9911796707
TMI Blog1982 (2) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment year 1968-69 ? " The assessment years covered by the three tax cases are 1965-66, 1966-67 and 1968-69. The assessee, M/s. Jayashankar Traders, is a partnership firm carrying on business in machinery, stores, spares, looms, etc. On October 19, 1963, an agreement was entered into between M/s. Ranee Mills and one S.R.M.S. Narayanan Chettiar. Under the said agreement, certain properties including some machinery and 312 looms were to be sold by Ranee Mills to Narayanan Chettiar's nominee or nominees for a sum of Rs. 12,01,000. On November 16, 1963, the said Narayanan Chettiar requested M/s. Ranee Mills to sell some of the machinery's set out in the list attached to the letter to the assessee or its nominee or nominees for sum of Rs. 4,55,000. 312 looms are admittedly included in the said list. As a result of this requisition by Narayanan Chettiar, M/s. Ranee Mills sold the looms to the assessee. However, delivery of the property sold was taken on behalf of the assessee by Narayanan Chettiar himself. While so, the assessee filed returns for the year 1965-66 disclosing a loss of Rs. 19,884. For the year 1966-67, the assessee returned an income of Rs. 27,870 and for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C and cancelled the levy of penalties. The Tribunal found that the assessee was under the bona fide impression that it had not become the owner of the looms in question and that it was only an intermediary and that it had to account for the profit by the sale of looms as an intermediary only when all the looms were sold. In this view, the Tribunal came to the conclusion that the assessee could not be said to have concealed income and that no levy of penalty could be made against the assessee. It is in these circumstances the questions of law already set forth have been referred for our opinion by the Income-tax Appellate Tribunal at the instance of the Revenue. Mrs. Nalini Chidambaram, the learned junior standing counsel raised the following contentions. The assessee had admitted the non-disclosure of the profits derived from the sale of the looms by filing a revised return on May 30, 1979, disclosing the said income for the assessment year 1966-67. That would itself show that the assessee had concealed the income. Further, there is no basis at all for the stand of the assessee that it had acted only as an intermediary in the sale of the looms. M/s. Ranee Mills had entered into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned counsel also pleaded that no question of concealment at all would arise in this case, as, even before the ITO had initiated any proceeding, the assessee had filed a revised return disclosing the profits derived from the sale of the looms. No doubt, there is a solid obligation on the part of the assessee to file a correct return. The assessee is not expected to act in a careless and light-hearted manner in filing his return. Deliberate and conscious lapses on the part of the assessee in filing a correct return in the first instance have to be viewed seriously. However, the question whether an assessee has, in a given case, bona fide discharged his obligations in filing his returns, as provided for under the Act, has to be considered by taking into account all the relevant circumstances and events that happened between the filing of the original return and completion of the assessment. If the cumulative effect of all the facts and circumstances of the case between the filing of the original return and completion of the assessment disclose that the failure to return the correct income was not due to any gross or wilful negligence on the part of the assessee, then the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation without reference to the assessee's conduct subsequent to the, filing of the original return. We are of the view that all the facts and circumstances commencing with the filing of the original return and ending with the assessment may be taken as relevant for considering the assessee's liability for penalty under section 28(1)(c)." The above decision was followed by the Gujarat High Court in D. V. Patel Co. v. CIT [1975] 100 ITR 524. In that case, the assessee filed an original return on 29th June, 1964. Thereafter, it filed a revised return by adding certain admissible expenses on 13th September, 1965. The ITO passed an order of assessment on 24th July, 1968. In this situation, the question arose whether the assessee was liable for penalty. The learned judges of the Gujarat High Court, after extracting the relevant passage from the judgment of this court in CIT v. Ramdas Pharmacy [1970] 77 ITR 276 (Mad), observed as follows (p. 530): "In that state of evidence, therefore, it is difficult for us to appreciate how the Tribunal has brushed aside the filing of a revised return as of no consequence. It is no doubt true, as held by the Madras High Court in CIT v. Ramdas Phar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee furnished a second return even before an investigation was started by the I.T. Dept. could not be of assistance to him if the case did not fall within the scope of s. 139(5) of the Act. The learned judge further held that the question whether the assessee furnished the particulars before any detection was made by the Department or not might be relevant only when the Commissioner was considering the question as to whether the minimum penalty imposable under s. 271 should be waived or reduced on an application by the assessee under s. 271(4A) of the Act. Notwithstanding these observations, we are of the opinion that the above decision does not run counter to the ratio in CIT v. Ramdas Pharmacy [1970] 77 ITR 276 (Mad). After extracting a passage from p. 289 of the judgment, which we have already extracted, the learned judge observed as follows (P. 616): " We are of the opinion that the above observation has to be understood against the background of the facts of that case. As a matter of fact, all the facts and circumstances commencing with the filing of the original return and ending with the assessment may, be taken as relevant for considering whether the assessee had conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and that consequently they were unable to hold that the assessee concealed income, derived by it by the sale of such looms, in the returns filed by it for the three assessment years under consideration. In this context, the Tribunal also took into account the fact that even before the STO, Cannanore, who was dealing with the assessment years 1964-65 and 1965-66, the assessee had taken the stand that it had not sold the looms, though the contention was not accepted by the assessing officer. On appeal by the assessee the AAC had directed the STO to consider the matter de novo. The Tribunal had also taken note of the fact that the assessee had filed a revised return when the ITO pointed out that the profits derived by the assessee on the sale of the looms should be included. When the entire facts and circumstances of the case are taken into account in the light of the findings of fact rendered by the Tribunal, we are of the view that the Tribunal approached the question from the correct standpoint and rightly found that the assessee was not liable to penalty under s. 271(1)(c) of the Act. It will be useful to refer in this connection to the decision of the Patna High Court in CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bted that such proceedings are penal in character : [Fattorini (Thomas) (Lancashire) Ltd. v. IRC [1942] 1 All ER 619 ; [1943] 11 ITR (Suppl.) 