9911796707
TMI Blog1986 (8) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... r at the time of completing the assessment was also of the view that there was concealment of income by the assessee. As such, he initiated penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 (for short " the Act "). In response to the notice in penalty proceedings, the assessee submitted that the addition was on account of application of higher rate of profit and the assessee had not concealed the particulars of income. The Income-tax Officer, by his order dated October 10, 1973, imposed a penalty of Rs. 15,000. He considered the matter as under: "But the records show that when the statement of affairs of the assessee was called for by the learned Appellate Assistant Commissioner, he found a net accretion of Rs. 13,326 to the wealth of the assessee, against trading addition of Rs. 12,000. This was brought to the notice of the assessee, vide letter No. 2103 dated July 3, 1973. The assessee could not give any explanation with regard to this accretion to his wealth. In the circumstances as described above, it is amply clear that the assessee fraudulently furnished the particulars of his income which he did by showing smaller rate of profit. The finding of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scope of the decision of the Income-tax Appellate Tribunal, Jaipur Bench, in M/s. Nassiruddin Brothers, Bhilwara, referred to above. Concealment has been established at least to the extent of Rs. 12,000 and, therefore, the Income-tax Officer was justified in levying a penalty under section 271(1)(c) of the Income-tax Act. The penalty levied by the Income-tax Officer is Rs. 15,000 against the actual concealment of Rs. 12,000. The appellant has not been able to establish in the course of penalty proceedings either before the Income-tax Officer or in the course of the present appeal, that the calculations regarding capital accretions as made in the appeal order referred to above, were incorrect in any way. Since it is established that the concealment of income had occurred in this, mens rea on the part of the appellant is naturally established. " Further appeal was taken by the assessee against the order of the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, by its order dated November 13, 1975 (annexure D), allowed the appeal and cancelled the order imposing the penalty. The Tribunal after considering the facts of the case and after considering the conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstant plea that there was no concealment of income by the assessee. Even in the past, such additions were made on the basis of an estimate by applying a higher gross profit rate. We may also point out if in the opinion of the Appellate Assistant Commissioner, there was accretion in the capital, the learned Appellate Assistant Commissioner could have enhanced the addition in accordance with law. But the learned Appellate Assistant Commissioner never enhanced the addition. On the other hand, the learned Appellate Assistant Commissioner only confirmed the trading addition on a different ground. Looking to the aforesaid facts and circumstances and probabilities of the cases, in our opinion, there were preponderance of probabilities, which go to show that there was no fraud or gross or wilful neglect on the part of the assessee in not returning the assessed income. On the basis of the material on record, it could hardly be said that there was concealment of income by the assessee. " The reference application made by the Commissioner of Income-tax under section 256(1) was rejected by the Tribunal, vide its order dated April 24, 1976, but this court on application under section 256(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. " A perusal of the above provision would show that the proceedings under section 27 l(1)(c) of the Act can be initiated either by the Income-tax officer or the Appellate Assistant Commissioner when he is satisfied in the course of any proceedings under the Act that the assessee had concealed the particulars of his income or had furnished inaccurate particulars of such income. It is only on such satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner arrived at in the course of proceedings before them, the provision can be resorted to. The Explanation to subsection (1) of section 271 of the Act introduces a deeming provision. If the total income returned by the assessee is less than 80% of the total income assessed, it shall be deemed that the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income for the purposes of clause (c) but the concealment is not so deemed if the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Income-tax Officer that in fact the gross profit shown is low and as such the assessee has concealed the particulars of his income or has furnished inaccurate particulars of income. What the Income-tax Officer has done in this case is that he had taken support from the fact and the finding arrived at by the Appellate Assistant Commissioner to establish that the assessee had under-rated his profits. When there had been net accretion to the capital of