1967 (8) TMI 5 - HC - Income Tax

Neither the IAC nor the Tribunal found that the assessee s explanation was false - there was no other material from which an inference of concealment of income could be drawn - no penalty could be imposed on the assessee

Summary

Issues Involved:
1. Concealment of Income
2. Penalty Proceedings under Section 271(1)(c) of the Income-tax Act, 1961
3. Evaluation of Assessee's Explanation
4. Burden of Proof in Penalty Proceedings

Issue-wise Detailed Analysis:

1. Concealment of Income
The primary issue was whether the assessee had concealed the particulars of his income for the assessment year 1959-60, warranting a penalty under section 271(1)(c) of the Income-tax Act, 1961. The Income-tax Officer found that the assessee's explanation regarding the source of funds used to purchase a motor vehicle was unconvincing. Specifically, the officer observed discrepancies in the cash book and rejected the explanation that the payments were made from a cash balance and depreciation amounts. The officer concluded that Rs. 31,250 was income from undisclosed sources.

2. Penalty Proceedings under Section 271(1)(c) of the Income-tax Act, 1961
Penalty proceedings were initiated by the Inspecting Assistant Commissioner, who also rejected the assessee's explanation regarding the source of funds. The Commissioner found that the cash balance was not utilized as claimed and concluded that the payments were made from concealed income. A penalty of Rs. 5,000 was imposed on the assessee.

3. Evaluation of Assessee's Explanation
The Tribunal found that the explanation regarding the payment of Rs. 10,000 from the cash balance was "completely disproved." However, it noted that the explanation about the payment of the balance was not prima facie unreliable and leaned slightly in favor of the assessee. The Tribunal emphasized that a penalty could not be imposed merely because the explanation was not accepted or found to be false, referencing precedents like Commissioner of Income-tax v. Gokuldas Harivallabhdas and Commissioner of Income-tax v. L. H. Vora.

4. Burden of Proof in Penalty Proceedings
The High Court reiterated that penalty proceedings are penal in nature, requiring a degree of proof akin to a criminal prosecution. The court emphasized that the mere rejection of the assessee's explanation in assessment proceedings does not automatically justify a penalty. The authority must expressly find the explanation to be false. In this case, neither the Inspecting Assistant Commissioner nor the Tribunal explicitly found the explanation to be false. The Tribunal's finding that the explanation was disproved did not equate to a finding of deliberate concealment.

Conclusion:
The High Court concluded that the question of whether the assessee concealed his income is a question of fact. The Tribunal's decision, which did not find the assessee's explanation to be false, was justified. Therefore, the assessee could not be penalized under section 271(1)(c) of the Income-tax Act, 1961. The question referred to the High Court was answered in favor of the assessee, and the assessee was awarded costs of the reference, with counsel's fee fixed at Rs. 200.