Kerala H.C : Whether, in the light of the assessment order confirmed by the CIT(A) read with the presumption (irrebuttable) contained in Expln. 1(A) and the presumption (rebuttable) contained in Expln. 1(B), the Tribunal is right in law and fact in holding that ‘the assessee cannot be said to have concealed the income or particulars of income’ ?

Counsel Appeared

P.K.R. Menon & George K. George, for the Applicant : P.G.K. Warrier & K.S. Menon, for the Respondent

JUDGMENT

SANKARASUBBAN, J. :

These IT references are referred to us by the Tribunal, Cochin Bench, at the instance of CIT, Cochin. The questions of law referred to us under s. 256(1) of the IT Act are as follows :

“1. Whether, in the light of the assessment order confirmed by the CIT(A) read with the presumption (irrebuttable) contained in Expln. 1(A) and the presumption (rebuttable) contained in Expln. 1(B), the Tribunal is right in law and fact in holding that ‘the assessee cannot be said to have concealed the income or particulars of income’ ?

2. Whether, on the facts and in the circumstances of the case and also in the light of the findings in the assessment order confirmed by the Tribunal read with Expln. 1, the Tribunal is right in law and fact in holding that the assessee cannot be said to have concealed the income or particulars of income ?”

2. The assessee is a partnership firm carrying on Abkari business. The assessment years in this question are 1978-79, 1979-80 and 1980-81. There was a search conducted by the Department on 27th May, 1983, in the business and residential premises of one of the partners of the firm, namely, Sri. K. Bhaskaran. He was the managing partner of the firm. During search, a P&L a/c for the year ending 31st March, 1978, was seized along with balance sheet. On the basis of the materials seized, the assessment for the asst. yrs. 1978-79, 1979-80 and 1980-81 were completed. The documents seized was accepted as relating to the firm by the assessing authority, appellate authority and by the Tribunal. The AO issued notice under s. 271(1)(c) of the IT Act for the three years. The assessee’s explanation was called for. In response to the notice, the assessee filed an application stating that the documents seized from the premises of Sri. K. Bhaskaran was not supported by any books of account and, therefore, concealment of income is not proved. Rejecting the explanation, the AO levied a penalty of Rs. 1,50,324 for the asst. yr. 1978-79, Rs. 1,88,446 for the asst. yr. 1979-80 and Rs. 2,74,500 for the asst. yr. 1980-81.

In the appeal before the CIT(A), the CIT(A) did not interfere with the order. Against that appeals were filed before the Tribunal. The Tribunal took the view that the document, namely, P&L a/c, was seized from the residence of Sri. Bhaskaran. By that time, the firm has been dissolved. It took the view that looking at the documents will show that many entries in the documents do not relate to the assessee-firm. Further, it also took into account the assessment made in the name of Bhaskaran & Co. wherein these statements have been relied on and the amount has been included in the income of Bhaskaran & Co. Thus, the penalty imposed were set aside by the Tribunal. It is in the above appeal, the questions of law have been referred to us. We heard learned counsel for the Revenue, Sri P.K. Ravindranatha Menon and the learned counsel for the assessee, Sri P. Gopalakrishna Warriar, Shri P.K. Ravindranatha Menon submitted that during the assessment proceedings, on the basis of recovered material, viz., P&L a/c, the Tribunal came to the conclusion that it related to the assessee-firm. That finding has become final, and now the Tribunal intervenes reinterpreting that recovery and comes to the conclusion that it does not relate to assessee-firm. So far as the assessment in favour of Bhaskaran & Co. is concerned, counsel contended that what is taken into account for the assessment of Bhaskaran & Co. is not the P&L a/c but the statement regarding income and expenditure. Counsel submits that even if there is an assessment, that does not mean that the Tribunal has to accept it forthwith. Learned counsel relied on the decision of the honourable Supreme Court in Addl. CIT vs. Jeevan Lal Sah (1994) 117 CTR (SC) 130 : (1994) 205 ITR 244 (SC) : TC 50R.973, the Supreme Court has held as follows : “Evidently, with a view to making the task of the Revenue in such matters less difficult, Parliament effected the said amendments by the Finance Act, 1964. Not only the word “deliberately” was omitted in cl. (c), but the Explanation aforestated was added. The Explanation creates a presumption of law—which is no doubt rebuttable. The presumption of law created by the Explanation is to the following effect : where the total income returned by any person is less than 80 per cent 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 purposes 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 of proof to the assessee in the situation covered by it. Once the returned income is shown to be less than 80 per cent of the total income assessed, the presumption comes into play and then the burden shifts to the assessee to establish that his failure to return the correct income was not on account of any fraud or gross or wilful neglect on his part. If he fails to establish the same, the presumption will become a finding—and 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, it is evident, no penalty can be levied.”

