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TMI Blog1984 (6) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... 0010-5-1975 11-3-197515,0009-6-1975 22-3-197515,00021-4-1975 -------------------------------------------------------------------------------------------------------------------------------------------------- 2. The ITO required the assessee to explain the nature and source of these credits. He also recorded the statement of Sukhbir Singh. The assessee produced evidence in support of the genuineness of the loans. The ITO in detail discussed the evidence produced by the assessee. The ITO, after considering the entire evidence in detail, held that the theory of loan advanced by Sukhbir Singh was a cooked up story and in reality Sukhbir Singh never advanced any loan. He also gave a clear finding that the theory of payment of interest to the creditor was also not genuine. Consequently, the ITO added a sum of Rs. 95,000 to income of the assessee as from undisclosed sources. Consequently, he completed his assessment on a total amount of Rs. 1,00,617. He also initiated penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 ('the Act'). 3. In penalty proceedings, inter alia, it was submitted that the loans in dispute were genuine. In view of the evidence on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clearly a case of charges paid for name-lending. Keeping the totality of evidence in view, it is established beyond a shadow of doubt that the credits shown were not genuine and the assessee has failed to discharge the onus. Apart from this, the conduct of the assessee before and during the course of assessment proceedings has been of tenaciously holding on to the made-up story and to persistently perpetuate the falsity of the whole transaction. The assessee is, therefore, clearly in default and penalty is exigible in his case. The assessee had gone in appeal to the Commissioner (Appeals) and the appeal on this point was dismissed." 4. The learned ITO after considering all the contentions was of the view that penalty was leviable under section 271(1)(c). Thus, he held that assessee concealed income of Rs. 95,000 plus interest of Rs. 5,617. Thus, he imposed a penalty of Rs. 1,00,617 under section 271(1)(c). 5. Being aggrieved with the order of the ITO, the assessee took up the matter in appeal. Inter alia, it was submitted that the interest payments were made by cross cheques and that the above interest payment stood recorded in the bank account of Shri Sukhbir Singh. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was that in spite of Explanation to section 271(1)(c), it was for the department to establish that the disputed amount was income of the assessee in the year of account and the assessee concealed the same. In the present case, no such material was brought on record. In this connection it was contended that the decision in the case of Addl. CIT v. Karnail Singh V. Kaleran [1974] 94 ITR 505 (Punj. Har.) goes to show that it is for the department to prove the ingredients of section 271(1)(c). The learned counsel also contended that in the present case on the basis of the material on record, the initial burden which lay upon the assessee was discharged. As such, it was contended that there was no fraud or gross or wilful neglect on behalf of the assessee for not returning the assessed income. According to the learned counsel, there was preponderance of probabilities in favour of holding that there was no concealment of income. 8. On behalf of the revenue, it was contended that in the present case the assessee never took the stand before the learned Commissioner (Appeals), that the ITO was legally not correct in invoking Explanation 1(A) to section 271(1)(c), which came into fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). From the assessment order, it is also clear that be initiated penalty proceedings under section 271(1)(c). It means that the ITO initiated penalty proceedings under section 271(1)(c) for concealment of income and furnishing of inaccurate particulars of his income. While applying Explanation to section 271(1)(c), be wrongly stated that Explanation 1(A) to section 271(1)(c) was attracted. As a matter of fact, from the order of the ITO imposing penalty, it was clear that his approach was correct but he mentioned wrong Explanation 1(A) to section 271(1)(c). Simply because section was wrongly mentioned, the order of penalty passed by the ITO under section 271(1)(c) cannot be said to be illegal. Penalty was imposed under section 271(1)(c). The ITO, while imposing penalty, clearly held that apart from the conduct of the assessee before and during the course of assessment proceedings, it was clear that the assessee has been tenaciously holding on to the made-up story and was persistently perpetuating the falsity of the whole transaction. He also held that the explanation given by the assessee was totally false. Before the learned Commissioner (Appeals) the assessee never took the stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is for the imposition of penalty was bad in law. 12. Looking to the aforesaid facts, we are of the definite view that in the present case, the basis for imposing penalty under section 271(1)(c) was not bad in law. 13. Other contention of the learned counsel for the appellant was that in the present case the assessee produced sufficient evidence during the course of assessment proceedings and if all that evidence is taken into consideration, it would be clear that there were preponderance of probabilities for holding that there was no fraud or gross or wilful neglect on the part of the assessee. According to the learned counsel, it was for the department to prove that the addition in question was really income of the assessee in the year of account. According to the learned counsel, the deeming provision in the present case should not be extended beyond its legitimate field. According to the learned counsel, in view of the decision in the case of Karnail Singh V. Kaleran, it was for the department to show that the disputed addition was the income of the assessee in the year of account and the claim of the assessee was bogus. As a matter of fact, it was a case of not proving the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision in the case of Karnail Singh V. Kaleran was overruled by the Full Bench of the same High Court. 