1998 (6) TMI 538 - HC - Income Tax

For relevant assessment years, assessee karta of HUF had withdrawn certain amount an account of household expenses - Whether since department had not discharged onus in establishing that assessee had met his household expenses from income from undisclosed sources, penalty could not be levied

Summary

Issues Involved:
1. Whether the Income-tax Department discharged the onus of establishing that the appellant met his household expenses for the assessment years 1968-69 and 1969-70 from income from undisclosed sources.
2. Whether the imposition of penalty under section 271(1)(c) was justified based on the findings from the assessment proceedings.
3. The applicability of Explanation 1 to section 271(1)(c) in the penalty proceedings.

Detailed Analysis:

1. Onus of Establishing Household Expenses from Undisclosed Sources:
The question referred for the court's opinion was whether the Income-tax Department had discharged the onus of establishing that the appellant met his household expenses for the assessment years 1968-69 and 1969-70 from income from undisclosed sources. The assessee, a karta of a Hindu undivided family, had drawn Rs. 4,315 and Rs. 5,033 for household expenses during these years. The Income-tax Officer (ITO) considered these amounts extremely low given the large family size and social status of the assessee. The ITO estimated the household expenses at Rs. 11,000 for 1968-69 and Rs. 12,000 for 1969-70, adding Rs. 6,685 and Rs. 6,967 respectively to the income for these years. The ITO issued notices for penalty under section 271(1)(c) for deliberate concealment of income.

2. Imposition of Penalty under Section 271(1)(c):
The proceedings for penalty were initiated on the grounds of "deliberate concealment" of income. The assessee argued that the burden of proof for concealment was on the Department and that the mere estimation of household expenses did not constitute proof of undisclosed income. The Income-tax Officer and appellate authorities, however, maintained that the low household expenses indicated concealment of income. The Tribunal also upheld this view, stating that the withdrawals for household expenses appeared "unbelievably low."

3. Applicability of Explanation 1 to Section 271(1)(c):
The court observed that the penalty proceedings were based on the allegation of "deliberate concealment" and not on the deeming provisions of Explanation 1 to section 271(1)(c). The authorities did not rely on Explanation 1, and the penalty was imposed under the main provision of section 271(1)(c). The court referred to the Supreme Court's decision in CIT v. Anwar Ali, which held that the burden of proof for concealment or deliberate furnishing of inaccurate particulars was on the Department. The court noted that the finding in assessment proceedings could be relevant but not conclusive for penalty imposition. The Tribunal's observation that the expenses were "unbelievably low" did not suffice to prove deliberate concealment.

The court also referred to decisions in CIT v. Vinaychand Harilal and CIT v. Navnitlal Pochalal, which reiterated that the burden of proving concealment was on the Department and that mere assessment findings were insufficient for penalty imposition.

Conclusion:
The court concluded that the Department had not discharged the burden of proving deliberate concealment of income. The low household expenses alone were insufficient to justify the penalty. The reference was answered in the negative, in favor of the assessee and against the Revenue. The court emphasized that the penalty proceedings require more than just assessment findings and that the Department must provide cogent evidence of concealment. The appeal was thus decided in favor of the assessee, and no costs were ordered.