5. Learned counsel for the assessee Sri. Gopalakrishna Warriar submitted that, what was recovered was a piece of paper from the residence of Sri. Bhaskaran. It is true that he was the managing partner of the firm. But, at the time of recovery, the firm has been dissolved. The papers were not recovered from the office of the firm. Further, he stated that the recovered P&L a/c shows that the profits are given to persons who are not partners of the firm. Hence, according to him, the Tribunal was correct in holding that the P&L a/c cannot be relied upon for the purpose of imposing penalty. He contended that it may be true that in the assessment proceedings, it was taken as the income of the firm. But that order is not binding so far the penalty proceedings are concerned. He has further submitted that the fact that for the assessment of Bhaskaran & Co., the same account was relied and held to be the income of the firm. He further relied on the decision of this Court in CIT vs. Sankarsons & Co. (1972) 85 ITR 627 (Ker) : TC 50R.874 wherein it was held as follows : “………the explanation given by the assessee read in the light of the facts and circumstances of the case was sufficient to warrant the conclusion that the assessee was not guilty of fraud or gross or wilful neglect in furnishing the return”. In ITA No. 44 of 1999 [reported as ITO vs. Balubhai Hemchand Shah (2000) 163 CTR (Ker) 465—Ed.], a Bench of this Court including one of us (Sankarasubban, J.) has held that, “Thus, going by the language in which the Expln. 1 is couched, there is a presumption in favour of the Department and against the assessee. Of course, it is only a rebuttable presumption”. After hearing both sides, we are of the view that the matter requires fresh consideration at the hands of the Tribunal. According to us, the Tribunal could not have reinterpreted the P&L a/c and construed it as not relating to the assessee-firm. It is true that the assessee can prove that amount included as income in the assessment proceedings is not actually an income of the assessee for the purpose of penalty proceedings and thereby he can avoid penalty. Construing the document, which was construed by the Tribunal in one way earlier, in a different way lead to an anomalous situation. In this case, during the assessment proceedings, the P&L a/c was interpreted as belonging to the firm. Now, another construction is given by the Tribunal and it says that the P&L a/c does not relate to the firm at all. According to us, this interpretation is not correct. The assessee may show that the amount shown in the P&L a/c actually does not belong to the firm by giving other independent evidence. So also, we are of the view that the Tribunal went on relying on a subsequent assessment order in favour of Bhaskaran & Co. Merely because of this assessment order, where this amount has been included as income of the firm, the Tribunal cannot say that there is no offence committed. The Tribunal will have to dissect it as it is subsequent to the order of assessment, and find out the basis on which it found that the income mentioned in the P&L a/c belongs to another firm. Hence, we are of the view that the matter requires fresh consideration at the hands of the Tribunal. The Tribunal, if it finds that, any further evidence is necessary, can remand the same to the original authority or the appellate authority. We are of the view that, it is not necessary for us to answer the questions of law referred to us. The IT references are disposed of accordingly.

[Citation : 248 ITR 740]