COMMISSIONER OF INCOME-TAX VS FAZILKA DABNVALI TRANSPORT CO. (PVT.) LTD., 1991 PTD-PUNJAB-AND-HARYANA-HIGH-COURT-INDIA 738 (1991)

1991 P T D 738

[Punjab and Haryana High Court (India)]

Before Gokal Chand Mital and S. S. Sodhi, JJ

COMMISSIONER OF INCOME-TAX

versus

FAZILKA DABNVALI TRANSPORT CO. (PVT.) LTD.

Income-tax References Nos. 240 and 241 of 1980, decided oil 9tli.kinuary 1959.

Income-tax---

----Penalty---Concealment of income---Burden of proof---Income returned less than 80 percent. of assessed income ---Assessee must prove that there was no concealment of income---Cancellation of penalty by placing burden of proof on Revenue is not valid---Indian Income-tax Act, 1961, S.271(1)(c).

The object and intent of the Legislature in omitting the word "deliberately" from clause (c) of section 271(1) of' the Indian Income-tax Act, 1961, and adding an Explanation thereto by the Indian Finance Act, 1964, was to bring about a change in the existing law regarding the levy of penalty so as to shift the burden of proof from the Department on to the assessee in the class of cases where the returned income of the assessee was less than 80 per cent of the assessed income. In other words. in a case where the returned income is less than 80 percent. of the assessed income, the Explanation becomes applicable with the resultant attraction of presumptions against such assessee. The legal presumptions that arise being (i) that the amount of the assessed income is the correct income and that it is, in fact the income of the assessee himself; (ii) that the failure of the assessee to return the aforesaid correct assessed income was due to fraud; and (iii) that the failure of the assessee to return the aforesaid correct assessed income was due to gross or wilful neglect on his part.

Where the returned income was less than 80 percent. of the assessed income and the Tribunal cancelled the penalty on the ground that the Revenue had not proved that the assessee had concealed its income:

Held, that the cancellation of penalty was not valid.

Vishwakarma Industries v. C.I.T. (1982) 135 1TR 652 (P & H); Chuharmal v. C.I.T. (1988) 172 ITR 250 (SC); (1988) 3 SCC 588 and C.I.T. v. Hoshiarpur Express Transport Co. Ltd. (1986) 162 ITR 393 (P & 1-I) JIM.

C.I.T. v. Khoday Eswarsa & Sons (1972) 83 ITR 369 (SC) ref.

L.K. Sood for the Commissioner.

N.K. Sodhi, Senior Advocate and Nitin Kumar for the Assessee.

JUDGMENT

S.S. SODHI, J.---The matter here relates to the imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as "the Act").

The assessee is a private limited company carrying on the business of passenger transport. During the assessment years 1906-67 and 1968-69, the receipts disclosed by the assessee were as under:

The Income-tax Officer found that the assessee had not accounted for all the passenger tax stamps purchased by it during the assessment years in question, the unaccounted for passenger tax stamps for 1966-67 being of the value of Rs.33,819 and for 1968-69 of Rs. 12,687. The explanation furnished by the assessee with regard to the discrepancy between the passenger tax tickets purchased and accounted for was not accepted by the Income-tax Officer and, consequently, a sum of Rs. 90,000 was added to the receipts declared by the assessee for the year 1966-67 and Rs. 52,000 for 196,5-09. Penalty proceedings under section 271(1)(c) of the Act were also initiated against the assessee,

On appeal, the Appellate Assistant Commissioner upheld the addition of Rs.90,000 for the assessment year 1967-63, but reduced the addition for the assessment year 19118-69 from Rs. 52,000 to Rs. 50,000

Oil further appeal, the Income-tax Appellate Tribunal partly accepted the explanation of the assessee and reduced the addition for the assessment year 1960-67 from Rs. 90,0110 to Rs. 60.000 and for the assessment year 1968-69 from Rs. 50,000 to Rs, 30.000.

