Calcutta H.C : The credit of amount of Rs. 2,45,000 under ‘Disclosure Capital Account’ in place of various loan amounts in its books of accounts in a later year amounted to an admission of concealed income on the part of the assessee, as envisaged under the provisions of s. 271(1)(c)

Counsel Appeared

A.K. Roychowdhury, for the Petitioner : B.K. Bhgchi with A.N. Bhattacharjee, for the Revenue

SABYASACHI MUKHARJI, J. :

As directed by this Court under s. 256(2) of the IT Act, 1961, the following question has been referred to this Court : “Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the credit of amount of Rs. 2,45,000 under ‘Disclosure Capital Account’ in place of various loan amounts in its books of accounts in a later year amounted to an admission of concealed income on the part of the assessee, as envisaged under the provisions of s. 271(1)(c) of the IT Act, 1961 ?”

2. This reference arises out of the assessment for the asst. yr. 1957-58. The original assessment was completed on a total income of Rs. 86,267 against the income of Rs. 57,318 returned by the assessee. This was reduced in appeal to Rs. 73,477. Subsequently some time in 1965 the assessee filed a petition under s. 271(4A) of the IT Act. 1961, before the CIT surrendering the hundi loans, peak credit of which was computed at Rs. 2,45,000 with a request to spread it over a period of 10 years and it was prayed therein that no penal proceedings might be taken against the assesseefirm. Inasmuch as the effect of that petition is relevant for the purpose of answering the question involved in this reference it may be material to refer to the relevant portion of the said petition. The said petition stated, inter alia, as follows : “2. That to meet the exigencies of the business your petitioner had to borrow money from the market and mostly through hundiwallas since the accounting year 2009 onwards … That since the accounting year 2009 to 2021 D.G. there were various credits in the names of hundiwallas which were taken or paid either by cheque or in cash. That your petitioner-firm asserts that apart from transactions of cash and cheques through hundiwallas it had various hundi transactions which were discounted by banks and supported by evidence. That your petitioner is annexing herewith two lists marked with letters “A” and “B”. The list “A” comprises of all hundi transactions and the list “B” contains hundis discounted by banks which are fully supported. That in respect of the accounting year 2009 D.G. the total credits in the books of account were Rs. 25,000. That in respect of 2010 D.G. the total peak credits in the books of account were Rs. 1,15,000 out of which Rs. 70,000 comprised of cash and cheques and the balance of Rs. 45,000 consisted of hundis discounted by banks. That in respect of 2011 D.G. the total peak credits in the books of account were Rs. 15,000. That in respect of 2012 D.G. the total peak credits passed through hundis in the books of account of the firm were Rs. 95,000 (cheques and cash). That in the year 2013 D.G. the total peak credits in the books of account were Rs. 1,15,000 out of which bank transactions amounted to Rs. 55,000 and the balance sum of Rs. 90,000 consisted of cheque and cash ……. 18. That the peak credits for 2018 D.G. amounted to Rs. 4,90,000 out of which transactions in the names of hundiwallas by Hasumati Patel were Rs. 2,00,000 and cash and cheques passed through other hundiwallas were Rs. 2,45,000 and the balance sum of Rs. 45,000 represents bank transactions ……. That from the statements filed it will appear that the highest peak credits are Rs. 2,45,000 in the year 2018 D.G. and as the said amount was not assessed to tax the same may be spread over a period of ten years and assessed accordingly. That out of the said amount a sum of Rs. 1,12,500 was added to the income of your petitioner-firm in respect of the asst. yr. 1960-61 (accounting year 2015 D.G.) and appeal against the same is pending.”

