(Appeal by Special leave from the judgment dated 9th March, 1977, of the Madras High Court in T.C.P. No. 362 of 1975).

Income-tax---

----Penalty---Deemed concealment---Returned income less than 80 per cent of assessed income ---Rebuttable presumption that assessee has concealed income-- Onus on assessee to rebut presumption by cogent and reliable evidence-- Tribunal holding that assessee's explanation false but canceling penalty-- Question of law arises and is to be referred to High Court---Income-tax Act, 1961, Ss. 271(1)(c), Expln. 256.

The assessee had paid as on-money Rs.18,750 for purchase of a plot of land in his son's name. To support the existence of cash available to the extent of Rs.18,750 which was brought to tax in his hands in the assessment year 1966-67 as income from undisclosed sources, the assessee had prepared a cash statement. The Income-tax Officer rejected the cash statement as it suffered from certain defects, viz., absence of drawings for personal expenses, and initiated penalty proceedings under section 271(1)(c) and referred the case to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner imposed a penalty equal to the income concealed holding that the assessee had failed to discharge the burden cast on him by the Explanation to section 271(1)(c) of the Income-tax Act, 1961. On appeal, the Appellate Tribunal found that the Income tax Officer was justified in saving that the assessee's explanation was not only not convincing but false because there was no cash available to the assessee to make the payment, but, purporting to follow Anwar Ali's case (1970) 76 I T R 696 (SC), held that the rejection of the assessee's explanation even on the ground of falsity would not mean that the amount represented the assessee's income and more so his concealed income. The Department's application for reference having been rejected both by the Tribunal and the High Court, the Department obtained special leave to appeal. In the resultant Civil Appeal:

Held, allowing the appeal, that the moment it was found that the income returned was less than 80 per cent of the income assessed, the onus to prove that it was not the failure of the assessee that caused the difference shifted to the assessee. But the onus was rebuttable: the presumption of concealment was rebuttable by cogent, reliable and relevant material. Since, however, no such material was indicated either by the Tribunal or by the High Court, the High Court was in error in not correctly applying the principle of law laid down by the Supreme Court in C.I.T. v. Mussadilal Ram Bharose (1987) 165 ITR 14. Therefore, the following question of law arose out of the order of the Tribunal and had to be referred to the High Court: In the facts and circumstances of this case and in the light of the law as it stood at the relevant time, has the assessee been able to discharge his onus to prove the question which arose in view of the Explanation introduced by the Finance Act, 1964, to section 271 of the Act.

C.I.T. v. Mussadilal Ram Bharose (1987) 165 ITR 14 (SC) applied.

C.I.T. v. Anwar Ali (1970) 76 ITR 696 (SC) and C.I.T. v. Khoday Eswarsa and Sons (1972) 83 ITR 369 (SC) ref.

B.B. Ahuja and Miss A. Subhashini for Appellant.

A.T.M. Sampath for Respondent.

JUDGMENT

SABYASACHI MUKHARJI, C.J.I.--- This is an appeal by special leave from the judgment and order of the Madras High Court dated 9th March, 1977. The appeal involves the assessment of income-tax under the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for the assessment year 1966-67. The assessee is an individual who carried on business in the distribution of films. For the assessment year 1966-67, the assessee filed a return of income on 12th July, 1968, declaring "No loss". Subsequently, the assessee filed a revised return on 4th January, 1969, declaring a net loss of Rs.9,490. The Income-tax Officer called for wealth statements from the assessee. The wealth statements did not reveal that the assessee had invested any amount in a plot of land in T. Nagar. However, a raid made in the premises of E.V. Saroja and K.R. Sadayappan revealed the information that the assessee alongwith Smt. P.S.S. Ekammai Achi and A.L.M. Perianna Chettiar had purchased a plot of land in T. Nagar on 13th April, 1965, from Smt. E.V. Saroja. The plot was purchased in the name of the assessee's son, Sri Ramakrishnan.

