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TMI Blog1973 (10) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... een found in possession of cash amounting to Rs. 1,72,679 by the police at Ambala Cantt bus stand on March 1, 1966. A notice was issued to him under section 139(2) of the Income-tax Act, 1961 (hereinafter called " the Act "). The assessee filed his return on August 6, 1966, declaring an income of Rs. 163 from interest. Notices were issued to the assessee under sections 142(1), 143(2) and 131 of the Act. He was examined at considerable length and thereafter the Income-tax Officer assessed him on an income of Rs. 1,77,842. The break up of this income is as follows : (a) Income from interest as declared - Rs. 163. (b) Amount recovered by the police in possession of the assessee, the source of which was not satisfactorily explained and which was treated as the assessee's income from undisclosed source - Rs. 1,72 679. (c) Deposit in bank regarding the source of which there was no satisfactory explanation-Rs. 5,000 According to the Income-tax Officer the correct income thus was Rs. 1,77,842 as against Rs. 163 declared by the assessee. The assessee was taxed on this income and ultimately the Tribunal maintained the assessment to the tune of Rs. 1,37,679. The Income-tax Officer als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the instant case is that the revenue has not believed him in his statement that the money belonged (sic) to him. We are of the view that, in such cases, the principle laid down in Anwar Ali's case applies because if the assessee has not been able to prove that the money actually belongs to him, the revenue too has not been able to establish that the money belongs to Shri Karnail Singh. And much less that it, is his concealed income. They have been able to rope in the assessee under section 69A, because the assessee has not been able to prove his case. While the assessment of the amount in the absence of evidence furnished by the assessee may be well founded the penalty on the basis of such assessment cannot be, because the material which may be sufficient for assessment may not be sufficient for penalty. The revenue has to prove positively that the material which is sufficient for assessment is also sufficient for penalty. The mere assessment of the amount does not automatically lead to the imposition of penalty. The revenue has assessed the amount under section 69A, because the assessee has not been able to prove that he is not the owner of the said money because the explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person-.... (c) has concealed the particulars of his income or furnished inaccurate particulars of such income he may direct that such person shall pay by way of penalty.... (iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished. Explanation.-Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest. It is significant that in C. A. Abraham's case, this court was not called upon to determine whether penalty proceedings were penal or of quasi-penal nature and the observations made with regard to penalty being an additional tax were made in a different context and for a different purpose. It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings (Hindustan Steel Ltd. v. State of Orissa ). In England also it has never been doubted that such proceedings are penal in character. (Fattorini (Thomas) (Lancashire) Ltd. v. Inland Revenue Commissioners). This brings us to the main ratio of the judgment in Anwar Ali's case The Supreme Court was dealing with section 28(1) of the Indian Income-tax Act, 1922, and while dealing with this provision, which is more or less analogous to section 271(1)(c) of the Act, their Lordships observed as follows : " The next question is that when proceedings under section 28 are penal in cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (b) and (c), in addition to inaccurate particulars have been any tax payable by him, a sum furnished not exceeding one and a half. Explanation.-Where the total times the amount of the income- income returned by any person is tax and super-tax, if any, less than eighty per cent. of the which would have been avoid- total income (hereinafter in this referred if the income as returned by Explanation referred to as the correct such person had been accepted income). as assessed under section as the correct income: 143 or section 144 or section 147 (reduced by the expenditure incurred Provided that- bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction) such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section. The purpose of the Explanation seems to differentiate between two types of assessees : those who have reported correct income up to eigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e they may be, in view of the categorical statement. of law by the Supreme Court. At the same time we do not interpret Anwar Ali.'s case or the case of Hindustan Steel Ltd. to mean that even in cases where an assessee does not offer any explanation to a notice to show cause against the imposition of penalty for default in filing the return in time under section 139(2), it is not open to the Income-tax Officer to infer dishonest disregard of law on the part of the assessee for the imposition of the penalty. The principle of the decision of the Supreme Court is only to the effect that by the mere rejection of the explanation of the assessee to the show-cause notice it does not automatically follow that the necessary ingredient of section 271(1)(a) of the Income-tax Act, 1961, has been made out. It is the duty of the department to point out circumstances from which an inference that the assessee acted deliberately in violation of law can be drawn." These observations prove that the Explanation was merely appended to section 271(1) for the purpose of onus, that is, in what circumstances the onus will be on the assessee and in what circumstances the onus will be on the department, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thrown upon it. The Appellate Tribunal has referred to the explanation given by the assessee and said that the conclusion in the assessment order regarding the defective nature of the account and suppression of stock is based on mere suspicion and conjecture. It also found that the Income-tax Officer's statement that the figures of opening and closing accounts shown in the trading account are highly suspicious and that in a business of this type the stock available with the assessee should have been much more in view of the turnover shown in the books, are mere surmises. The Tribunal was also of opinion that the finding of the Income-tax Officer that in a business of this type it can never happen that there would be no closing stock was also a mere conjecture These and other circumstances mentioned in the order of the Appellate Tribunal read in the light of the explanation given by the assessee led the Tribunal to the conclusion that the assessee has proved that there was no fraud or gross or wilful negligence on its part in the failure to return the correct income." This court had an occasion to consider the provisions of section 271 of the Act in Gumani Ram Siri Ram v. Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's income or inaccurate particulars of such income as supplied by the assessee. Income is the common factor in both cases and the Explanation also is worded in that manner. It is taken for granted both in this provision and in the Explanation that what is concealed are the particulars or what is inaccurately furnished again are the particulars. Of course, the particulars have necessary relation to income. The question will arise whether those particulars relate to income or something other than income. It cannot be assumed in every case that whatever amount is possessed in the form of cash is necessarily income. A thief may have in his pocket money stolen from somebody, and that cannot be said to be income and if this illustration is kept in view the decision of the Supreme Court in Anwar Ali's case shows that it had nothing to do with the Explanation and it would have proceeded on the same lines irrespective of the Explanation. Therefore, we are unable to accept the contention of Mr. Awasthy that the Explanation would have made any difference to the ratio in Anwar Ali's case so far as the interpretation of section 28 of the 1922 Act is concerned if it had been part of it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the total income returned is less than 80 per cent. of the total income assessed, the assessee shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have been guilty of concealment or furnishing inaccurate particulars. This Explanation has to be construed fairly and reasonably in the context, the context being that of a highly penal provision. The question arises as to the effect of the Explanation in cases where there is a cash credit in the assessee's books or the assessee is found to be in possession of money or other asset, and the explanation given by the assessee is not accepted by the department with the result that the amount is assessed as income under section 68, 69, 69A or 69B, or where the assessment is made on the basis of an estimate of income. There are two ways of approaching this question, both of which converge on the same conclusion : (a) As is established by the cases cited above, in order to justify the levy of a penalty two factors must co-exist : (i) there must be some materials or circumstances leading to the reasonable conclusion that the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X
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