Madras H.C : Whether, on the facts and in the circumstances of the case and having regard to the provisions of the Explanation to s. 271(1)(c), the Tribunal was right in cancelling the penalty of Rs. 3,06,225 imposed under s. 271(1)(c) in this case for the asst. yr. 1959-60 ?

Counsel Appeared

C.V. Rajan, for the Revenue : V. Ramachandran, for the Assessee

RATNAM J. :

At the instance of the Revenue, under s. 256(2) of the IT Act, 1961 (hereinafter referred to as “the Act”), the following questions have been referred to this Court for its opinion :

“(1) Whether, on the facts and in the circumstances of the case and having regard to the provisions of the Explanation to s. 271(1)(c), the Tribunal was right in cancelling the penalty of Rs. 3,06,225 imposed under s. 271(1)(c) in this case for the asst. yr. 1959-60 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the concealment, if at all there was any concealment, had occurred when the original return was filed by the assessee prior to the completion of the original assessment ?

(3) Whether the conclusion of the Tribunal that there was no concealment of income by the assessee is a reasonable view to take on the facts and in the circumstances of the case ?”

2. The assessee is a firm consisting of two partners and it derives income from business in Oilman Stores. For the asst. yr. 1959-60, on May 11, 1959, it filed a return admitting an income of Rs. 1,09,555 and the assess ment was completed on August 12, 1960, on a total income of Rs. 1,18,317. Subsequently, the assessment was reopened under s. 147(a) to con sider the assessment of certain spurious hundi loans in the name of Multani Bankers and a notice was also issued under s. 148 of the Act and in response to that notice, on August 22, 1969, the assessee filed return showing the income as originally assessed on August 12, 1960. In the course of the reassessment proceedings, since the assessee did not substantiate the genuineness of the hundi credits, despite a number of opportunities given, the ITO treated Rs. 2,45,000 represent ing increase in the peak of non-genuine hundi credits as income from undis closed sources and also disallowed a sum of Rs. 61,225 being the interest relating to that and completed the reassessment on February 29, 1972. The assessee preferred appeals before the AAC and also before the Tribunal, but the addition of credits, as well as the dis allowance of interest, were sustained. Pursuant to the completion of the reassessment proceedings, penalty proceedings were initiated against the assessee and in the course of those proceedings, numerous opportunities were given to the assessee, but the assessee merely asked for adjournments and did not offer any explanation as such. The IAC took the view that in view of the Explanation to s. 271 (1)(c) of the Act introduced w.e.f. April 1, 1964, the asses see must be deemed to have concealed income or furnished incorrect par ticulars of the income and that presumption not having been in any manner attempted to be discharged by the assessee, penalty should be levied on the assessee and accordingly imposed a minimum penalty of Rs. 3,06,225 as the return had been filed on August 22, 1969, i.e., after April 1, 1964. Aggrieved by this, the assessee preferred an appeal to the Tribunal and the Tribunal viewed the concealment as referable only to the original return filed by the assessee on May 11, 1969, and, therefore, sec tion 28(1)(c) of the Indian IT Act, 1922, would be applicable and further that the filing of a revised return on August 22, 1969, cannot be taken as amounting to concealment in 1959. On this reasoning, the Tribu nal further held that the burden of establishing that the unexplained cash credits were the income of the assessee was on the Department and as the Department had not produced evidence to show that such credits were either false or represented the income of the assessee or that the payments were fictitious, no penalty was leviable and deleted the penalty.

We may take up the second question referred for consideration first. Learned counsel for the Revenue contended that the view taken by the Tribunal that the concealment related to the year when the original return was filed by the assessee and that s. 28(1)(c) of the Indian Income tax Act, 1922, alone would be applicable is incorrect. Relying upon section 297(2)(g) of the Act, learned counsel submitted that as the reassessment in this case had been completed on February 29, 1972, long after April 1, 1962, the proceedings for the levy of penalty would be governed by the provisions of the Act and not by s. 28(1)(c) of the Indian IT Act, 1922, as erroneously assumed by the Tribunal. In this connection, strong reliance was placed by learned counsel for the Revenue upon the decisions reported in Jain Bros. vs. Union of India (1970) 77 ITR 107 (SC) ; R. Kuppuswamy Chetty vs. CIT (1982) 135 ITR 235 (Mad) (FB) ; Maya Rani Punj vs. CIT (1986) 157 ITR 330 (SC) and CIT vs. Bihar Cotton Mills Ltd. (1988) 170 ITR 290 (Pat). Learned counsel for the assessee, however, attempted to sustain the approach of the Tribunal on its reasoning.

