1995 (9) TMI 18 - HC - Income Tax

Assessed Income Assessment Year Cash Credits Income Returned Law Applicable To Assessment Retrospective Effect

Summary

Issues Involved:
1. Legality of cancelling the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961.
2. Correctness of the Appellate Tribunal's finding that the assessee had discharged its burden and lack of positive evidence by the Revenue.
3. Necessity of further inquiry into whether the agreed addition represented concealed income.
4. Interpretation of sections 68, 69, and 69A regarding their effect on determining concealed income.

Issue-Wise Detailed Analysis:

1. Legality of Cancelling the Penalty Imposed under Section 271(1)(c):
The Tribunal found that the assessee had maintained books in the ordinary course of business and had provided copies of accounts, trading account, profit and loss account, and balance-sheet. The assessee had also submitted confirmatory letters from some creditors and requested the Income-tax Officer to summon the creditors who were untraceable. The Tribunal concluded that the assessee agreed to the addition due to the inability to produce creditors, not as an admission of concealed income. The Tribunal held that there was no fraud or gross or wilful neglect on the part of the assessee, thus discharging the initial legal burden.

2. Correctness of the Appellate Tribunal's Finding:
The Tribunal applied the ratio of the decision in CIT v. Vinaychand Harilal [1979] 120 ITR 752 (Guj), affirming that the assessee had discharged its burden by showing that the failure to return the correct income did not arise from fraud or gross or wilful neglect. The Tribunal's finding that there was no positive evidence of concealed income by the Revenue was upheld. The Tribunal's conclusion was based on the preponderance of probabilities, indicating no fraud or gross or wilful neglect.

3. Necessity of Further Inquiry:
The court held that whether further inquiry is necessary depends on the facts and circumstances of each case. If the assessee unequivocally admits that the amount is income, no further inquiry is needed unless explained otherwise. However, if the agreement is merely due to the inability to provide satisfactory evidence, it cannot be treated as an admission of concealed income. In this case, the Tribunal was right in not sustaining the penalty based on the agreement to surrender the sum for taxation.

4. Interpretation of Sections 68, 69, and 69A:
The court clarified that sections 68, 69, and 69A create a legal fiction to bring unexplained sums within the ambit of the charging provision but do not automatically presume such sums as concealed income for penalty purposes. The fiction created under these sections cannot be extended to penalty proceedings to presume concealment. The court emphasized that the presumption of concealment under the Explanation to section 271(1)(c) is rebuttable, and the burden of proof lies on the assessee to show the absence of fraud or gross or wilful neglect.

Conclusion:
The court answered questions 1 and 2 in the affirmative, favoring the assessee and against the Revenue. For question 3, the necessity of further inquiry depends on the specific facts and circumstances. For question 4, the court held that until the insertion of Explanation 1 with effect from April 1, 1976, additions under sections 68, 69, and 69A could not lead to a presumption of concealed income for penalty purposes. The judgment emphasizes the importance of distinguishing between deemed income for tax purposes and actual concealed income for penalty proceedings.