the assessee,it would mean that this was only possible that the capital accretion had taken place on account of higher profits and in this manner, there had been concealment of the particulars of income. Reliance was placed by Shri Mehta on Rahmat Development & Engineering Corporation v. CIT [1981] 130 ITR 602 (Cal). In that case, the assessee constructed a building and showed the cost of construction in the accounts. According to the books of the assessee, the amount spent appeared to be Rs. 14,14,410. The departmental valuer estimated the cost as Rs. 23,58,500. The income-tax Officer added the difference between the two amounts in different years under section 69 and initiated penalty proceedings. The Inspecting Assistant Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. The effect of section 69 is that if there is an unexplained investment or unentered investment, then the value of such investment would be deemed to have been earned by the assessee and would be the income of the assessee for the financial year. The moment section 69 is attracted, it becomes by the fiction of law, the income of the assessee. If it becomes the income of the assessee and if that income is not returned, then there is a non-disclosure of income. Sabyasachi Mukharji J., as he then was, after considering the observations of the Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696, observed that non-disclosure of income might not automatically be considered to be a concealment. When their Lordships considered that aspect, on merits they found that the Tribunal in view of the Explanation was justified in upholding the penalty. It was observed that there was an unexplained investment, its valuation was quantified in the assessment proceedings, the assessee was given an opportunity, the assessee gave the explanation, which was not only found to be unsatisfactory but was also found to be incorrect and false. It is true that this case turned on its own facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from business ". There was no change of basis on which the notices for the levy of penalty were issued. He submitted that in the instant case, the basis or the ground of initiation of penalty proceedings is changed. No capital accretion was discovered by the Income-tax Officer and so, the capital accretion could not be made the basis for penalty. We shall be examining this aspect while dealing with the case or with the stance taken by the assessee on question No. 1. In Monoranjan Mukherjee v. CIT[1981] 132 ITR 712 (Cal), cited by Shri Mehta, the Income-tax Officer discovered suppression of opening stock and of purchases made during the year 1966-67 and added a sum of Rs. 38,464 shown as proceeds realised by sale of goods as the income of the assessee from undisclosed sources. In the quantum appeal, the addition was reduced to Rs. 31,464 which was confirmed by the Tribunal. But the Tribunal held that it should be charged under the head " Business " and not under " Other sources " as was done by the Income-tax Officer. The Inspecting Assistant Commissioner imposed penalty. A contention was raised before the Tribunal that non-disclosure of income was considered under the head " Other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Inspecting Assistant Commissioner for the levy of penalty, and bereft of the evidence gathered by the Appellate Assistant Commissioner, there was no material to sustain the levy of a penalty. On a reference, at the instance of the Commissioner, the Kerala High Court held that the penalty was rightly imposed by the Inspecting Assistant Commissioner and it was also held that the Inspecting Assistant Commissioner was justified in looking into the materials before the Income-tax Officer as well as before the Appellate Assistant Commissioner. It was observed that section 271(1)(c) appears to be quite wide in scope. The Tribunal had based its order on the decision of the Gujarat High Court in CIT v. Lakhdhir Lalji [1972] 85 ITR 77 but that case was distinguished. In that case, the Gujarat High Court held that the penalty proceedings had commenced against the assessee on a particular footing, i. e., concealment of income. The Income-tax Officer added a sum of Rs. 58,000 realised by the sale of 1,383 bags of garlic. The final conclusion for levying the penalty was based on a different footing, i.e., on the footing of furnishing inaccurate particulars of income. The High Court also ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced by him on CIT v. Shadiram Balmukand [1972] 84 ITR 183 (All). In that case, the undisclosed income was included in the assessment by the Income-tax Officer, which was increased by the Appellate Assistant Commissioner. The Income-tax Officer imposed the penalty taking into account the income discovered by the Appellate Assistant Commissioner as undisclosed income. The Tribunal, in the appeal against the order imposing the penalty, held that the Income-tax Officer did not have the jurisdiction to take into account the amount added by the Appellate Assistant Commissioner and the Tribunal quashed the entire penalty order as the same could not be treated as