Allahabad H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in cancelling penalty of Rs. 31,477 imposed by the IAC under s. 271(1)(c) ?

BY THE COURT :

The Tribunal (Allahabad Bench) referred the following question relating to the asst. yr. 1969-70 for the opinion of this Court:

“Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in cancelling penalty of Rs. 31,477 imposed by the IAC under s. 271(1)(c) ?”

2. The facts, briefly, are that the assessee, an unregistered firm engaged in the business of cold storage and manufacture of ice, filed a return showing loss of Rs. 2,207 for the asst. yr. 1969-70. However, during the course of assessment proceedings, following additions were made : These additions were sustained in appeal.

3. While making assessment, penalty proceedings were intitated under s. 271(1)(c) of the IT Act, 1961 (for short, ‘the Act’). Before the ITO the argument was that even if the explanation offered by the assessee in respect of cash credits is not supported by satisfactory evidence, it cannot be concluded that the assessee concealed the particulars of its income. Further argument was that the mere fact that the explanation of the assessee regarding the source and nature of cash credits appearing in the books has been rejected by the ITO would not in all cases, be sufficient material to come to the conclusion that the assessee has concealed the particulars of his income. These arguments proceeded on the basis of the rule laid down in CIT vs. Anwar Ali (1970) 76 ITR 696 (SC), inter alia.

4. The IAC relying upon the Expln. to s. 271(1)(c) of the Act held that the total income returned by the assessee being less than 80% of the assessed income the assessee shall be deemed to have concealed the particulars of its income or furnished inaccurate particulars of such income for the purpose of cl. (c). He also held that the assessee failed to prove that failure to return the correct income did not arise from any fraud or any gross or wilful neglect on its part. Such conclusion of the IAC was based on the following observations : “Perusal of income-tax records of Sarder Malik Singh (one of the partners in the assessee firm) for asst. yr. 1969-70 shows cash credits to the tune of Rs. 20,435 appearing in his capital account, which he could not prove by any evidence whatsoever. Therefore these cash credits were added as income from other sources of the assessee and treated as concealed income in his case. In the case of Sardar Harbans Singh, the other partner of the firm also, for asst. yr. 1969-70 cash credits of Rs. 2,000 appeared in his capital account. The assessee could not offer any explanation regarding the nature and source of this deposit either before the ITO or at the appellate stage. It is thus seen that appearance of unexplained cash credits in the case of the firm as well as the partners, mentioned above, is a common feature of this group. The assessee has failed to offer any evidence to prove the genuineness of the cash credits. The only conclusion, therefore, that can be drawn in this case is that the cash credit of Rs. 9,300 represents the concealed income of the assessee………. I further hold that wrong deductions and debits made by the assessee to the P&L account amounts to furnishing of inaccurate particulars of income.” This is how the IAC imposed the minimum penalty of Rs. 31,477 under s. 271(1)(c), read with the Explanation.

5. The penalty was cancelled by the Tribunal with the following observations : “Without going into the merits of the case, we find that the IAC has taken a wholly erroneous view of the legal position as is applicable now after the decision of the Hon’ble Supreme Court in CIT vs. Anwar Ali (1970) 76 ITR 696 (SC) and various other cases. There are numerous decisions after that of the different High Courts as well and the decision in Lalchand Gopal Das (supra) is no longer good law. It is really surprising that the IAC has gone on record to say that the onus of proving the concealment does not lie upon the IT authorities.”…………… “So far as cash credits are concerned, the assessee could not give any evidence during the assessment proceedings and hence, the amount was treated as its concealed income. That, however, does not mean that the disputed amount represents the concealed income of the assessee. The Department should have brought on record some independent material to show that this was the concealed income of the assessee of this year or that the assessee furnished inaccurate particulars in respect of it………… Of course, in regard to the nature of the expenses there has been a difference between the assessee and the Department. That does not mean that the disallowance of these expenses should be taken into consideration for finding out as to whether the Expln. to s. 271(1)(c) is attracted.”…………… “We do not agree with the Departmental Representative that by claiming these expenses as deductions from the income, the assessee furnished any false particulars. It is another matter whether the claim was accepted or not. The rejection of a claim does not mean that there was any concealment made or any inaccurate particulars furnished. On merits, therefore, we hold that penalty provisions were not attracted……………….. [emphasis, italicised in print, supplied] To state briefly, the findings of the Tribunal are that correct legal position applicable to the case of the assessee in regard to onus is laid down by the Supreme Court in Anwar Ali’s case (supra), that even if the plea of cash credits is not accepted, the deposit will not amount to concealed income of assessee, that the onus is on the Revenue to bring some independent evidence to show that the deposit represented the concealed income of the assessee in the relevant year, that disallowance of the claim of the revenue expenditure will not attract the Expln. to s. 271(1)(c) of the Act and that rejection of a claim of revenue expenditure does not mean that there was concealment or that inaccurate particulars were furnished by the assessee.