14. Before discussing the contentions of the parties in detail, we will like to point out that the Tribunal, while deciding quantum matter in para 6 of the order, clearly held that the creditor never advanced loans in question. It was also found by the Tribunal that the entries regarding the loans of Rs. 95,000 did not find place in the books of account of Shri Sukhbir Singh Sons. It was also found that the books of account of Shri Sukhbir Singh Sons did not even indicate the receipts of interest. The Tribunal, after appreciating the statement of Shri Sukhbir Singh and other material, clearly held that the loans were never advanced by the creditors and the interest was never received by them. The Tribunal, after appreciating the facts, also held that the pronotes were never executed by the creditors and the receipt of interest was also not under the signature of Shri Sukhbir Singh. The Tribunal clearly held that the ITO had brought on record enough evidence to show that Shri Sukhbir Singh did not advance loan of Rs. 95,000 as alleged. The Tribunal after appreciating the evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and distinct from the assessment proceedings. 17. We may point out that in cases of concealment of income and tax evasion, the modus of concealment is obviously within the special knowledge of the assessee. Consequently, in cases of blatant evasion, the Legislature was compelled to take off the impossible burden of establishing facts which are obviously in the special knowledge of the assessee alone. The onus was, therefore, rightly placed on the shoulders of the assessee to say, that despite the amendment no change was brought about in the law, would be rendering the whole of the provisions redundant and would be violating the settled rule of construction that a meaning must be given to every word in a statute. The intention of the Legislature in making the amendments to section 271(1)(c) and inserting the Explanation thereof was to bring about the change in the existing law. Consequently, the ratio of decision in the case of CIT v. Anwar Ali [1970] 76 ITR 696 (SC) is no longer attracted for the construction of section 271(1)(c) as amended. The ratio of decision in the case of Karnail Singh V. Kaleran no longer holds good. In the case of Vishwakarma Industries v. CIT [1982] 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record. In view of the matter, the assessee was not able to produce evidence or circumstances to show that the loans in question were genuine. Even the statement of broker was recorded. He clearly stated that in his presence the loan was not advanced. So all the connected persons clearly stated that the theory of advancing of the loan was not genuine. If the claim was genuine, at least the assessee could have filed his affidavit. On the other hand, it is proved that the whole theory is bogus. The ITO and the learned Commissioner (Appeals) gave good reasons in support of their findings. 18. Thus, there is no material on record to prove that the assessee was able to discharge the onus which lay upon it. Under the circumstances, the case of the assessee is hit under the mischief of Explanation under section 271(1)(c). In our opinion, the Full Bench of the Hon'ble Punjab and Haryana High Court has discussed this issue in detail. Even in the case of CIT v. S.P. Bhatt [1974] 97 ITR 440, the Hon'ble Gujarat High Court held that a rebuttal presumption that the assessed income is in fact the income of the assessee himself, is equally raised by the Explanation. 19. We may state here th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... help the assessee. The decision in the case of S.P. Bhatt also does not help the appellant. Even in that case it was held that the legal fiction enacted in the Explanation could be displayed only if there was no fraud or gross or wilful neglect on the part of the assessee. In that decision the Hon'ble High Court held that the Explanation to section 271(1)(c) creates a legal fiction if the condition of its applicability is satisfied. The condition is an objective condition, namely, that the total income returned by the assessee should be less than 80 per cent of the total income assessed subject to a certain deduction, which is not material for our purpose. What the condition contemplated was merely a matter of arithmetical calculation. The income-tax authority was required to take up the total income returned by the assessee and the total income assessed by the revenue authorities and if the former is less than 80 per cent of the latter, the condition for applicability of the Explanation is satisfied. So, the said decision also does not help the assessee. The decision in the case of Bapulal Ramchandra also does not help the appellant. Even this decision goes to show that if the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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