Before proceeding to consider the correctness of the order of the Tribunal and decide whether s. 28(1)(c) of the Indian IT Act, 1922, or the provisions of the Act would be applicable, it would be necessary to refer to the provisions relating to repeals and savings under s. 297 of the Act. Under s. 297(1), the Indian IT Act, 1922, was repealed. Sec. 297(2)(f) and (g) are the relevant provisions and they are as follows:”297. (2) Notwithstanding the repeal of the Indian IT Act, 1922, ( 11 of 1922) (hereinafter referred to as the repealed Act),. (f) any proceeding for the imposition of a penalty in respect of any assessment completed before the lst day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed; (g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1 St day of April, 1962, may be initiated and any such penalty may be imposed under this Act;”.

A consideration of the aforesaid provisions establishes that the completion of the assessment before April 1, 1962, or on or after April 1, 1962, would be determinative of the applicability of the provisions of the Indian IT Act, 1922, or the Act, as the case may be. In this case, though on the basis of the return originally submitted by the assessee, the assessment was completed on August 12, 1960, there was a reopening of the assess ment and the reassessment was completed only on February 29, 1972. The word “assessment” has been defined in s. 2(8) of the Act as includ ing reassessment and the definition provision would apply, if there is nothing repugnant in the subject or the context and there is nothing to indicate that the definition under s. 2(8) of the Act cannot be read into s. 297(2)(g) of the Act. Thus, if a reassessment for the year end ing on March 31, 1962, or any earlier year, was completed on or after April 1, 1962, proceedings for penalty could be initiated and penalty also imposed or levied under the provisions of the Act. That this is the proper interpretation of s. 297(2)(g) of the Act has been laid down in several decisions relied on by learned counsel for the Revenue to which we shall presently refer.

The Supreme Court in Jain Bros. vs. Union of India (1970) 77 ITR 107 dealt with the question whether s. 297(2)(f) and (g) of the Act were discriminatory and violative of Art. 14 of the Constitution of India. On the basis of the return filed on November 18, 1961, for the asst. yr. 196061, the ITO completed the assessment on November 23, 1964, and on the same day, a notice was issued under sec tion 271 r/w s. 274 of the Act calling upon the firm to show cause why penalty should not be levied owing to its failure to file its return in time. After considering the explanation submitted by the firm on November 19, 1966, penalty was levied under s. 271 (1) (a) of the Act for non-compliance with the notice under s. 22(2) of the Indian IT Act, 1922. In the writ petition filed by the assessee challenging the validity and constitutionality of s. 297(2)(g) and s. 271(2) of the Act, the High Court declined to issue a writ and that was how the matter was carried in appeal to the Supreme Court. The Supreme Court observed at page 117 as follows : “We are further unable to agree that the language of s. 271 does not warrant the taking of proceedings under that section when default has been committed by failure to comply with a notice issued under s. 22(2) of the Act of 1922. It is true that cl. (a) of sub-s. (1) of s. 271 mentions the corresponding provisions of the Act of 1961, but that will not make the part relating to payment of penalty inapplicable once it is held that s. 297(2)(g) governs the case. Both ss. 271(1) and 297(2) (g) have to be read together and in harmony and so read the only conclusion possible is that for the imposition of penalty in respect of any assessment for the year ending on March 31, 1962, or any earlier year which is completed after the first day of April, 1962, the proceedings have to be initiated and the penalty imposed in accordance with the provisions of s. 271 of the Act of 1961. Thus, the assessee would be liable to a penalty as provided by s. 271 (1) for the default mentioned in s. 28(1) of the Act of 1922, if his case falls within the terms of s. 297(2)(g).”