Taking up penalty proceedings under section 271(I)(c) of the Act, the Inspecting Assistant Commissioner imposed penalty of Rs. 15,0(1(1 for tire assessment year 1966-07 and Rs. 50,000 for the assessment year 1908-69. Both these penalties were, however, cancelled by the Income-tax Appellate Tribunal, by its order of February 27, 1975, observing:

.....It is obvious from the order of the Tribunal that certain additions for the relevant assessment years have been upheld due to the non acceptance of the assessee's explanation but it is well-settled that mere addition of an amount towards the total income of the assessee, for want of satisfactory explanation or evidence, does not automatically lead to the inference that the disputed additions represented income which has been concealed by the assessee. Penalty proceedings being in the nature of quasi-criminal proceedings, the quantum of evidence required for arriving at the conclusion that the assessee concealed the particulars of its income should be much stronger than what is required for including the amount in question towards the total income of the assessee. Their Lordships of (lie Supreme Court in C.I.T. v. Khoday Eswarsa & Sons (1972) 83 ITR 369 have held that 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 it could be inferred that the assessee had consciously concealed the particulars of its income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is a revenue receipt. Since the evidence to prove mens rea on the part of the assessee is wanting in this case and the additions have been made towards the total income of the assessee on an estimate by not accepting fully the explanation of the assessee, the case at best raised a doubt. But this doubt, however deep itmay be, cannot take the place of positive proof. Again, if there is a doubt, the benefit of that doubt must go to the assessee in penalty proceedings."

This is what constitutes the factual background leading to the following question of law being referred for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961?"

The answer to the question posed is provided by the judgment of our Full Bench in Vishwakarma Industries v. C.I.T. (1982) 135 1TR 652, where it was held that the object and intent of the Legislature in omitting the word "deliberately" from clause (c) of section 271(l)(c) of the Income-tax Act, 1961, and adding an Explanation thereto by the Finance Act, 1961, was to bring about a change in the existing law regarding the levy of penalty so its to shift the burden of proof from the Department on to the assessee in the class of cases where there turned income of the assessee was less than till percent. of the assessed income. In other words, in a case where the returned income is less than 80 percent. of the assessed income, the Explanation becomes applicable with the resultant attraction of presumptions against such assessee, the legal presumptions that straightaway arise being:

(i) that the amount of the assessed income is the correct income and it is, in fact, the income of the assessee himself;

(ii) that the failure of the assessee to return the aforesaid correct assessed income was due to fraud; or

(iii) that the failure of the assessee to return the aforesaid correct assessed income was due to gross or wilful neglect .oil his part.

Where, however, the variation between the returned income and the assessed income was less than 20 percent. the case would be out of the net of the Explanation and would continue to be covered by the law as it existed prior to the amendment of section 271(1)(c) of the Act by the Finance Act, 1964.

This view of the Full Bench in Vishwakarma Industries' case (1982) 135 ITR 652 (P & H) was later approved by the Supreme Court in Chuharmal v. C.I.T. (1988) 172 ITR 250 (SC); (1988) 3SCC 588 and also followed by our Court in C.I.T. v. Hoshiarpur Express Transport Co. Ltd. (1986) 162 ITR 393. Applying here the rationale of Vishwakarma Industries's case (1982) 135 ITR 652 (P & H), it will be seen that the Explanation to section 271(1)(c) of the Act clearly applies to the present case. This being so, the presumptions thereunder arise for the assessee to dispel and the burden of proof could not be upon the Revenue, as was placed upon it by the impugned order of the Tribunal. This being so, there can be no escape from the conclusion that the Tribunal erred in cancelling the penalty imposed upon the assessee under section 271(1)(c) of the Act for the reasons mentioned, by it. The reference has consequently to be answered in the negative, in favour of the Revenue and against the assessee. As a consequence, now, the Tribunal shall re-determine the matter keeping in view the explanation put forth by the assessee in the light of the judgment of the Full Bench in Vishwakarma Industries's case (1982) 135 I T R 652 (P & H).

This reference is disposed of accordingly. There will be no order as to costs.

Z.S./797/TOrder accordingly.