In the assessment, it was stated that the total consideration was Rs.80,000 out of which Rs.25,000 was the payment in respect of the portion purchased in the name of Sri Ramakrishnan. An examination of all the materials including the document revealed that the total consideration was Rs.1,40,000. The on-money payment made by the assessee on behalf of his son was Rs.18,750 for which the assessee could not adduce evidence to prove the nature and source of investment. This sum of Rs.18,750 was treated by the Income-tax Officer as the undisclosed income of the assessee and he initiated penalty proceedings under section 271(1)(c) of the Act for concealment of income and referred the case to the Inspecting Assistant Commissioner for disposal as the minimum penalty leviable exceeded Rs.1,000. The Inspecting Assistant Commissioner imposed a penalty of Rs.18,750 being equal to the income concealed holding that the assessee had not discharged the burden cast upon him by the Explanation to section 271(1)(c) of the Act in not adducing any evidence that the plot was purchased by the assessee's son out of his own funds and against the assessee's own statement recorded on 9th October, 1972, that the on-money payment was made by him. The assessee filed an appeal to the Tribunal and contended that, in case of rejection of the assessee's explanation for the source, the addition could not be held to be the concealed income of the assessee, and relied on certain principles laid down by the Courts. The Tribunal allowed the appeal. It is necessary to refer to the relevant portions of the Tribunal's order in respect of which certain contentions were urged before us. The Tribunal, in its order, had observed, inter alia, as follows:

"We have considered the rival submissions. At first, we were impressed by the argument of the Departmental representative that it is a fit case for the levy of penalty. However, when we find that the assessee had at no time given any false or different particulars about this property in his return of income or at any time during the assessment proceedings, there cannot be any question of his having filed any incorrect particulars and more so of the income. The Departmental representative was unable to point out any occasion when the assessee has stated before the Income tax Officer during the assessment proceedings that h - had purchased the property only for Rs.80,000. On the other hand, when he was asked to state the consideration for the property during the examination, he accepted that there were two agreements but the real consideration was Rs.1,40,000. That being so, we are unable to accept that the assessee had been willfully negligent or fraudulent in this regard. Then the question arises as to any concealment in the addition made by the Department as income from undisclosed sources. Here, the assessee's case was that he had prepared a sort of cash statement to show that there was some cash available for this purpose. The Department's case was that this was only a cash statement and this statement suffered from certain defects, viz., the absence of drawings for personal expenses and even the so-called surplus followed by utilization for other expenses. No doubt, the Income-tax Officer may be justified in saying that not only the explanation is not convincing but false, because there was no cash available to the assessee for payment towards the extra money paid. However, rejection of explanation even on the ground of falsity will not mean that the addition represented the assessee's income and moreso of the concealed income of the assessee. In fact, the assessee has not accepted the addition before the Income-tax Officer though he has not gone on appeal for reasons best known to him. Whatever it is, there was no acceptance that the addition represented the concealed income. Having regard to all these, we are of the view that the assessee's case falls within the ratio of the decisions in C.I.T. v. Anwar Ali (1970) 76 I T R 696 (SC) and C.I.T. v. Khoday Eswarsa and Sons (1972) 83 I T R 369 (SC). In view of what we have expressed above, we find no reason to sustain the penalty. Accordingly, we cancel the penalty."

The penalty was set aside. Aggrieved by the said order, the Revenue moved the Tribunal under section 2560) of the Act to refer the following questions of law to the 1iigh Court:

"(i) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in canceling the penalty levied under section 271(1)(c) in the assessee's case?

(ii) Whether, having regard to the provisions of Explanation to section 27(1)(c), the Appellate Tribunal's cancellation of penalty is sustainable in law and on the materials on record?

(iii) Whether the Appellate Tribunal's view that the addition of Rs.18,750 did not represent the concealed income of the assessee is based on valid and relevant consideration and is a reasonable view to take on the facts of this case?"

The Tribunal refused to refer the questions stated hereinbefore. The respondent moved the High Court under section 256(2) of the Act. The High Court was of the opinion that no question of law arose and observed, inter alia, as follows:

"It appears that the consideration mentioned in the said deed was Rs.80,000. Finally, as a result of a search conducted in the premises of E.V. Saroja as well as the assessee himself, certain documents were seized, which showed that the actual consideration was Rs.1,40,000 and not Rs.80,000. In this regard, it was explained that even if it was considered. that the purchase consideration admitted by the assessee was not adequate, surplus cash balance and the additional payment, if any, should be deemed to have come out of such surplus fund and not out of any undisclosed fund. The Income-tax Officer found himself unable to accept the said explanation for the reason that the statements of receipts and payments filed by the assessee only enabled him to reasonably connect some of the payments, but the said statement could not serve the purpose of a regular cash book disclosing such cash balance, as the assessee's personal expenses were not shown in the statement. If these were taken note of, the surplus, if any, would be wiped off. In the end, he came to the conclusion that the assessee had not accounted for the full consideration for the plot purchased by him in the name of his son and that the balance of the consideration should have been met out of income from undisclosed sources." .