7. The above observations of the Supreme Court clearly lay down that what is relevant is the date of completion of the assessment and that in respect of any assessment for the year ending on March 31, 1962, or any earlier year completed after April 1, 1962, proceedings for the initiation as well as the imposition of penalty would be governed by the provisions of s. 271 of the Act. We may also in this connection refer to the decision of the Full Bench of this Court reported in R. Kuppuswamy Chetty vs. CIT (1982) 30 CTR (Mad) 189:(1982) 135 ITR 235(Mad) (FB). In that case, one Kuppuswamy Chetty, who was running a business in gunny bags, settled on his son, Janakiah Chetty, his properties and his business and in the course of the assessment proceedings of Janakiah for the asst. yr. 1962-63, it was found that there were quite a number of borrowings on hundis from June 4, 1960, and they varied from time to time and they were ultimately squared up and the borrowings were partly utilised in the acquisition of investments and the balance was employed as circulating capital in the business of Janakiah Chetty. Janakiah Chetty was unable to prove that the hundi borrowings represented real transactions and Kuppuswamy Chetty filed a voluntary disclosure petition to the effect that the amounts represented by the hundi borrowings were really undisclosed income in the various years and they may be spread over the asst. yrs. 1954-65 to 1961-62 and he also agreed to the levy of a penalty at 5per cent of the tax. On this statement being accepted, Kuppuswamy filed revised returns of income admitting amounts of income as disclosed in the disclosure petition and the assessments were duly completed on September 17, 1969, accepting the returns. However, penalty proceedings were initiated under s. 271(1)(c) of the Act and penalty was also levied in respect of the asst. yrs. 1954-55 to 1961-62 amounting to 20per cent of the tax avoided which, according to the IAC, was the minimum penalty leviable and this was also affirmed by the Tribunal. In the references at the instance of Kuppuswamy Chetty, it was contended that the concealment, which had given rise to the penalty proceedings, was in the original returns filed. In repelling this argument, the Full Bench pointed out, after referring to sec tion 297(2)(f) and (g) of the Act, that a combined reading of those clauses would show that in order to determine the law under which the penalty is to be imposed, it would be necessary to examine when the rele vant assessment was completed and that if it was completed before April 1, 1962, the penalty would have to be imposed under the Act of 1922, as if the new Act had not been passed, but that if the assessment was com pleted on or after April 1, 1962, the penalty proceedings would have to be initiated and the penalty imposed under the provisions of the Act. Refer ring to the completion in that case of the reassessment on September 17, 1969, the Full Bench pointed out that the completion of the original assessments would not be relevant, because with reference to the relevant returns for those years, forming the basis of the original assessments, there was no finding or even a possibility of a finding that there was any concealment which could lead to the initiation of proceedings for penalty and the levy of penalty and that only when the credits in the accounts of Janakiah Chetty came to be examined in relation to the asst. yr. 1963-64, did the existence of large credits come to light and it was at that stage, that the assessee and his son came forward with petitions which had served as the foundation for the issue of notices under s. 148 of the Act and the reassessments on the basis of the returns submitted pur suant to such notices. It was, therefore, emphasised that at the time, when the original assessments were completed, there could be no proceedings for the levy of penalty and the penalty became leviable only after the com pletion of reassessment proceedings. Similar is the situation in this case also. At the time when the assessment was completed, there was no finding nor even any possibility of a finding that there was any concealment which would justify the initiation of proceedings for the levy of penalty and also the imposition of penalty and it was only at the stage of reassessment, that it came to light that large unexplained hundi credits existed and that formed the basis of the reassessment which was completed on February 29, 1972. Under those circumstances, there could be no question of any conceal ment prior to the completion of the original assessment on the basis of the original returns filed by the assessee. The Full Bench has also observed at page 253 that “what is relevant is the reassessment and so long as it took place on or after April 1, 1962, the provisions of the 1961 Act would have to be applied”. Applying the ratio of the decision of the Full Bench to the facts of this reference, it is seen that there was no possibility of any finding regarding concealment at the stage of the original assessment and such concealment became known only at the time of the reassessment proceed ings and what was, therefore relevant for the purpose of initiating action for levy of penalty was only the reassessment and not the original assess ments and since the reassessments were completed only on February 29, 1972, according to s. 297(2)(g) of the Act, proceedings for levy of penalty could be initiated and penalty also levied only in accordance with the provisions of s. 271 of the Act.