50 (HL)] ...... As has been rightly observed by Chagla C.J. in CIT v. Gokuldas Harivallabhdas [1958] 34 ITR 98 (Bom), the gist of the offence under section. 28(1)(c) is that the assessee had concealed the particulars of is income or deliberately furnished inaccurate particulars of such income and, therefore, the Department must establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income. Vaidialingam J., speaking for the court in CIT v. Khoday Eswarsa and Sons [1972] 83 ITR 369 (SC), observed thus (p. 370): "Penalty proceedings being penal in character, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. Apart from the falsity of the explanation given by the assessee, the department must have before it before levying penalty cogent material or evidence from which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncealed the particulars of his income or furnished inaccurate particulars of such income. The initial burden will be 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. However, it is now settled that the burden of proof that is cast upon the assessee in a case where the Explanation to s. 271(1)(c) is attracted, is a negative one and the matter has to be decided on the preponderance of probabilities. The Explanation only amounts to a rule of evidence which is not absolute, but rebuttable. To rebut the presumption that may arise by reason of the applicability of the Explanation to s. 271(1)(c), it is not necessary that the assessee should place any positive material before the authorities to show that the failure to file the correct return or the correct particulars, was not due to any wilful neglect on his part or that he was not guilty of any fraud or gross or wilful neglect. The presumption can be rebutted by the assessee by relying upon any material which is available on record in penalty proceedings irrespective of the fact whether it is produced by him or by the Revenue. In other words, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t an assessee who has concealed the particulars of his income or furnished inaccurate particulars of such income should not escape penalty. The Explanation creates a legal fictio 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 eighty per cent of the total income assessed subject to a certain reduction, which is not material for our purpose. What the condition contemplates is merely a matter of arithmetical calculation. The income-tax authority is required to take the total income returned by the assessee and the total income as assessed by the revenue authorities and if the former is less than eighty per cent. of the latter, the condition for the applicability of the Explanation is satisfied. The Explanation then save that the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income within the meaning of section 271 (1)(c). The Explanation raises a legal fiction and the assessee is straightaway brought within the ambit of section 27l(1)(c). It is then not necessary for the Revenue to show affirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y proceeding fairly and reasonably leads to the inference that there was no fraud or gross or wilful neglect on the part of the assessee in not returning the total assessed income, it would almost be impossible for the Revenue to contend that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income so as to attract the applicability of section 271(1)(c) on its own terms independently of the Explanation. " This decision was followed by the Patna High Court in CIT v. Patna Timber Works [1977] 106 ITR 452. Untwalia C.J. (as he then was), speaking for the court observed that the question whether there was an element of fraud or gross or wilful neglect on the part of the assessee or there was furnishing of inaccurate particulars, would depend upon the facts and circumstances of each case. The learned judge further observed that the expression " wilful neglect " would import neglect of a kind where the neglect is mixed with a conscious, wilful or deliberate act of the assessee. In other words, according to the learned judge, the particulars furnished should be inaccurate to the knowledge of the assessee at the time of the return or mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94, wherein also the Explanation to s. 271(1)(c) of the Act applied. After referring to the deeming provision contained in the Explanation to s. 271(1)(c) of the Act, Govindan Nair C.J. has observed as follows: "Now, in attempting to prove a negative, as an assessee in a case where the Explanation is attracted is called upon to do, it must be borne in mind that the element of proof that is required for establishing a positive fact is different from the element of proof that is required for establishing a negative fact. The casting of a burden, such as the one cast by the Explanation, brings in its wake difficulties, for it is often very difficult to establish a negative fact and that perhaps may be the reason why the law does not insist on that degree of proof in establishing negative fact. The assessee is called upon to prove that there has been no fraud on his part and if he is able to establish that he has not been guilty of fraud and that he did not intend to defraud and that he did not intend to conceal his income or furnish inaccurate particulars thereof, that will be sufficient for the purpose of showing that he has not been fraudulent." The Andhra Pradesh High Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of proof required to be established by the assessee under the Explanation being of a negative character is different from that of the Revenue to prove the positive fact relating to income. " Applying the above principles to the facts of this case, we find that the assessee has established to the satisfaction of the Tribunal that it was under the impression that it had not become the owner of all the looms in question, that it was only an intermediary and that it had to account for the profits obtained by it by the sale of such looms as an intermediary only when all the looms had been sold, The failure on the part of the assessee to return the correct income was not due to any fraud or gross or wilful neglect on its part. As against this, the Revenue has not established by any positive evidence that the assessee had deliberately and consciously concealed the profits derived by it by the sale of the looms. We are not satisfied that the Tribunal's finding is based on no material or that the finding arrived at by the Tribunal is such that no reasonable person would have arrived at such conclusion on a consideration of the entire facts and circumstances of the case. We, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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