The question for consideration is whether the Tribunal was right in holding that the case of Anwar Ali (supra) would govern the legal position for the asst. yr. 1969-70. Anwar Ali’s case dealt with s. 28(1)(c) of the IT Act, 1922, which in so far as is relevant, read as follows : “28. Penalty for concealment of income or improper distribution of profits.—(1) If the ITO, the AAC or the Tribunal in the course of any proceedings under this Act is satisfied that any person…….. (c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income……..…………… Sec. 271(1)(c) of the Act as originally indicated was to the same effect. By the Finance Act, 1964, however, the word `deliberately’ occurring in cl. (c) was omitted and the Explanation above mentioned was added.

The rule laid down in Anwar Ali (supra) was that it is for the Department to establish that the receipt of the amount in dispute constitutes the income of the assessee and that the assessee had 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.

With a view to making the task of the Revenue less difficult Parliament by Finance Act, 1964, omitted the word `deliberately’ in cl. (c) and added the Explanation. The Explanation creates a presumption of law, which is no doubt rebuttable that where the total income returned by any person is less than 80% 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 purpose of cl. (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 to prove on the assessee in the situation where difference between the returned income and the assessed income is more than 20%. If the burden is shifted to the assessee under Explanation and if he fails to rebut the same, then on the strength of the presumption, 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, then no penalty can be levied.

In view of the aforesaid legal position emerging from the amended s. 271(1)(c), read with the Explanation, the burden, no doubt, shifted to the assessee in the case in hand, inasmuch as the return of loss was filed and the total assessed income was more than 80% of the returned income. The Tribunal, therefore, clearly erred in holding that the onus was on the Revenue to prove that there was concealment on the part of the assessee and that the assessee furnished inaccurate particulars of income. In view of the Expln. to s. 271(1)(c), a presumption arose that the assessee had concealed the particulars of its income or furnished inaccurate particulars of its income for the purpose of cl. (c) of s. 271(1).

In view of the amendment made by the Finance Act, 1964, the case in hand will not be governed by the case of Anwar Ali (supra), but by a decision of the Supreme Court in CIT vs. Musaddilal Ram Bharose (1987) 60 CTR (SC) 34 : (1987) 165 ITR 14 (SC), in which the Supreme Court explained that 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 his income. The Supreme Court, however, added that the onus to prove that it was not failure of the assessee or fraud of the assessee or neglect of the assessee, that caused the difference, shifted to the assessee, but the onus that was shifted was rebuttable and that the rebuttal must be on materials relevant and cogent. It is for the fact finding body to judge the relevancy and sufficiency of the material. If such a fact finding body bearing these principles in mind, comes to the conclusion that the assessee has discharged the onus, it becomes a conclusion of fact. Similar view was reiterated by the Supreme Court in CIT vs. K.R. Sadayappan (1990) 80 CTR (SC) 120 : (1990) 185 ITR 49 (SC) and in CIT vs. Jeevan Lal Shah (1994) 117 CTR (SC) 130 : (1994) 205 ITR 244 (SC). From these authorities it is clear that after the Finance Act, 1964, the rule regarding burden of proof enunciated in Anwar Ali (supra) is no longer valid.

10. The onus of proof for rebutting the presumption lies squarely on the assessee. This burden, however, can be discharged (as in civil cases) by the preponderance of evidence. Equally it may not be inflexibly necessary to lead fresh evidence and it would be permissible in the penalty proceedings for the assessee to show and prove that in the existing material itself the presumption raised by the Explanation stands rebutted.

11. In view of the above said legal position, the Tribunal must record a clear and categorical finding whether any explanation of the assessee can be accepted and thereby it has discharged the onus laid upon it by law. The explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation. It may not prove what it asserts to the hilt positively, but as a matter of fact materials must be brought on the record to show that what it says is reasonably valid. It is for the authorities whether they will accept or reject the explanation, but law enjoins upon them that they should be explicit in recording a finding on the point. Upon perusal of the Tribunal’s order, it appears that the explanation of the assessee was not considered in the right perspective that the onus was on the assessee to prove that the difference in the returned income and the assessed income was not due to fraud or gross or wilful neglect on its part and no categorical finding was recorded whether or not explanation, if any, furnished by the assessee, was acceptable and sufficient to discharge the onus shifted upon it by virtue of Explanation to s. 271(1)(c).

12. It is, however, made clear that when the Tribunal proceeds to consider the explanation of the assessee from the point of view whether onus was successfully discharged or not by the assessee, it will be free to come to the same conclusion, which it had already reached. We may not be misunderstood that the legal position, stated above, deprived the Tribunal from reiterating its view either wholly or partly. What we have impressed in this order is that the Tribunal has to precede bearing in mind the correct legal position and come to the conclusion whether the explanation of the assessee is sufficient to discharge the onus, which shifted upon it under the amended law.

13. We, therefore, answer the question referred to this Court in negative and remit the case to the Tribunal to record a clear finding on the question whether there was cogent and relevant material to rebut the presumption that the concealment was not due to fraud or any gross or wilful neglect on the pat of the assessee.

[Citation: 219 ITR 131]