8. We may now refer to the decision of the Supreme Court reported in Maya Rani Punj vs. CIT (1986) 50 CTR (SC) 191 : (1986) 157 ITR 330. In that case, the assessee, for the asst. yr. 196162, had to file the return by September 28, 1961, but it was not so filed nor was any extension of time asked for. However, the return was filed after seven months’ delay on May 3, 1962, after the provisions of the Act had come into force w.e.f. April 1, 1962. Penalty proceedings were initiated under s. 271(1)(a) of the Act and a penalty was also imposed on the assessee on the ground that she had not been prevented by any reasonable cause from filing the return in time. The Tribunal held that though the penalty was leviable under s. 271(1)(a) of the Act, the quantum had to be fixed accord ing to s. 28 of the 1922 Act and reduced the penalty. On a reference, the High Court took the view that it was not competent for the Tribunal to reduce the penalty levied under s. 271 (1)(a) of the Act to a figure lower than that equal to 2per cent per month during which the default continued, but not exceeding 50per cent in the aggregate of the tax. On further appeal to the Supreme Court, following the principles laid down in the decision in Jain Bros. vs. Union of India (supra), the Supreme Court ruled that the proper provision to deal with the situation relating to penalty is as provided in s. 271(1)(a) of the Act and this was on the footing that for the imposition of penalty, it was not the assessment year or the date of the filing of the return that was important but it was the satisfaction of the IT authorities that a default had been committed by the asses see which attracted the provisions for levy of penalty and that the proper provision to apply for dealing with a situation relating to penalty is as pro vided in s. 271(1)(a) of the Act. This decision would also clearly establish that s. 297(2)(g) would apply to the proceedings for penalty and that in turn would enable the application of s. 271 of the Act for initiating the penalty proceedings and for its imposition. In CIT vs. Bihar Cotton Mills Ltd. (1988) 69 CTR (Pat)58:(1988) 170 ITR 290 (Pat), the decisions of the Supreme Court in Jain Bros. vs. Union of India (supra) and Maya Rani Punj vs. CIT (supra), have been applied to hold that the date of satisfaction is the relevant date for the application of the law and that the law applicable on the completion of the reassessment proceedings governed the penalty proceedings. The Tribunal completely overlooked and ignored the scope and effect of s. 297(2)(g) of the Act and had proceeded to regard the concealment established as a result of the reassessment proceedings completed on February 29, 1972, as refer able only to the original return filed on May 11, 1959, and erred in consi dering the question of levy of penalty and in approaching it in the light of s. 28(1)(c) of the Indian IT Act, 1922. It follows that if s. 271 (1) (c) of the Act and the Explanation stood attracted under s. 297(2)(g) of the Act taking into account the date of completion of the reassessment on February 29, 1972, there is no need for the Revenue to establish that the unexplained cash credits represented the concealed income of the assessee or that such credits were false or in the nature of income of the assessee as stated by the Tribunal, which might have been relevant only under s. 28(1)(c) of the Indian IT Act, 1922, and not under the provisions of the Act. The principles laid down in CIT vs. Anwar Ali (1970) 76 ITR 696 (SC) would, therefore, be wholly inapplic able. We find that the Tribunal has totally misdirected itself in its approach to the consideration of the question of the proper provisions applicable for the initiation of action for penalty proceedings and its imposition as well and also in viewing the concealment as one which had occurred when the original return was filed and prior to the completion of the assessment on that basis. We, therefore, answer the second question referred to us in the negative and in favour of the Revenue.

9. We now proceed to consider the first question. We have earlier pointed out that having regard to the date of the completion of the reassessment on February 29, 1972, under s. 297(2)(g) of the Act, penalty proceedings could be initiated only under s. 271 of the Act and not under s. 28(1)(c) of the Indian IT Act, 1922. The following Explanation to s. 271(1)(c) of the Act has been inserted by the Finance Act, 1964, w.e.f. April 1, 1964; “Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under s. 143 or s. 144 or s. 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, 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, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of cl. (c) of this subsection.”