severable. On a reference, Pathak J., as he then was, speaking for the court, held that the Tribunal validly cancelled the levy of penalty. It was observed in that case as under (at pp. 185 and 186): " It seems to us clear that the provision contemplates distinct jurisdictions in the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal in relation to the proceedings pending before those respective authorities so far as the imposition of penalty is concerned. It will be apparent from the language em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a penalty in respect of the concealed income discovered by the Appellate Assistant Commissioner. The question then was, whether in disposing of the case, the Inspecting Assistant Commissioner had the jurisdiction to take into account the total income as enhanced by the Appellate Assistant Commissioner subsequently and to impose a penalty on that basis. It was observed in that case (at pp. 158 and 159): " The Appellate Assistant Commissioner and the Inspecting Assistant Commissioner are vested with mutually exclusive jurisdiction in the matter of penalties. The Inspecting Assistant Commissioner has jurisdiction to impose penalty in respect of concealed income discovered by the Income-tax Officer in a proceeding before him and the Appellate Assistant Commissioner has jurisdiction to impose penalty in respect of concealed income discovered by him in a proceeding before him." It may be stated that in both the cases of the Allahabad High Court, the authority imposing the penalty took into consideration the income enhanced by the Appellate Assistant Commissioner. On the analysis and interpretation of section 271(1), it has been held that the authorities have mutually exclusive jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the Appellate Assistant Commissioner. It may be mentioned that these observations have no application to the facts of the present case. We may state that the Appellate Assistant Commissioner, after considering that there was a capital accretion has simply confirmed the trading additions stating that from this point of view also, the trading addition is fully justified. The original basis of initiation of penalty proceedings was not altered or modified by the Income-tax Officer. The Income-tax Officer has simply taken support from the fact of capital accretion found by the Appellate Assistant Commissioner to arrive at the conclusion that the assessee had not fully disclosed the trading profits from his business. Reliance has further been placed by Mr. R.. Balia on a decision of the Madhya Pradesh High Court in Addl. CIT v. Nihalchand Badrilal [1982] 135 ITR 519. In that case, the assessee filed a return on June 30, 1965, disclosing a loss of Rs. 18,000. He filed a revised return disclosing an income of Rs. 84,282, which was further revised to Rs. 74,282 lie was, however, assessed on a total income of Rs. 98,100. Penalty proceedings were initiated by the Income-tax Officer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained" net accretion to the assessee's capital amounting to Rs. 13,326. However, the Income-tax Officer could take this into consideration, only after notice thereof to the assessee and after affording reasonable opportunity of being heard without which such an additional fact could not be taken notice of. The Tribunal was, therefore, not right in holding that the Income-tax Officer was not entitled to take into consideration the additional fact of unexplained capital accretion noticed by the Appellate Assistant Commissioner in the quantum appeal. We, therefore, decide question No. 1 in the negative, in favour of the Revenue and against the assessee. Now, we take up questions Nos. 2 and 3. These questions to some extent overlap, and so, it would be proper that they may be considered together. Question No. 2 relates to the finding of the Tribunal on the question as to whether there was any fraud or gross or wilful neglect on the part of the assessee in not returning the correct income. The question framed shows that the finding arrived at by the Tribunal is based on no evidence, and so, the finding is vitiated. This consideration will also fall for determination of these questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars." From the above observations, it would appear that the proceedings are of penal nature. Even when the explanation is found to be false, it does not follow that the receipt constitutes the taxable income of the assessee. The Department has to prove that the particular amount is revenue receipt. Reference may be made to a Full Bench decision of the Andhra Pradesh High Court in CIT v. H.Abdul Bakshi & Bros.