COMMISSIONER OF INCOME-TAX VS MATHURA DASS LAXMI NARAIN, 1998 PTD-PUNJAB-AND-HARYANA-HIGH-COURT-INDIA 1350 (1996)

Income-tax---

----Penalty---Concealment of income---Burden of proof---Returned income less than 80 per cent of assessed income---Presumption of concealment arises---No explanation furnished by assessee---Failure by assessee to discharge onus of proof---Penalty attracted---Indian Income Tax Act, 1961, S.271(1)(c), Expln.

The Explanation to section 271(1)(c) of the Income Tax Act, 1961, added by the Finance Act, 1964, creates a rebuttable presumption of law that where the total income returned by the assessee is less than 80 per cent. of his total assessed income, he shall be deemed to have concealed the particulars of his-income or furnished inaccurate particulars of his income for the purposes of section 2710 )(c) 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:

Held accordingly, on the facts, that the returned income being less than 80 per cent of the assessed income, the provisions of the Explanation became at once applicable with the resultant attraction of the presumption against the assessee. The onus shifted on the assessee to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on its part. The assessee did not render any explanation in the penalty proceedings. From the existing material as well, it could not be held that the failure by the assesses to return the correct income did not arise from any fraud or any gross or wilful neglect on its part. As the assessee failed to discharge the onus placed upon it, the presumption raised against the assessee converted itself into a finding, attracting the levy of penalty. The finding recorder by the Tribunal that the onus was on 'the Department to prove that there was any deliberate concealment on the part of the assessee could not be sustained.

Vishwakarma Industries v. CIT (1982) 135 ITR 652 (P & H) rel.

Chuhrmal v., CIT (1988) 172 ITR 250 (SC); CIT v. Anwar Ali (1970) 76 ITR 696 (SC); CIT (Addl.) v. Karnail Singh V. Keralan (1974) 94 ITR 505 (P&H) and CIT v. Mussadilal Ram Bharose (1987) 165 ITR 14 (SC) ref.

R.P. Sawhney, Senior Advocate and Mahavir Ahlawat for the Commissioner.

B.R. Mahajan and Suvir Sehgal for the Assessee.

JUDGMENT

ASHOK BHAN, J.---The Income-tax Appellate Tribunal, Amritsar Bench, Amritsar (for short, "the Tribunal"), has referred the following two questions of law alongwith the statement of the case, for the opinion of this Court:

"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that there is no evidence on record to prove that the assessee committed any fraud or gross or wilful neglect?

(2) Whether, on the facts and in the circumstances of the case, theIncome-tax Appellate Tribunal was correct in:

(a) not holding that the assessee had concealed the particulars of his income by not producing the books of account; and

(b) not upholding the penalty imposed by the Inspecting Assistant Commissioner?"

For the assessment year 1967-68, relevant to the accounting period ending March 31, 1967, the assessee filed its return of income on August 24, 1971, declaring a total income of Rs.17,180. Claiming a brought forward loss of Rs. 70,172 against the above income, a net loss of Rs.52,992 was declared by the assessee. The Income-tax Officer required (lie assessee to produce its hooks of account in support of the income/loss shown in the return of income. The assessee did not comply with the requirement of the Income-tax Officer and did not produce the books of account. The Income-tax Officer examined both the partners of the firm, namely, Tilak Raj and Sat Pal, and both of them denied having the possession of the books of account. The Income-tax Officer specifically made the two partners aware of the consequences, which could follow in case the books of account were not produced, but, despite several opportunities and enough time allowed, the books of account were not produced before the Income-tax Officer for examination. The Income-tax Officer, under the circumstances, completed the assessment under section 144 of the Income-tax. 1961 (hereinafter referred to as "the Act"), to the best of his judgment on a net income of Rs.50,000. He also initiated penalty proceeding under section 271 of the Act and as the minimum penalty imposable exceeded a sum of Rs.1,000, he referred the case to the Inspecting Assistant Commissioner under section 274(2) of the Act. The orders passed by the Income-tax Officer in the quantum case were affirmed i n appeal.

The Inspecting Assistant Commissioner, in due course and after allowing the assessee an opportunity of being heard, imposed a penalty of Rs.70,000 under section 271(!)(0 of the Act read with its Explanation.

