Orissa H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the penalty levied under s. 271(1)(c) of the IT Act ?

Counsel Appeared

Standing counsel, for the Revenue : B. K. Mohanty, Ch. P. K. Misra, B. P. Das & S. P. Choudhury, for the Petitioner

R. N. MISRA, C.J.:

At the instance of the Revenue, this Court by order dated December 6, 1979, in exercise of powers under s. 256(2) of the IT Act of 1961 called upon the Cuttack Bench of the Tribunal to state a common case and refer the following common question for the opinion of the Court :

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

2. The relevant assessment years are 1962-63 and 1964- 65. The ITO made trading additions of Rs. 62,821 and Rs. 1,35,145 in the respective years. Similarly, a sum of Rs. 58,899 was treated as cash credit in the first year and a sum of Rs. 58,868 was treated as cash credit in the second year. The dispute relating to the quantum was finalised in appeals before the Tribunal. The Tribunal gave a set-off of the unexplained cash introductions against additions in the trading account.

3. In the proceedings under s. 271(1)(c) of the Act, the IAC imposed a penalty of Rs. 58,899 for the asst. yr. 1962-63 and of Rs. 57,068 for the asst. yr. 1964-65.

4. On the assessee appealing to the Tribunal against these penalties, it was held: “Coming to the merits of the case, we find that penalty proceedings were initiated after the Explanation to s. 271(1)(c) of the Act came into force. Consequently, the Explanation must be allowed to have its full play even though the IAC has not referred to it in his order, vide the decision in the case of CIT vs. K. C. Behera (1976) 103 ITR 479 (Orissa). Evidently, the income returned by the assessee and the income finally assessed are such that the first part of the explanation applied to the facts of the case. Consequently, it was for the assessee to show that the difference did not arise due to any fraud or gross or wilful neglect on his part. The question before us is whether the assessee has discharged his onus.”

5. There is no dispute by the learned standing counsel about this approach of the Tribunal.

6. The Tribunal proceeded to say: “In the case of CIT vs. K. C. Behera (supra), it has been laid down that the quantum of proof necessary to discharge the onus under the Explanation would be as in civil cases, i.e., by preponderance of probabilities. In the case of CIT vs. Narang & Co. (1975) 98 ITR 462 (Del), it has been held that the assessee would be taken to have discharged the onus if he, in the absence of any proof to the contrary, can raise probabilities in his favour or point out certain circumstances which can create a doubt, the benefit of which can be given to him. In the case of Addl. CIT vs. Sadiq Ali & Bros. (1973) 92 ITR 276 (J & K), it has been held that no penalty under the Explanation can be levied in a case of unproved cash deposits. In that case, the assessee gave no explanation about the cash deposits in its books which was partly accepted. The Court did not approve the imposition of the penalty under the Explanation relating to the unaccepted part. In the case of CIT vs. S.P. Bhatt (1974) 97 ITR 440 (Guj), it has been held that the ITO may very well reject the book results of the assessee and estimate a higher profit but it does not follow therefrom that the accounts maintained by the assessee were false or incorrect. In that very case, it was laid down that the burden on the assessee under the Explanation was such that it was not necessary to produce any positive material in order to discharge the same. The assessee may claim to have discharged the burden by relying on the material which was recorded in the penalty (assessment) proceedings. The question that has to be seen in every case is whether on preponderance of probabilities it can be said that the difference between the returned income and the assessed income arose due to any fraud or gross or wilful neglect on the part of the assessee.”

7. We are inclined to agree that the Tribunal looked at the matter from the proper angle. Having examined the facts of the case, the Tribunal came to the following conclusion : “The trading additions were merely based on estimate about which there can be honest difference of opinion. Similarly, the cash introductions were explained by the assessee to have come from the savings of his past business. The fact that the assessee was doing business of different kinds for several years in the past has not been controverted. The mere fact that the assessee was not able to show, by production of regular accounts of the earlier years, the exact quantum of his savings does not, in our opinion, make his explanation improbable. Considering all the facts and circumstances of the case, we come to the conclusion that there is nothing improbable in the income returned by the assessee representing his correct income or in his explanation that the cash introductions came from the savings of his past business. As the assessee could not establish the flawless nature of his accounts, the trading additions were made. Again, as he could not produce the accounts of the earlier years to establish the quantum of savings made from the business carried on in the earlier years, the explanation was regarded as unsatisfactory. The ITO was quite justified to make both the additions on the above grounds and the same has already been confirmed by the Tribunal. But, it is well settled that the penalty proceedings are different. As pointed out by the learned representative for the assessee at the time of the present hearing, the assessee is entitled to claim that the material on record should be appraised afresh with a view to see whether any penalty is exigible. We find nothing on record to come to the conclusion that the difference between the returned income and the assessed income in both the years under consideration arose due to any fraud or gross or wilful neglect on the part of the assessee. We, therefore, hold that no penalty was exigible in the facts and circumstances of the case.”

Here again, we think, the Tribunal kept the proper perspective in view and looked at the matter from the right aspect. As was pointed out by the Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26, merely because there is a provision for the imposition of penalty it is not mandatory that the taxing officer must exercise his jurisdiction and levy a penalty in every case. Penalty must be grounded upon contumacious conduct and callous indifference to the provisions of law and wilful non-compliance with the requirements of the statutes. Parliament has made provision for penalty with a view to regulating the conduct of the assessee and in a given case where the taxing authority is of the view that there was no contumacy, no callous indifference or on the facts there does not appear to be any material to show obstinate conduct or defiance of the law, penalty may not be levied. The power to decide whether the facts of a case give rise to a situation for imposition of penalty vests in the taxing officer in the same way as in the appellate authority. The Tribunal took stock of the entire aspect and in exercise of its appellate powers came to hold that the facts of the case did not warrant an imposition of penalty by the exercise of that jurisdiction. This, we are of the view, is a matter within the domain of the Tribunal’s jurisdiction and once such a finding is reached or recorded, there is hardly any question of law arising for being referred to the Court or for being answered. In the facts of the case, we are inclined to think that the Tribunal did come to the conclusion that the facts were such that the assessee’s conduct did not warrant visiting him with penalty. The question referred to us, therefore, is answered against the Revenue by holding that, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the penalty levied under s. 271(1)(c) of the IT Act.

There would be no order for costs.

BEHERA, J.:

I agree.

[Citation : 142 ITR 21]