High Court Of Patna
CIT vs. Gwalior Metal Industries
Asst. Year 1963-64
Nagendra Prasad Singh & Ashwini Kumar Sinha, JJ.
Taxation Case No. 49 of 1974
4th January, 1983
B.P. Rajgarhia & S.K. Sharan, for the Revenue : L.N. Rastogi, K.N. Jain & L.N. Khanna, for the Assessee
BY THE COURT :
This is a reference under s. 256(2) of the IT Act, 1961 (hereinafter to be referred to as “the Act”). In the statement of the case submitted by the Tribunal, Patna (hereinafter to be referred to as “the Tribunal”), the following question has been referred for the opinion of this Court: “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the penalty of Rs. 36,540 imposed under s. 27l(1)(c) of the IT Act, 1961 ?”
From the statement of the case it appears that in the course of the assessment proceeding for the asst. yr. 1963-64, the ITO found that a sum of Rs. 20,000 in all had been credited in the name of the partners of the assessee-firm.
On the failure of the assessee to produce any evidence in support of the genuineness of these cash credits, the ITO added the sum of Rs. 20,000 to its income as income from undisclosed sources. The assessee did not challenge this addition in appeal before the AAC. Thereafter, a notice was issued to the assessee as to why penalty under s. 271(1) (c) of the Act be not imposed against the assessee. A written explanation was submitted on behalf of the assessee. Ultimately, the IAC by his order dated March 2, 1970, held that the assessee was guilty of concealment and also of furnishing inaccurate particulars of income justifying penal action under s. 271(1)(c). He imposed a penalty of Rs. 36,450. On appeal filed on behalf of the assessee before the Tribunal, the aforesaid order of the IAC was set aside. When the prayer of the Department to refer the matter to this Court was rejected by the Tribunal, an application for the same was filed before this Court. This Court on September 10, 1976, directed the Tribunal to state the case and to submit the question of law aforesaid for the decision of this Court. Pursuant to the said order, the Tribunal has submitted the statement of the case and the question of law which has to be decided.
2. Mr. B. P. Rajgarhia, appearing for the Revenue, submitted that the Tribunal has set aside the order of the IAC imposing penalty against the assessee by overlooking the Explanation which was added to s. 271(1)(c) by the Finance Act, 1964. According to the learned standing counsel for the Department, after the introduction of the said Explanation the onus is on the assessee to satisfy that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on the part of the assessee. This Explanation has been the subject- matter of controversy in different cases and this Court had occasion to construe the scope thereof. In view of the Explanation aforesaid, the initial onus to show that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on the part of the assessee, is on the assessee. But, it has to be borne in mind that whenever the assessee is called upon to submit such an explanation he is required to prove a negative fact. It was pointed out by this Court in the case of CIT vs. Patna Timber Works 1975 CTR (Pat) 25 : (1977) 106 ITR 452 that ordinarily and generally there cannot be any direct evidence to prove such facts. In that context it was observed as follows : “The assessee merely has to place materials of the primary facts or the circumstances which in all reasonable probability would show that he was not guilty of any fraud or gross or wilful neglect. He may discharge this onus by placing the facts found in the assessment order to show that the facts found therein had not in the least given an inkling of fraud or gross or wilful neglect on the part of the assessee and, therefore, it must be held without proof of any other fact that there was no fraud committed by the assessee in his failure to return the correct income nor was he acting grossly or wilfully negligently.”
3. It was also observed in connection with the facts of that case as follows (headnote): “On the facts of this case, therefore, the denial of the assessee or its representative at the time of the argument before the IAC was sufficient and thereafter it was necessary for the Department to place further materials to show that over and above the materials in the assessment order, there were facts and circumstances on which the failure of the assessee to return the correct income could be attributed to its act of fraud or gross or wilful neglect.”
4. As such, if the assessee discharges the initial onus, then the Department to place further materials to show that the failure of the assessee to return the correct income could be attributed to its act of fraud or gross or wilful neglect. It cannot be Urged that after the insertion of the Explanation aforesaid, the burden never shifts on to the Department. The same view was reiterated by this Court in the cases of CIT vs. Gopal Vastralaya (1979) 13 CTR (Pat) 330 : (1980) 122 ITR 527 and CIT vs. Binod Co. (1980) 15 CTR (Pat) 309 : (1980) 122 ITR 832.
5. Coming to the facts of the present case, from the order of the IAC it appears that the assessee had filed a written explanation pursuant to the notice regarding the imposition of penalty. The IAC has neither accepted the said explanation nor rejected it in so many words. He has imposed penalty only on the ground that ” the assessee had not contested the cash credits before the AAC”. Thereafter, he has observed : “In the circumstances, I am led to the irresistible conclusion that the assessee is guilty of concealment and also of furnishing inaccurate particulars of income.” This fact was taken note of by the Tribunal while allowing the appeal of the assessee. The Tribunal has observed as follows: “The IAC, in this case, came to the conclusion against the assessee only for the reason that he had not challenged the addition of the cash credit amount in the assessment. This by no means is proof of the fact that the amount represented the assessee’s income or that in respect thereof he had effected any concealment or deliberately furnished inaccurate particulars. In this view that we take, the penalty imposed cannot be sustained and we accordingly cancel the same.”
6. Mr. Rajgarhia, appearing for the Department, attacked the order of the Tribunal on the ground that the Tribunal had observed that the Department before levying penalty must have before it cogent material or evidence from which it could be inferred that the assessee had consciously concealed the particulars of his income or has deliberately furnished inaccurate particulars in respect of the same. According to Mr. Rajgarhia, even if it is assumed that the Department has to produce cogent materials and circumstances to prove fraud, gross or wilful neglect on the part of the assessee after the initial burden is discharged by the assessee, in the instant case, the Tribunal has not found that the assessee had discharged the initial burden. I have already pointed out that the IAC has simply mentioned about the written explanation of the assessee in his order. He has not rejected the said explanation. As such, it is difficult to hold, in the facts and circumstances of the present case, that the assessee has not discharged the initial onus placed on it. Once the IAC has not rejected the said explanation, the Tribunal was justified in assumng that the assessee had discharged the initial onus and, thereafter, it was for the Department to produce materials or to show circumstances on the basis of which it could have been held that an incorrect return was filed by the assessee as a result of fraud, gross or wilful neglect. The IAC has come to the conclusion against the assessee only for the reason that he had not challenged the addition of the cash credit amount in the assessment. In our opinion, merely on this circumstance, a fraud or gross or wilful neglect on the part of the assessee cannot be inferred. A Bench of this Court in the case of CIT vs. Binod Co. (supra) expressed a similar opinion.
The facts of that case were very similar to the facts of the present case. The Tribunal, therefore, in our view, has rightly deleted, on the facts and circumstances of the instant case, the penalty imposed on the assessee by the IAC.
In the result, we must answer the question referred in the affirmative and hold that the Tribunal was correct in deleting the penalty imposed under s. 271(1)(c) of the Act. In the circumstances of the case, however, we shall make no order as to costs.
[Citation : 141 ITR 274]