According to the High Court, no question of law arose.

Aggrieved thereby, the Revenue moved this Court and obtained leave under Article 136 of the Constitution. The short point is: In the facts and circumstances of this case and in the light of the law as it stood at the relevant time, has the assessee been able to discharge his onus to prove the question which arose in view of the Explanation introduced by the Finance Act, 1964, to section 271 of the Act? The said Explanation provides as follows:--

"Explanation:--Where the total income returned by any person is less than 80% of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or 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 income or furnished inaccurate particulars of such income for the purposes of clause (c) of this subsection."

It was explained by this Court in C.I.T. v. Mussadilal Ram Bharose (1987) 165 I T R 14 that, under the law as it stood prior to the amendment of 1964, the onus was on the Revenue to prove that the assessee had furnished inaccurate particulars or had concealed his income. Mr. Ahuja, appearing for the Revenue, urged before us that difficulties were found in proving the positive element required for concealment under the law prior to the amendment and this had to be established by the Revenue. He drew our attention to the observation of this Court at page 20 of the report where this Court reiterated that the effect of the Explanation was that where the total income returned by any person was less than 80% of the total income assessed, the onus was on such person to prove that the failure to file the correct income did not arise from any fraud or any gross or wilful neglect on his part, and unless he did so, he should be deemed to have concealed the particulars of his income or furnished inaccurate particulars for the purpose of section 271(1) of the Act. The position, therefore, is that the moment the stipulated difference was there, the onus to prove that it was not the failure of the assessee or fraud of the assessee or neglect of the assessee that caused the difference shifted to the assessee, but it has to be borne in mind that though the onus shifted, the onus that was shifted was rebuttable. This Court has explained the position at page 22 of the report as follows:

"The position, therefore, in law is clear. If the returned income is less than 80 per cent of the assessed income, the presumption is raised against the assessee that the assessee is guilty of fraud or gross or wilful neglect as a result of which he has concealed the income but this presumption can be rebutted. The rebuttal must be on materials relevant and cogent. It is for the fact-finding body to judge the relevancy and sufficiency of the materials. If such a fact-finding body, bearing the aforesaid principles in mind, comes to the conclusion that the assessee has discharged the onus, it becomes a conclusion of fact."

Mr. Ahuja and Mr. Sampath both relied on this decision to contend what was the position in law. Relying on this decision, Mr. Sampath, appearing for the assessee, sought to urge that, in the instant case, the Tribunal had found that there was an explanation for the excess and that that was the end of the matter. No question of law arose thereafter, according ! to him. It is true that the presumption that arose was a rebuttable presumption that there was concealment of income and if there was cogent material to rebut the evidence that was acceptable, then the presumption would not stand. In the instant case, the falsity of the explanation given by the assessee has been accepted by the Tribunal. The I Tribunal stated that, in the instant case, no doubt the Income-tax Officer was justified in saying that not only the explanation was not convincing but false because there was no cash available to the assessee for payment of the extra money paid. Therefore, no explanation was put forward as to wherefrom the extra money came. If that was the position and the further presumption was that the assessee was guilty of fraud, then the subsequent presumption followed that the assessee has concealed the income and that can be rebutted only by cogent and reliable evidence. No such attempt in this case was made. In that view of the matter, in our opinion, it cannot be said that, in this case, the Tribunal was justified in rejecting the claim and penalty may be imposed. The presumption raised as aforesaid, that is to say that the assessee was guilty of fraud or wilful neglect as a result of which the assessee has concealed the income, would be there. The presumption could have been rebutted by cogent, reliable and relevant materials. There was none, at least neither the Tribunal nor the High Court has indicated any. If that is the position, the High Court, in our opinion, was in error is not correctly applying the principles laid down by this Court in C.I.T. v. Mussadilal Ram Bharose (1987) 165 I T R 14 (SC), and the principles of law applicable in a situation of this type to the facts of this case and, therefore, the decision is not sustainable. In the instant case, there was no controversy that the amount was not the income of the year in question.

In the aforesaid view of the matter, we set aside the judgment and order of the High Court and direct reference on the aforesaid question of law to the High Court. Let a statement of the case on the aforesaid question be forwarded by the Tribunal within four months from this date and the High Court dispose of the reference as quickly as possible.

The appeal is allowed and is disposed of in these terms. The costs of this appeal will be the costs in the reference.

Z.S./947/TOrder accordingly.