In those circumstances the assessee prayed as follows: “In the circumstances, it is humbly prayed that your honour would be kind enough to consider the facts mentioned above and in your kindness would be pleased to distribute the said sum of Rs. 2,45,000 over a period of ten years including the sum of Rs. 1,12,500 and it is further prayed that no penal proceedings may be taken against your petitioner-firm.” Relying on this evidence the ITO initiated proceedings u/s. 147(a) of the IT Act, 1961, and a notice u/s. 148 was duly served on the assessee-firm on the 26th March, 1966. No return was submitted in response to the said notice, nor was there any compliance with the notice under s. 142(1) of the Act. In the premises the ITO completed the assessment for the asst. yr. 1957-58, relevant to the accounting year 2012-13, Gujarati Dewali, ex parte under s. 1,144 on a total income of Rs. 1,68,477 inclusive of Rs. 95,000, the peak credit of hundi loans as per the disclosure statement. Consequently penalty proceeding under s. 271(1)(c) was initiated and was transferred to the IAC, Range- V, Calcutta, for finalisation by him as the maximum penalty imposable would exceed Rs. 1,000. In the course of the penalty proceedings it was submitted on behalf of the assessee that since the addition of Rs. 95,000 was made on the basis of the assessee’s disclosure petition it should be held that the assessee-firm had not concealed the particulars of its income. Relying upon this petition the IAC, however, held that the assessee-firm made a voluntary admission of the fact that ” the credits in various hundi loan accounts were not genuine and they represented the assessee’s own undisclosed income”. Consequently penalty of Rs. 16,500 was imposed and the statutory minimum was worked out at Rs. 16,174.

Being aggrieved by the said order the assessee went up in appeal before the Tribunal. After hearing both sides and looking at the evidence the Tribunal, inter alia, observed as follows : “Before us the learned counsel for the assessee submits a copy of the disclosure petition dated August, 1965, and also a copy of the order of the Tribunal dated 30th August, 1972, in I.T.A. No. 1354 (Ca1) of 1968-69, for the asst. yr. 1962-63, whereby the penalty order under s. 271(1)(c) was cancelled. It was submitted by the assessee’s learned counsel before us that the disclosure petition was made in order to purchase peace and the Department failed to prove concealment of income on the part of the assessee-firm for the instant assessment year. On our query the learned counsel for the assessee admits that the sum disclosed in the petition under s. 271(4A) to the CIT was later brought in the assessee’s accounts as its own capital. According to him, in spite of this fact the assessee-firm should not be held to have committed any concealment of income for the instant assessment year. Alternatively, the learned counsel for the assessee submits before us that as the relevant assessment year was 1957-58, the quantum of penalty imposed was excessive and it should be reduced to a reasonable minimum amount in accordance with the provisions of s. 28 (1)(c) of the Indian IT Act, 1922. On the other hand, the Departmental Representative strongly supports the imposition of penalty. After due consideration of the facts and circumstances of the case we do not find any merit in the assessee’s contentions before us. Of course, in the disclosure petition there was no indication that the assessee-firm admitted to have concealed the disputed income. From a reading of the said petition it would be evident that the sum of Rs. 2,45,000 was surrendered for the purposes of assessment. But in view of the fact that this amount of which Rs. 95,000 added in the relevant assessment was owned up by the assessee-firm in the sense that it was brought into account as its own money later on, the assessee-firm evidently introduced in its accounts its own income by way of hundi loans which were, therefore, palpably fictitious. Hence, the IAC was justified in treating the amount of Rs. 95,000 as the income which was concealed by the assessee-firm from the Department for the asst. yr. 1957-58. Hence, imposition of penalty was justified.

As to the quantification of penalty we are to abide by the decision of the Supreme Court in Jain Brothers vs. Union of India (1970) 77 ITR 107 (SC). Accordingly, the assessee-firm would be liable to penalty as provided by s. 271(1) of the IT Act, 1961, for the default mentioned in s. 28(1) of the Indian IT Act, 1922, as its case fell within the terms of s. 279(2)(g) of the IT Act, 1961. Relevant assessment was completed under s. 144 of the IT Act, 1961, on 21st March, 1970. Hence, the question of application of the provisions of s. 28(1)(c) of the 1922 Act does not arise. Considering the quantum of penalty imposed in the instant case with reference to the facts and circumstances we do not find any reason to interfere with the same.”

5. In the premises, having first declined to refer any question of law to this Court, the Tribunal, as directed by this Court as indicated before, has referred the question set out earlier to this Court under s. 256(2) of the IT Act, 1961. The first question that was urged on behalf of the Revenue before us was whether there was any admission of concealed income on the part of the assessee was a question of fact and no question having been referred to this Court challenging the question of fact it was no longer open to the assessee to agitate, in this Court, the propriety of the finding made by the Tribunal. In aid of this submission our attention was drawn to the three questions sought to be raised by the application of the assessee before the Tribunal.

