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TMI Blog1993 (9) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... is newly introduced section, no firm shall, at any time, have deposits from more than 25 depositors per partner, or, 250 depositors in all, excluding in either case depositors who were relatives of any of the partners. In case the deposits held by the firm were not in accordance with the above, then it was provided that before the expiry of a period of two years from the date of such commencement, the firm would repay such all the deposits as are necessary for bringing the number of depositors within the relative limits specified in that sub-section. This amendment was introduced by section 10 of Banking Laws (Amendment) Act, 1983. The business of the assessee was affected adversely very severely by the new law effective from 15th February, 1984. 4. The assessee filed return of income on 30th October, 1985 declaring a total loss of Rs. 6,80,84,980. Subsequently, a revised return was filed on 22nd February, 1988 declaring a loss of Rs. 6,84,70,200. The Assessing Officer passed an assessment order on 20th February, 1989 computing the total income on a positive figure of Rs. 14,32,05,200. Penalty proceedings were also initiated under section 271(1)(c) of the Act. 5. The additions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------- 7. In view of the above, the Assessing Officer held that an amount of Rs. 5,71.98,216 was income from undisclosed sources and added the same to assessee's income. Penalty proceedings under section 271(1)(c) of the Act were also initiated. 8. In the course of hearing of appeal before the CIT(A), it was submitted on behalf of the assessee that the details of the fresh deposits could not be furnished since there were about 180 branches in various States and due to financial difficulties, most of the branches were on the verge of closure. The assessee was doing business of accepting deposits from various depositors ranging from Rs. 500 to Rs. 5,000 and, it was stated that in earlier years, no such addition on account of unexplained cash credits had been made. It was claimed that the assessee was having sufficient proof to show the genuineness of the deposits. In view of the above, the CIT(A) restored the matter to the file of the Assessing Officer with a direction to allow the assessee an opportunity to produce evidence to show the genuineness of the cash credits. The order of the CIT(A) was passed on 2nd March, 1990. 9. The Assessing Officer passed an order giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1984. It was also submitted to the Assessing Officer that as per the amendment brought by the Banking Laws (Amendment) Act, 1983, effective from 1st January, 1984 (sic), the assessee was debarred from receiving deposits from more than 250 persons and in case the deposits were from more than 250 persons, the assessee was required to reduce the number of depositors within a period of two years. The same argument was reiterated before the CIT(A). 14. It was further submitted that there were huge losses in the past, in the current year and also in subsequent years and, therefore, there was no motive for tax evasion. 15. An alternative submission was also given stating that since the finally assessed figure was a loss, the question of penalty did not arise. Reliance was placed on the following three decisions of the Tribunal in support of this contention : (i) ITAT Bombay Bench's decision in the case of Mutual Plastics v. Twelfth ITO [IT Appeal No. 2965 (Bom.) of 1985, dated 28-7-1989], (ii) ITAT Ahmedabad Bench's decision in the case of Shri Khedut Sahakari Khand Udyog Mandal Ltd. v. ITO [IT Appeal No. 2180 (Ahd.) of 1988, dated 19-10-1989], and (iii) ITAT Amritsar Bench's d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on a positive figure but not exceeding the maximum amount which is not chargeable to income-tax. He observed that the orders relate to initiation of penalty proceedings and not to their completion. In the present case, when the first assessment order was passed, the income was computed on a positive figure exceeding the taxable limit and, therefore, the initiation of penalty proceedings was in order. 21. For the above reasons, the CIT(A) upheld the levy of penalty under section 271(1)(c) of the Act. The assessee is aggrieved by this order and is now in appeal before us. 22. The learned counsel for the assessee has raised before us also the preliminary issue, whether penalty is leviable in law under section 271(1)(c) of the Act, where the returned income as well as the finally assessed income were losses. We shall deal with this preliminary issue first. Reliance has been placed on the following decisions of the Tribunal : (i) 5 - Star Galvanizers v. Asstt. CIT [IT Appeal No. 5919 (Bom.) of 1989, dated 1-1-1990], relating to assessment year 1983-84; (ii) Shri Khedut Sahakari Khand Udyog Mandal Ltd's case, relating to assessment year 1980-81 and (iii) Mutual Plastics' case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iberately furnished his income or furnished inaccurate inaccurate particulars of such income, particulars of such income, he, or it may direct that such person (i)...................................... shall pay by way of penalty... in the (ii)...................................... cases referred to in clauses (b) and (iii) in the cases referred to in clause (c), in addition to any tax payable by (c), in addition to any tax payable by him, a sum not exceeding one and a him. A sum which shall not be less half times the amount of the in- than twenty per cent but which come-tax and super-tax, if any, shall not exceed one and a half which would have been avoided if times the amount of the tax, if any, the income as returned by such which would have been avoided if person had been accepted as the the income as returned by such correct Income. person had been accepted as the corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pril, 1976, the measure of penalty has become "tax sought to be evaded" and the above phrase has been defined by clause (a) of Explanation 4 below section 271(1)(c) of the Act, introduced simultaneously with effect from 1st April, 1976, as under : "Explanation 4 : For the purposes of clause (iii) of this sub-section, the expression 'the amount of tax sought to be evaded',--- (a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds the total income assessed, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income; (b) ...................... (c) ......................." 