1989 (1) TMI 28 - HC - Income Tax

Issues Involved:
1. Cancellation of the penalty imposed under section 271(1)(c) for the assessment year 1959-60.
2. Determination of the applicable law for concealment, whether it relates to the original return or the reassessment.
3. Reasonableness of the Tribunal's conclusion regarding the absence of income concealment by the assessee.

Detailed Analysis:

Issue 1: Cancellation of Penalty under Section 271(1)(c)
The Tribunal had cancelled the penalty of Rs. 3,06,225 imposed under section 271(1)(c) of the Income-tax Act, 1961, on the basis that the concealment related to the original return filed in 1959, and therefore, section 28(1)(c) of the Indian Income-tax Act, 1922, would be applicable. The Tribunal further held that the burden of proof was on the Revenue to establish that the unexplained cash credits were the income of the assessee. However, the High Court found this reasoning flawed. The court clarified that under section 297(2)(g) of the Act, the proceedings for penalty should be governed by the provisions of the 1961 Act, given that the reassessment was completed on February 29, 1972. The court emphasized that the Explanation to section 271(1)(c) shifted the onus to the assessee to prove that the failure to return the correct income did not arise from fraud or gross or wilful neglect. The assessee failed to provide any such explanation, thereby justifying the imposition of the penalty. The court concluded that the Tribunal was incorrect in cancelling the penalty and answered the first question in the negative, in favor of the Revenue.

Issue 2: Applicable Law for Concealment
The court examined whether the concealment should be considered at the time of the original return or the reassessment. The Revenue argued that the reassessment completed after April 1, 1962, should be governed by the provisions of the 1961 Act, as per section 297(2)(g). The court agreed with this interpretation, referencing several precedents, including Jain Bros. v. Union of India and Maya Rani Punj v. CIT, which established that the date of completion of the assessment or reassessment determines the applicable law for penalty proceedings. The court noted that the reassessment in this case revealed large unexplained hundi credits, which were not apparent during the original assessment. Therefore, the concealment should be considered in the context of the reassessment, making the provisions of the 1961 Act applicable. The court answered the second question in the negative, in favor of the Revenue.

Issue 3: Reasonableness of Tribunal's Conclusion on Concealment
The Tribunal had concluded that there was no concealment of income by the assessee. The High Court found this conclusion unreasonable, given the facts and circumstances of the case. The court highlighted that the assessee had not provided any material evidence to rebut the presumption of concealment arising from the application of the Explanation to section 271(1)(c). The court pointed out that the Tribunal had misdirected itself by applying the provisions of the 1922 Act, which required the Revenue to prove that the unexplained credits were false or represented the income of the assessee. The court emphasized that under the 1961 Act, the onus was on the assessee to disprove the presumption of concealment, which it failed to do. Consequently, the court held that the Tribunal's view was not a reasonable one and answered the third question in the negative, in favor of the Revenue.

Conclusion:
The High Court concluded that the Tribunal erred in cancelling the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. The court determined that the reassessment completed in 1972 should be governed by the provisions of the 1961 Act, and the onus was on the assessee to disprove the presumption of concealment, which it failed to do. The court answered all three questions in favor of the Revenue and upheld the imposition of the penalty.

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