These questions were as follows :

“(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the penalty on the assessee under s. 271(1)(c) of the IT Act ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the credit of amount of Rs. 2,45,000 under ‘Disclosure Capital Account’ in place of various loan amounts in its books of account at a later year amounted to an admission of concealed income on the part of the assessee, as is envisaged under the provisions of s. 271(1)(c) of the IT Act, 1961 ?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the substantive provisions of s. 271(1) of the IT Act, 1961, would apply for the default mentioned in s. 28(1) of the Indian IT Act, 1922, for the asst. yr. 1957-58 ?

6. The Tribunal has referred only the second question as we have indicated before. In aid of the submission, whether there was an admission of concealed income by the assessee in the particular facts and circumstances of the case, was a question of fact and was not liable to be reviewed by this Court, reliance was placed on the observations of the Supreme Court in the case of CIT vs. Ashoka Marketing Ltd. (1976) CTR (Mad) 174 : (1976) 103 ITR 543 (Mad). There, during the accounting period relevant to the asst. yr. 1952-53, the assessee-company had transactions in jute which resulted in a profit of Rs. 59,91,721, of which the company claimed that a profit of Rs. 40,05,825 was earned by D.J. & Co. and that Rs. 14,30,561 was paid to D.C.P.M. Co. as the latter’s profit; but the ITO assessed the two amounts as its income. Before the AAC, however, the assessee-company abandoned its claim as regards the sum of Rs. 40,05,825 and on a reference the High Court excluded the sum of Rs. 14,30,561 from assessment. Later, the Supreme Court reversed the decision of the High Court. In the meantime, the ITO imposed a penalty of Rs. 20 lakhs on the assessee-company under s. 28(1)(c) of the Indian IT Act, 1922, for concealment of the income to the extent of Rs. 54,36,386, comprised of the two sums. The AAC reduced the penalty to Rs. 15 lakhs on the basis of the decision of the High Court. On further appeal, the Tribunal accepted the explanation of the assessee-company that to avoid protracted proceedings a compromise was effected between the assessee and D.J. & Co. whereby the sum of Rs. 40,05,825 was to be assessed in the hands of the assessee and the balance of profits retained by it and accordingly set aside the penalty. The Tribunal refused to state a case under s. 66(1) and the High Court, after issuing a rule nisi, rejected the Department’s application under s. 66(2). On appeal, the Supreme Court held that the High Court having issued a rule nisi ought not to have dismissed the application under s. 66(2) without a speaking order, but as the case had been argued on the merits it was not proper to remit the matter to the High Court only on that ground., It was further held that on the facts, whether or not the assessee had concealed its income, was a question to be decided on the facts of the case and that since in this case the decision was based on the respondent’s agreement with D. J. & Co., which the Tribunal accepted as true, no question of law arose from the order of the Tribunal. There at p. 547 of the report it appears that there was no question of interpreting the agreement. The only question was the truth of the statement contained in the said agreement. Therefore, the Supreme Court observed that the agreement with D. J. & Co. was a fact appearing from the order of the Tribunal and that was sufficient for the purpose. Therefore, there was no question of interpreting the agreement, but the truth of the existence of the agreement was in issue. Then there having been no question challenging that fact, no question of law as to whether the assessee had concealed his income could again be agitated.

