assessee. It does not come into picture where assessee does not furnish any explanation; because such case is governed by Clause (A) Clause 'B' comes into operation, where explanation furnished by the assessee in respect of additions or disallowance of any amount, he is unable to substantiate the same that is to say where the explanation furnished by the assessee is placed in the category of a fact 'not proved', which it denotes that the fact in enquiry is neither proved nor disproved. This 'not proved' state by itself can invite operation of Explanation. If in addition to failure to substantiate the explanation, the assessee also fails to prove that explanation furnished by him was bonafide, and that he has disclosed all material facts necessary for assessment that the Explanation I operates.

22. The distinction must be noticed that where the proceedings are initiated on the basis of certain deemed provision which gives rise to a rebuttable presumption which gives rise to a rebuttable presumption which can subsequently be displaced by leading evidence to the contrary, then the case where a conclusion is required to be drawn by deeming legal fiction after reaching a particular stage of investigation. It is in that sense the Explanation which was replaced by the Explanation in question differs in its contours. It is apparent from the decision rendered in Commissioner of Income Tax v. Baroda Tin Works (1), which has been relied on by the learned counsel for the assessee. The Baroda Tin Works' case was in relation to the assessment year 1971-72 prior to substitution of Explanation in the present form. The Court clearly stated that the Explanation to Section 271(1)(c) inserted w.e.f. 1.4.76, which creates a legal fiction treating incomes added to the total income as concealed income, cannot be held to be retrospective in operation.

23. In the present case it has been noticed by all the authorities that assessee has not furnished any explanation in response to notice to show cause in penalty proceedings. Penalty proceedings Under Section 271(1)(c) are independent of assessment proceedings. Thus, it clearly falls in Clause A of Explanation. The Assessing Authority has proceeded on that basis. If it be taken that explanation furnished during the assessment proceedings, was already with the Assessing Authority and be taken to be explanation furnished for the purpose of penalty proceedings also, then too by through discussion of entire available material the CIT(A) has come to a definite finding that such explanation furnished by the assessee is 'false'. The Tribunal was also in agreement with the same.

24. In the light of brief resume of fact noticed by us, we are of the opinion that this finding of fact has been reached reasonable on appreciation of evidence and considering the facts and circumstances relevant for the enquiry and does not give rise to question of law that may require reconsideration of such finding as substantial question of law in this appeal.

25. For giving effect to a legal consequence on certain existing state of affairs, which has been ordained by statute, does not require any specific notice of intention to invoke statutory provision. The statutory provision in question comes into operation by its own force once conditions mentioned in Clause A or Clause B come into existence. It does not depend on the option of the Assessing Authority to invoke by specific mention to reach the conclusion envisaged by law once conditions mentioned in Clause A or Clause B of the Explanation I to Section 271(1)(c) are established.

26. In these circumstances, the question whether specific notice of intention to invoke the Explanation was necessary, in our opinion, does not arise as a substantial question of law, inasmuch as reading of the provision itself makes abundantly clear that no other conclusion is possible. The answer is obvious.

27. In view of the finding reached by the Revenue in penalty proceedings independently about not furnishing of explanation by the assessee in penalty proceedings and explanation on record to be false, Explanation springs to life in the penalty proceedings, Therefore, levying of penalty, in our opinion, has rightly been upheld by the Tribunal. The answer being self-evident and primarily being depended on appreciation of evidence, no substantial question of law arises in the facts and circumstances of this appeal for consideration of this Court.

28. Accordingly, the appeal fails and is hereby dismissed.