10. There is no dispute in this case that the income returned by the assessee in respect of the relevant assessment year was far less than. 80 per cent of the total income assessed. Therefore, the requirement of the first part of the Explanation is fully satisfied. That would suffice to attract the other part of the Explanation in order to deem that the assessee had concealed the particulars of income or furnished inaccurate particulars of such income, unless the assessee proves that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. On the application of the Explanation to the assessee, what emerges is that the income of the assessee as assessed is the correct income and, in fact, such income is that of the assessee and the failure on the part of the assessee to return the correct assessed income was due to fraud or gross or wilful neglect on its part. This could no doubt be rebutted by the assessee by establishing that the failure to return the correct income was not owing to fraud or gross or wilful neglect on its part. In this case, as could be gathered from the order of the IAC, the assessee, in the course of the penalty proceedings, had merely asked for adjournments, which had been granted but had not made any attempt to establish that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on its part. The assessee, therefore, has not made any attempt whatever to dislodge the presumptions arising as result of the application of the Explanation to the facts. The Supreme Court in CIT vs. Mussadilal Ram Bharose, (1987) 60 CTR (SC) 120 :(1987) 165 ITR 14(SC), construing the Expln. to s. 271 (1) (c) of the Act, pointed out that the effect of the Explanation was that where the total income returned by any person was less than 80per cent of the total income assessed, the onus was on such person to prove that the failure to file the correct income did not arise from any fraud or any gross or wilful neglect on his part and unless he did so, he should be deemed to have concealed the particulars of his income or furnished inaccurate particulars for the purpose of s. 271 (1) (c) of the Act and that the position is that the moment the stipu lated difference was there, the onus to prove that it was not the failure of the assessee or fraud of the assessee or neglect of the assessee that caused the difference shifted to the assessee, but it has to be borne in mind that though the onus shifted, the onus that was shifted was rebuttable. In so holding, the Supreme Court approved the decision of the Full Bench of the Punjab and Haryana High Court in Vishwakarma Industries vs. CIT (1982) 29 CTR (P&H)243 (FB) (1982) 135 ITR 652(P&H) holding that the application of the Explanation raised three legal presumptions, viz., (i) that the amount of the assessed income is the correct income and it is in fact the income of the assessee himself ; (ii) that the failure of the assessee to return the correct assessed income was due to fraud ; or (iii) that the failure of the assessee to return the correct assessed income was due to gross or wilful neglect on his part. Again, the Supreme Court in Chuharmal vs. CIT (1988) 172 ITR 250(SC), held that the Explanation applied in a case where the assessee had shown an income as Rs. 3,113 and a further sum of Rs. 87,455 was added, and as the income returned was less than 80per cent of the assessed income, the Revenue had discharged the onus of proving concealment of income. In this case no explanation at all was offered by the assessee regarding the increase in the peak of non-genuine hundi credits. No further evidence was also produced by the assessee despite the opportunities given to it to prove the genuine ness of the hundi credits. We find from the order of the IAC that some discharged hundi khokas alone were pro duced which had also been produced at the time of the reassessment. We may also observe that the Tribunal, while dealing with the appeals against the order of assessment for the relevant year, has also categorically found that the assessee did not place any evidence to show that it had made any effort to obtain the particulars of the credit or had met with practical diffi culties in that regard. We are of the view that as the entire facts and mate rials considered during the reassessment proceedings established clearly and cogently that there had been concealment and the Expln. to s. 271 (1) (c) stood attracted, the assessee cannot be allowed to get away without any penalty on the ground that the Revenue had not pro duced materials, as viewed by the Tribunal, Further, it may be that the assessee, in the course of the reassessment proceedings, produced the dis charged hundi khokas, but the reassessment was made only after taking into account those materials and not being satisfied with the materials so made available. Even assuming that the assessee can rely upon the same materials to show that there has been no concealment, equally, the Revenue may rely upon the assessment proceedings made after a conside ration of those materials already on record as justifying the presumption of concealment and in that context, mere reliance upon the material in the course of the assessment proceedings may not avail the assessee to claim that that would constitute his explanation for the concealment established by the reassessment proceedings. We are, therefore, satisfied that in this case the assessee had not in any manner attempted to discharge the pre sumption by virtue of the applicability of the Expln. to s. 271(1)(c) of the Act and, therefore, the Tribunal was not right in having cancelled the penalty imposed on the assessee. We also find that the quan tum of penalty imposed is also in order, for, at the relevant time, cl. (iii) as applicable to s. 271(1)(c) of the Act, provided for the levy of penalty in a sum, which shall not be less than, but which shall not exceed, twice the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished. We find that the imposition of the penalty by the IAC on the assessee has been done properly by invoking the Expln. to s. 271(1)(c) of the Act and also bearing in mind the imposable quan tum thereof. We, therefore, answer the first question referred to us in the negative and in favour of the Revenue.

11. We may next consider the third question referred to us. We have earlier noticed how the Tribunal had misdirected itself with reference to the appropriate provision of law applicable to the case of the assessee and how on such an erroneous approach, the Tribunal had proceeded to delete the penalty imposed on the assessee in the view that s. 28(1)(c) of the Indian IT Act, 1922, applied, which, according to the Tribunal, required that evidence must be available at the instance of the Revenue that the unexplained cash credits were either false or fictitious or that they represented the income of the assessee. This approach, as we have pointed out earlier, is thoroughly erroneous and cannot be sustained at all. We do not find in the order of the Tribunal a reference to any other material which would justify the conclusion that there was no concealment of income by the assessee. We have referred already to the attitude of the assessee in the course of the assessment proceedings and also the penalty proceedings and no material at all has been made available by the assessee in support of its claim that there was no concealment of income. We have, therefore, to hold that, on the facts and the circumstances, the view taken by the Tribunal that there was no concealment of income by the assessee is not a reasonable one to be taken. We, therefore, answer the third question in the negative. The Revenue will be entitled to its costs. Counsel’s fee Rs. 500.

[Citation : 179 ITR 30]