7. In the instant case, however, we are not faced with that question. The question directly posed before us is converse, whether the Tribunal was correct in holding that the statements made in the disclosure petition amounted to an admission of concealed income. Therefore, the question before us really is whether on a proper interpretation of the disclosure petition the assessee could be brought within the mischief of s. 271(1)(c) of of the said Act. Such a question having been directly referred to, in our opinion, it could not be said this is a question of fact concluded by the decision of the Tribunal and cannot at this stage be agitated. In aid of the submissions made about the question of fact, learned advocate for the Revenue also drew our attention to certain observations of the Supreme Court in the case of CIT vs. Kotrika Venkataswamy & Sons (1971) 79 ITR 499 (SC). There the Supreme Court observed that if on the materials and in the circumstances of the case, the Tribunal reaches the conclusion that there was no suppression of sales by the assessee on the facts disclose and no concealment of income was proved, no case could be referred to the High Court under s. 66(1) of the Indian IT Act, 1922, seeking to upset that conclusion. In a petition under s. 66(2) of the Act, the High Court could not be asked to call for a statement of case on a question on which the Tribunal was not asked to submit a statement of the case. The Supreme Court further held, that the question whether the Tribunal was justified in coming to the conclusion, on the facts and in the circumstances of the case, that no concealment was proved by the Department, could not include an enquiry whether the Tribunal had jurisdiction to reach a different conclusion from the one it had reached in the proceedings for assessment. It appears that the facts of the case before the Supreme Court were entirely different from the facts with which we are concerned. Here we are concerned with a disclosure petition. Now we have to examine the statements made in the said disclosure petition and then we have to examine the ingredients contemplated: under s. 271 (1)(c) of the IT Act, 1961, and try to find out whether from the said statements made in the disclosure petition it can reasonably be inferred that there was such an admission as held by the Tribunal and if there was no such admission whether penalty could be imposed under s. 271(1)(c) of the Act. This question posed before us in the background of the circumstances is certainly a question of law. Reliance was placed on behalf of the Revenue on a decision of the Punjab & Haryana High Court in the case of CIT vs. Sunanda Trading Corporation (1980) 122 ITR 514 (P&L). There the Punjab and Haryana High Court was dealing with a case for the imposition of penalty and the Court observed that a case for the imposition of penalty had to be found in the material on record and it was essentially a question of fact whether in a certain case penalty was called for or not. The question whether there was any concealment of income and whether there was any fraud or gross or wilful neglect in the filing of a proper return of its income on the part of the assessee was essentially a question of fact. During the assessment of the assessee for the asst. yr. 1968-69, the ITO noted a cash credit of Rs. 20.000 in the name of T in the books of the assessee. The ITO did not accept the assessee’s explanation for the entry and added the amount of Rs. 20,000 to the assessee’s income from undisclosed sources. Penalty proceedings were commenced and the IAC, to whom the matter had been referred, after considering the evidence of T and his relations, imposed a penalty of Rs. 20,000. On appeal to the Tribunal, the Vice President, agreeing with the Accountant Member, and disagreeing with the judicial Member, held that no penalty was leviable. The Tribunal refused to state a case and refer the matter to the High Court. On the application of the CIT under s. 256(2) of the IT Act, 1961, it was held by the Punjab and Haryana High Court that the nature of the question suggested by the CIT showed that the petitioner did not seek to challenge the finding of fact arrived at by the Accountant Member and the Vice President on the ground that it was vitiated as wrong principles of law had been applied for arriving at it. The petitioner could not be allowed to challenge the findings of fact unless he sought to challenge those findings while seeking a reference to the Court, which he did not do. The Accountant Member as well as the Vice President did take into consideration the Expln. to s. 271(1)(c) and held that the assessee had displaced the presumption that it was guilty of any fraud or gross or wilful neglect. Therefore, the application was dismissed. From the same narration of the facts of the case it would be evident that the Punjab and Haryana High Court was faced with a situation entirely different from that with which we are placed. We are concerned here with the interpretation of a disclosure petition and whether on a proper reading of the disclosure petition it could be inferred that the assessee had made admission of such facts which would attract the ingredients for attracting the provisions of s. 271(1)(c) of the Act. In the premises, we are unable to accept the contention urged on behalf of the Revenue that in the facts of the case it was not open to the assessee to challenge the conclusion arrived at by the Tribunal in this case.