[1986] 160 ITR 94. In the matter of burden of proof, taking into consideration the explanation, it was observed in this case as under: " Once the income returned is less than 80% of the assessed income, the Explanation to section 271(1)(c) of the Income-tax Act, 1961, becomes applicable. Then two presumptions will follow. They are: (a) The amount of the assessed income is the correct income and it is in fact the income of the assessee ; (b) Failure of the assessee to return the correct assessed income was due to fraud or gross or wilful neglect on the assessee's part. From the factum of presumptions spelt out, the Explanation becomes a rule of ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sense so as to be either oral or documentary evidence or both. In that case, the income returned was less than the income assessed. The difference arose due to rejection of books of account and addition of estimated income. The assessee asserted that he had not concealed his income. The Tribunal took into account the assessee's assertion and production of books of account. The High Court held that cancellation of penalty was justified. Reliance was further placed by Mr. Balia on CIT v. Devandas Perumal & Co. [1983] 140 ITR 943 (Bom). It was observed that the Explanation introduced an artificial rule of evidence by creating a fiction regarding the concealment and the burden was placed on the assessee to prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. In that case, net profits were estimated at higher figure. A penalty was levied. The assessee had maintained books of account in such manner as was practicable. There was no suppression of sales or inflation of purchases. It was found that from mere estimates of profit, it does not follow that there was failure to return the correct income due to fraud or gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances on which the failure of the assessee to return the correct income could be attributed to its act of fraud or gross or wilful neglect. Reliance was further placed by Mr. Balia on the decision of the Allahabad High Court in Addl. CIT v. Horilal Kunj Beharilal [1977] 106 ITR 720. In that case, the books of account were rejected and the Income-tax Officer made additions to the income by increasing the rate of profit. There was no evidence that profit was added in the income of the assessee. The assessee was not found guilty of concealment and it was held that the finding recorded by the Tribunal is a finding of fact calling for no interference. Reference has also been made to CIT v. S. P. Bhatt [1974] 97 ITR 440 (Guj). P. N. Bhagwati C.J., as he then was, observed as under (headnote): " The condition which attracts the applicability of section 271(1)(c) of the Act is that the income-tax authority should be satisfied in the course of any proceeding under the Act that any person had concealed the particulars of his income or furnished inaccurate particulars of such income. The Explanation to that provision, which was introduced by the Finance Act, 1964, provides that wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the gross profit disclosed in the books of account appeared to be low. The Income-tax Officer did not find any entries to be false or omission of any items of purchases or sales. It was further observed that there is nothing in the law which says that the books of account shall be maintained by an assessee on pain of penalty and failure to maintain books of account cannot be said to constitute neglect. There was no obligation on the assessee to maintain any verificatory records. In the absence thereof, the Income-tax Officer did not accept the figure of profit. But from that, it does not follow that the accounts maintained by the assessee were false and incorrect or that the income returned by the assessee was not correct income. It must follow by necessary implication that the failure to return the total assessed income was not on account of any fraud or gross or wilful neglect on the part of the assessee. Some more decisions were cited, viz., Addl. CIT v. Chatur Singh Taragi [1978] 111 ITR 849 (All), Addl. CIT v. Thahrayamal Balchand [1980] 124 ITR 111 (Raj), Addl. CIT v. Gem Palace [1975] 98 ITR 640 .(Raj), CIT v. Narang & Co. [ 1975] 98 ITR 462 (Delhi), CIT v. Prafulla Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te opportunity having been given to them. Mr. Mehta, appearing for the Revenue, submitted that the Income-tax officer clearly observed that the assessee could not give any explanation with regard to the accretion to the wealth. Similarly, the Appellate Assistant Commissioner also stated that the appellant has not been able to establish that the calculation regarding the accretion made in the appellate order was incorrect in any way. The Tribunal completely ignored what was recorded by the Income-tax Officer and the Appellate Assistant Commissioner in the penalty proceedings. He submitted that there was no material or evidence adduced by the assessee to show that there had been no capital accretion. The finding of the Tribunal that there was no fraud or gross or wilful neglect on the part of the assessee is vitiated as not based on evidence and the assessee has failed to rebut the presumption. Reference was made by Mr. Mehta to Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28 (SC), CIT v. Biju Patnaik [1986] 160 ITR 674 (SC) and Vimalchand Bhimsen v. CIT [1986] 159 ITR 941 (MP). In Sree Meenakshi Mills Ltd.'s case [1957] 31 ITR 28 (SC), the law has been propounded as to when the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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