29. We will now take up the decisions of the Tribunal, relied upon by the learned counsel for the assessee. In the case of 5-Star Galvanizers, the Bombay Bench of the Tribunal was concerned with assessment year 1983-84 and, therefore, the law as amended with effect from 1st April, 1976. The Tribunal gave a finding that no penalty was leviable where the finally assessed figure was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides therein that the penalty or further sum payable by a person would be in addition to any tax payable by him. Explanations 3 and 4 annexed to the said provision of law also presuppose taxable income with regard to the assessment year in question. If there is no taxable income or tax assessed for payment during a particular year, the question of evasion and consequently penalty do not arise." 33. The law that applied to assessment year 1970-71 was not the law as it stood after its amendment with effect from 1st April, 1976, but the law as it stood from 1st April, 1968 to 31st March, 1976. It has been observed in the case of Omrao Industrial Corpn. (P.) Ltd. at p. 56 that unfortunately, their Lordships were given a wrong book wherein they noted section 271(1)(iii) as amended by Finance Act, 1976, with effect from 1-4-1976 and the Explanations 3 and 4 annexed thereto. Because of this, the above observations were made and, therefore, the judgment could not be an authority in support of the assessee's case. 34. It is quite evident that a difficulty has arisen in the above cases since the changes in the law, from time to time, were not brought to the notice of the Tribunal, or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1968-69, i.e. the law with effect from 1st April, 1968 to 31 st March, 1976. In the said case, the argument on behalf of the assessee that the intention of the Parliament was that the quantification of penalty should be with reference to the assessee's total income assessed was turned down. The amended provisions of law with effect from 1st April, 1968 were noticed. In fact, the amended provisions with effect from 1st April, 1976 and the enactment of Explanation 4 were also noticed, after observing that the amended provisions would not be applicable to the present case. It was held that clause (a) of Explanation 4 "makes it clear beyond doubt" that in using the words "the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished", what is intended to be referred to by the Parliament is not " the total income assessed". This substantiated the correctness of the interpretation of the provisions, as they existed prior to the amendment with effect from 1st April, 1976. Thus, this judgment takes into account the amended provisions with effect from 1st April, 1976 also, and the changes in law had been fully noticed. 38. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect Taxes hereby directs that the ITO shall not initiate any proceedings for imposition of a penalty under clause (c) of sub-section (1) of section 271 of the said Act in respect of any assessment year in case where--- (a) the return of income has been filed declaring total income at a positive figure but not exceeding the maximum amount which is not chargeable to income-tax; (b) the consequent assessment is also finalised on total income which does not exceed the maximum amount not chargeable to income-tax; and (c) the return of income does not involve set off of losses carried forward. 2. This order shall come into force on the 1st day of November, 1975." 42. It is seen that the instructions apply to those returns of income which were filed declaring a total income at a positive figure but not exceeding the maximum amount which is not chargeable to income-tax, and the finally assessed figure also does not exceed the maximum amount not chargeable to income-tax. Firstly, it does not refer to cases where the returned income is a loss and does not refer to those cases where the finally assessed income is also a loss. The circumstances under which the CBDT's order is appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------------------------------- Fixed Recurring Deposit Scheme 8,44,677 21,98,78,094 22,07,22,771 Current Savings Deposit Scheme 2,79,488 7,44,42,293 7,47,21,781 Sulaxmi Deposit Scheme 1,84,840 8,03,36,248 8,05,21,088 Cumulative Deposit Scheme 1,70,427 21,76,14,151 21,77,84,578 ------------- Total : 59,37,50,218 ------------- ----------------------------------------------------------------------------------------------- 45. It was submitted that the total in the four deposit schemes had come down from Rs. 68,55,42,527 to only Rs. 59,37,50,218 and, this clearly showed that no fresh deposits had been accepted during the previous year relevant to the assessment year 1985-86. Our attention was also invited to the Banking Laws (Amendment) Act, 1983, already referred to by us earlier, according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts in each scheme was huge and collection of information required by the Assessing Officer was not possible in a short time, available to the assessee. In other words, proper opportunity was not allowed for proving the genuineness of the increase in credits. For these reasons, it was submitted that the penalty should be cancelled. 50. The learned Departmental Representative, on the other hand, relying on the order of the CIT(A), emphasised that sufficient opportunity had been allowed for proving the genuineness of the increase in credits. In this connection, he submitted that lack of opportunity, if any, at the original assessment stage, had been made good by the CIT(A) by setting aside the matter and restoring it to the Assessing Officer on the plea of the assessee that sufficient opportunity had not been allowed. In the circumstances, the plea of inadequate opportunity was not acceptable. 51. The learned Departmental Representative further submitted that far from producing any confirmatory letters from the depositors where there were increase in deposits, the assessee had not even supplied their names and addresses. According to him, each deposit scheme was separate an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's case is even worse. None came forward to say that the deposits belonged to them and the assessee was not even able to give the names and addresses of the persons. 57. In the case of Roshan Di Hatti, it was held that the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee, is on him. Both these judgments support the department's contention. We find further that both these judgments were delivered with reference to Indian Income-tax Act, 1922 which did not have any provision corresponding to section 68 of the Income-tax Act, 1961. According to this section 68, which applies to the case before us, where any sum is found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof, or the explanation offered by him is not found satisfactory, the sum so credited may be charged to income-tax, as the income of the assessee of that previous year. The onus of giving satisfactory explanation regarding the nature and source is, therefore, clearly on the assessee in regard to the quantum of addition. 58. Coming to the penalty proceedings under consideration, we have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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