8. It is now necessary for us to consider whether the Tribunal was justified in its conclusion. Now the assessee indisputably had made the disclosure petition. We have set out the relevant terms of the disclosure petition. In the said disclosure petition though the assessee offered the amount to be assessed after spreading over the amount for a period of 10 years) we have not been able to find any statement to the effect that the assessee was stating that the amount in question represented its income or receipt of the Revenue character of the year in question. If that is the position, the question is whether by merely relying on the said statement in the disclosure petition, apart from anything else, in a penalty proceeding, could the Revenue impose penalty. This question, in our opinion, has recently been very clearly explained by the Supreme Court in the case of Anantharam Veerasinghaiah & Co. vs. CIT (1980) 16 CTR (SC) 189 : (1980) 123 ITR 457 (SC), where the Supreme Court observed that when an “intangible” addition was made to the book profits during an assessment proceeding, it is on the basis that the amount represented by that addition constituted the undisclosed income of the assessee. That income, although commonly described as “intangible”, was as much a part of his real income as that disclosed by his account books. It bad the same concrete existence. It could be available to the assessee as the book profits could be. The secret profits or undisclosed income of an assessee earned in an earlier assessment year might constitute a fund, even though concealed, from which the assessee might draw subsequently for meeting expenditure or introducing amounts in his account books. But it was quite another thing to say that any part of that fund must necessarily be regarded as the source of unexplained expenditure incurred or of cash credits recorded during a subsequent assessment year. It was a matter for consideration in each case, according to the Supreme Court, whether the unexplained cash deficits and the cash credits could be reasonably attributed to a pre-existing fund of concealed profits or they were reasonably explained by reference to concealed income earned in that very year. In each case, the true nature of the cash deficit and the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. Evidence might exist to show that reliance could be placed completely on the availability of a previously earned undisclosed income. A number of circumstances of vital significance might point to the conclusion that the cash deficit or cash credit could not reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed income earned during the assessment year under consideration. It was open to the Revenue to rely on all the circumstances pointing to that conclusion. They must be such as could lead to the firm conclusion that the assessee had concealed the particulars of his income or had deliberately furnished inaccurate particulars. The burden remained on the Revenue of proving the existence of material leading to that conclusion. Mr. justice Pathak, who delivered the judgment of the Supreme Court, explained the position thus at p. 461 of the report: “This is the provision as it stood at the relevant time. It is now settled law that an order imposing a penalty is the result of quasi-criminal proceedings and that the burden lies on the Revenue to establish that the disputed amount represents income and that the assessee has consciously concealed the particulars of his income or has deliberately furnished inaccurate particulars : CIT vs. Anwar Ali (1970) 76 ITR 696 (SC). It is for the Revenue to prove those ingredients before a penalty can be imposed. Since the burden of proof in a penalty proceeding varies from that involved in an assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted as a finding to that effect in the penalty proceeding. In the penalty proceeding the taxing authority is bound to consider the matter afresh on the material before it and, in the light of the burden to prove resting on the Revenue, to ascertain whether a particular amount is a revenue receipt. No doubt, the fact that the assessment order contains a finding that the disputed amount represents income constitutes good evidence in the penalty proceeding but the finding in the assessment proceeding cannot be regarded as conclusive for the purpose of the penalty proceeding. That is how the law had been understood by this Court in Anwar Ali’s case (supra), and we believe that to be the law still. It was also laid down that before a penalty can be imposed the entirety of the circumstances must be taken into account and must point to the conclusion that the disputed amount represents income and that the assessee has consciously concealed particulars of his income or deliberately furnished inaccurate particulars. The mere falsity of the explanation given by the assessee, it was observed, was insufficient without their being in addition cogent material or evidence from which the necessary conclusion attracting a penalty could be drawn. These principles were reiterated by this Court in CIT vs. Khoday Eswarsa & Sons (1972) CTR (SC) 295 : (1972) 83 ITR 369 (SC).

In the present case, the Tribunal has relied entirely on the basis that an intangible addition of Rs. 2,00,000 had been made to the book profits of the assessee for the asst. yr. 1957-58 and it inferred that an amount of Rs. 90,000 was available for being put to use in the year with which we are concerned. Now it can hardly be denied that when an “intangible” addition is made to the book profits during an assessment proceeding, it is on the basis that the amount represented by that addition constitutes the undisclosed income of the assessee. That income, although commonly described as “intangible”, is as much a part of his real income as that disclosed by his account books. It has the same concrete existence. It could be available to the assessee as the book profits could be. In Lagadapati Subha Ramaiah vs. CIT (1956) 30 ITR 593 (AP), the Andhra Pradesh High Court adverted to this aspect of secret profits and their actual availability for application by the assessee. That view was affirmed by the Madras High Court in S. Kuppuswami Mudaliar vs. CIT (1964) 51 ITR 757 (Mad).