Aggrieved by the order of penalty passed by the Inspecting Assistant Commissioner, the assessee went in appeal before the Tribunal. After hearing both the parties and after going through the record, the Tribunal cancelled the penalty of Rs.70,000 imposed by the Inspecting Assistant Commissioner under section 271(1)(c) of the Act. It was held by the Tribunal that the assessment in this case was completed under section 144 on an estimated income of Rs.50,000 on account of the failure on the part of the assessee to produce its books of account for examination before the Income-tax Officer, and there being no evidence to show that there was any positive concealment on the part of the assessee, the penalty imposed under the Explanation to section 271( I )t c) of the Act was not sustainable as there was no element of means area of conscious concealment on the part of the assessee. Holding that the penalty proceeding is partake of the character of criminal prosecution and the onus squarely lies on tile Department to bring home the offence of concealment on the part of the assessee, which the Department failed to discharge, the penalty levied Bias cancelled. For this, reliance was placed on ;t judgment of the Supreme Court in CIT e. Anwar Ali (1970) 76 ITR 696 and a judgment of this Court in Addl. CIT v. Karnail Singh v. Keralan an (1974) 94 ITR 505. In both these judgments, it was held that the onus to prove that there was 'any concealment of income was on the Department and as the Department had failed to discharge the onus, the penalty could not be levied.

The petition filed under, section 256(t) of the Act was dismissed by the Tribunal. The Department filed a petition under section 256(2) of the Act in this Court for issuance of a mandamus directing the Tribunal to refer the questions of law arising out of the order of the Tribunal to this Court for its opinion. The petition under section 256(2) of the Act was allowed and in compliance with the directions of this Court, dated November 25, 1982, the Tribunal has referred the two questions of law, reproduced above to this Court for its opinion.

Mr. R.P. Sawhney, learned counsel appearing for the Department, relying upon a Full Bench judgment of this Court in Vishwakarma Industries v. CIT (1982) 135 ITR 652, which was later on approved by their Lordships of the Supreme Court in CIT v. Mussadilal Ram Bharose (1987) 165 ITR 14 and Chuharmal v. CIT (1988) 172 ITR 250, argued that the Explanation to section 271(1)(c) of the Act added by the Finance Act of 1964, creates a rebuttable presumption of law to the effect that where the, total income returned by the assessee is less than 80 per cent, of his total assessed income, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purpose of section 271 (1)(c) of the Act 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. The Explanation thus shifts the burden to the assessee in the situation covered by it. It was argued that the Tribunal has erred in putting tile onus or burden of proof oil the Department and it was for the assessee to prove to the contrary.

We find substance in this submission of learned counsel for the Department.

In Vishwakarma Industries' case (1982) 135 ITR 652 (P & H) (1713), the judgment of this Court in Karnail Singh's case (1974) 94 ITR 505 was specifically overruled. The ratio of Anwar Ali's case (1970) 76 ITR 696 .(SC), which had considered tile earlier provisions of section 28(1)(c) of the Indian Income-tax Act, 1922, was held to be no longer applicable in view of the object and intent of the Legislature in omitting the word "deliberately" from clause (c) of section 27l(1) of the Act and addicting the Explanation thereto by the Finance Act of 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 to the assessee in a case where the returned income of the assessee was less than 80 per cent of the assessed income.

It was also held that the statute visualised that the assessment proceedings and the penalty proceedings were wholly distinct and independent of each other, at least so far as the applicability of the Explanation is concerned. The assessment proceedings precede the penalty proceedings and the assessment proceedings are the very foundation of the subsequent penalty proceedings, if any. The Explanation provides a strictly objective and an almost mathematical test. If the difference between the returned income as against the income assessed by the Department is more than 20 per cent the provisions of the Explanation become at once applicable with the resultant attraction of the presumption against such an assessee regarding the concealment of the income. The presumption raised is rebuttable which the assessee can either discharge by rendering an explanation that the failure to return the correct income did not arise from any fraud or. any gross or wilful neglect on his part, or by the existing material on record in a specific case.

In the case in hand, .the returned income being less than 80 per cent. of the assessed income, the provisions of the Explanation became at once applicable with the resultant attraction of the presumption against the assessee. Thus, onus shifted on the assessee to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on its part. The assessee did not render any explanation on the penalty proceedings. Froth the existing material as well, it cannot be held that the failure to return the correct income by the assessee did not arise from any fraud or any gross or wilful neglect on its part. As the assessee failed to discharge the onus placed upon it, the presumption raised against the assessee converts itself into a finding attracting the levy of penalty. The finding recorded by the Tribunal that the onus was on the Department to prove that there was any deliberate concealment on the part of the assessee cannot be sustained in view of the Explanation to section 271(1)(c) of the Act added by the Finance Act of 1964, which creates a rebuttable presumption of law that where the total income returned by the assessee is less than 80 per cent of his total assessed income, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of his income for the purposes of section 271(1)(c) 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. The assessee failed to discharge the initial onus placed upon it, thereby making itself liable for levy of penalty under section 271(1)(c) of the Act.

For the reasons stated above, question No. 1 is answered in the negative, i.e., in favour of the Department and against the assessee, as the assessee failed to discharge the initial onus placed upon it that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on its part: Similarly, parts (a) and (b) of question No.2 are also answered in the negative i.e., in favour of the Department and against the assessee. No costs.

M.B.A./1396/FCOrder accordingly.