There can be no escape from the proposition that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. But it is quite another thing to say that any part of that fund must necessarily be regarded as the source of unexplained expenditure incurred or of cash credits recorded during a subsequent assessment year. The mere availability of such a fund cannot, in all cases, imply that the assessee has not earned further secret profits during the relevant assessment year. Neither law nor human experience guarantees that an assessee who has been dishonest in one assessment year is bound to be honest in a subsequent assessment year. It is a matter for consideration by the taxing authority in each case whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year. In each case, the true nature of the cash deficit and the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. Evidence may exist to show that reliance cannot be placed completely on the availability of a previously earned undisclosed income. A number of circumstances of vital significance may point to the conclusion that the cash deficit or cash credit cannot reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed income earned during the assessment year under consideration. It is open to the Revenue to rely on all the circumstances pointing to that conclusion. What these several circumstances can be is difficult to enumerate and, indeed, from the nature of the enquiry, it is almost impossible to do so. In the end, they must be such as can lead to the firm conclusion that the assessee has concealed the particulars of his income or has deliberately furnished inaccurate particulars. It is needless to reiterate that in a penalty proceeding the burden remains on the Revenue of proving the existence of material leading to that conclusion.”

10. Therefore, there must be evidence either in the admission of the assessee in the disclosure petition or aliunde adduced by the Revenue to show that the amount represented receipt of revenue character in the relevant assessment year. It would not be sufficient to rely on the finding that a certain amount had been added as the income of the assessee of which the assessee could not explain the source nor would it be sufficient for penalty proceeding to rely on the statement of the assessee that the assessee has offered the amount for assessment in a particular year. The facts and circumstances and the terms and conditions under which the assessee had offered the amount for taxation must be looked into. If an assessee makes a statement that there was concealed income of the year in question or it represented receipt of revenue character of the year in question and the admission could be either expressly or impliedly referred to that fact, then such a statement in the disclosure petition might be a good piece of evidence but merely offering an amount for addition to the assessment spread over a period for a peak credit of hundis, as seems to be the case in the instant disclosure petition, the Revenue was not absolved from the onus of proving that the amount not disclosed was the income of the assessee in the year in question. If we keep this in the background, then it would be possible to appreciate the observations of this Court in the case of CIT vs. Rajaram Pannalal & Brothers (1980) 19 CTR (Cal) 35 : (1981) 127 ITR 679. There at p. 688, we have observed as follows : “The principle for imposing penalty, in our opinion, is now well settled by the decision of the Supreme Court in the case of CIT vs. Anwar Ali (1970) 76 ITR 696 (SC), where the Supreme Court emphasised that the proceedings under s. 28 of the Indian IT Act, 1922, which is in pari materia with s. 271(1)(c) of the IT Act, 1961, are penal in character. The gist of the offence showed that the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income ; incidentally we might refer that in the relevant year, with which we are concerned, this expression ‘deliberately furnished inaccurate particulars’ was there in the Act but subsequently, by an amendment, if there was a difference between the returned income and the income subsequently found, of a certain percentage, the onus lay on the assessee to prove that such failure was not deliberate and the burden was on the assessee to establish that the receipt of the income in dispute constituted the income of the assessee. If there was no evidence on record, the Supreme Court has emphasised, except the explanation given by the assessee, which explanation had been found to be false, it did not follow that the receipt constituted the assessee’s taxable income. It would be properly legitimate to say, according to the Supreme Court, that the mere fact that the explanation of the assessee was false did not necessarily give rise to the inference that the disputed amount represented his income. It could not be said that the findings given in the assessment proceedings in determining or computing the tax was conclusive. However, that was considered to be good evidence. Before penalty could 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 bad deliberately furnished inaccurate particulars. In the asst. yr. 1947-48, while making the assessment of the assessee, the ITO had discovered an undisclosed bank account of the assessee in which the cash deposit of Rs. 87,000 had been made. According to the assessee’s explanation, the same represented diverse amounts entrusted to him by his relatives who had got panicky during the communal riots in Bihar in 1946. The ITO rejected the explanation and computed the sum of Rs. 87,000 to tax as the assessee’s income from undisclosed sources. Thereafter, a penalty of Rs. 66,000 was imposed on the assessee under s. 28(1)(c) of the Indian IT Act, 1922, for concealment of particulars of his income. On appeal, the Tribunal held that no penalty could be imposed on the ground that the onus lay upon the Department to show by adequate evidence that the amount in the bank account was of a revenue nature and that the respondent had concealed it and the onus was not discharged by showing merely that the respondent’s explanation was found to be unacceptable.

The ITO had to find some materials, apart from the falsity of the assessee’s explanation, to support his findings, that the receipt from undisclosed sources was his income. The High Court upheld the Tribunal’s finding. There was an appeal to the Supreme Court and the Supreme Court confirmed the decision of the High Court and held that, in the absence of cogent material evidence, apart from the falsity of the assessee’s explanation, from which it could be inferred that the assessee had concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the sources and where he disputed the amount as revenue receipts the penalty could not be imposed. Therefore, the Supreme Court emphasised that there must be cogent material. The Supreme Court further emphasised that the entirety of the circumstances had to be taken into consideration and the mere falsity of the explanation given by the assessee did not ipso facto lead to the conclusion that from the fact that the particular income, which had been added as the income of the assessee in a particular year, it could be said that the

assessee had concealed the particulars of that income for that particular year.

On behalf of the assessee, it was stressed before us, and to a certain extent rightly, that the disclosure petition read in its proper context did not reveal that the assessee was admitting that this loan for the year 1957-58, or for the asst. yr. 1961-62, was actually the income of the assessee for this particular year. What the assessee’s case was that the assessee had made income during the war years through black markets because of the high prices of iron scraps and hardwares and when these cash moneys had accumulated in the hands of the assessee those were introduced in the business in the name of fictitious hundiwallas or namelenders and these were shown as being loans, while those were not loans but represented the income made by the assessee in the years prior to 1955. It is true that the assessee did not admit or disclose that these moneys represented his income for the year in question but it also admitted that the assessee was showing these as fictitious loans which, in fact, those were not. If the entirety of the disclosure petition of the assessee is read together, and in our opinion, it should be read as a whole, in view of the fact that there is no other evidence adduced by the Revenue about the falsity of these transactions apart from the disclosure petition, in our opinion, the disclosure petition read in its proper light indicated that these were income taken from other sources or earnings of the assessee through black market or otherwise introduced in the business in those years. Therefore, the assessee was right in contending that the assessee did not admit these to be the income of the assessee for those years. The Revenue was justified in adding these amounts as the income for those years in view of s. 68 of the IT Act, 1961, because these unaccounted money was found in the accounts of the assessee for those relevant years. But that addition, though justified in the assessment, would not lead to the conclusion that there was any cogent material or reliable material that those were the income of the assessee or that the income of the assessee on the cash credit, as such, had been concealed. But there is another aspect of the matter. If the assessee’s version is taken to be correct, which in the absence of any other evidence we must accept to be correct, then, for the first year the assessee had disclosed in its return a sum of Rs. 4,154 as interest alleged to have been paid to those lenders, who were the bogus name-lenders. That was a false statement, false to the knowledge of the assessee and that fact is established by the very disclosure petition itself. The assessee suffered an assessment on that basis. Not only the particulars of the income were concealed, they were concealed, in our opinion, indisputably deliberately because it was nobody’s case that the assessee did not know prior to the disclosure petition that the assessee had earned these moneys in black market prior to 1955. Indeed, the assessee’s very case in the disclosure petition goes to establish that the assessee had admitted that he earned this money in black market in selling iron scraps and hardwares, If that is the position, then, in our opinion, the assessee had deliberately concealed the particulars of his income or furnished in accurate particulars so far as the interest of Rs. 4,154 for the first year 1957-58 was concerned. Again, for the second year, that is to say, the year involved in this case, viz., 1961-62, the assessee had filed its return but the assessment had not been made. Before the assessment could be made, a voluntary disclosure had been made indicating the facts, as I have mentioned before. In that return, the assessee had shown an interest of Rs. 34,132 alleged to have been paid to those name-lenders, who had merely lent their names. If the disclosure petition is correct, then it is the irresistible conclusion that it was a deliberate act on the part of the assessee because the deliberateness would be evident from the mere fact that the assessee knowing these to be false had made this false statement to the Revenue at the time of filing of the return.”

11. Reliance was also placed on behalf of the assessee on the observations of this Court in the case of CIT vs. Bhuramal Manikchand (1981) 130 ITR 129. There this Court observed that there was a clear finding by the AAC that the disputed amounts represented income and the assessee had consciously concealed particulars of his income and had deliberately furnished inaccurate particulars. However, there was no finding that the amounts constituted the income of the assessee in the relevant previous years. In these circumstances, it was held that penalty could not be imposed on that basis. In the case of Durga Timber Works vs. CIT (1971) 79 ITR 63, at p. 71, the Delhi High Court made it clear that the case before their Lordships there was not a case of falsity of explanation given by the assessee. It was a case where a device or deliberate disguise was created by the assessee for the purpose of concealing its income. Cash credit entries were made in the books of account to the tune of Rs. 17,500 and the accounts were shown as squared up. Likewise a sum of Rs. 36,900 was shown as having been invested in a supposed factory. Out of that amount a sum of Rs. 22,800 was shown as adjusted but for the balance of Rs. 14,100 no explanation was forthcoming. When the assessee was challenged to adduce evidence establish these cash credits and to explain the source of investment of Rs. 14,100 debited in the karkhana account it admitted that the two amounts could be treated as its concealed income and included in its total income for that year. Therefore, before the Delhi High Court it appears that it was an admission that there was a concealed income. If that was the position, which is unlike the situation in the instant case, i.e., there was a peak credit of a hundi loan in the particular years, and the assessee prayed that the said credit should be spread over for ten years in the petition under s. 271(4A) of the IT Act. In our opinion, the ratio of the decision of the Delhi High Court could not be applied to the facts of the instant case.

Reliance was also placed on the decision of the Punjab and Haryana High Court in the case of Jawahar Woollen Textile Mills vs. CIT (1973) 92 ITR 510. There also the facts with which the Punjab and Haryana High Court was concerned was entirely different. Similar is the position of the decision of the Punjab and Haryana High Court in the case of Mahavir Metal Works vs. CIT (1973) 92 ITR 513, to which our attention was drawn.

Learned advocate for the Revenue also relied on the decision of the Rajasthan High Court in the case of CIT vs. Dr. R. C. Gupta & Co. (1980) 15 CTR (Raj) 23 : (1980) 122 ITR 567 (Raj). In that case, the assessee himself had admitted that “certain amount represented his income”. In those circumstances, the Rajasthan High Court was of the view that no further evidence was necessary to show that it was the amount which represented his income and/or that it represented his concealed income. The facts of the instant case, however, are different.

Reliance was also placed on certain observations of the Delhi High Court in the case of Jaswant Rai vs. CBDT (1982) 133 ITR 19 (Del). In the facts of the instant case, it is not necessary for us to discuss the said decision in detail.

Learned advocate for the Revenue sought to urge that where certain amount was offered by the assessee for taxation and where there was no further case of there being a pre-existing fund, then there was no further obligation or onus on the Revenue to discharge that the amount which the assessee had offered for addition to his assessment should be proved as the concealed income of the assessee in the particular year. In view of the clear principle enunciated by the Supreme Court, that in a penalty proceeding, though the finding or the conclusion or the admission made by the assessee in the assessment proceeding was good evidence, these by themselves would not conclude the matter, and these by themselves would not, without anything else, lead to the conclusion that the amount added to the income of the assessee represented his income of the year in question, in our opinion, we cannot accept this contention of the learned advocate for the Revenue, so far as the penalty proceeding is concerned.

In that view of the matter, the question must be answered in the negative and in favour of the assessee.

In the facts and circumstances of the case, however, parties will pay and bear their own costs.

C.K. BANERJI, J. :

I agree.

[Citation : 141 ITR 640]