COMMISSIONER OF INCOME-TAX VS LAL CHAND TIRATH RAM
1999 P T D 875
[225 I T R 675]
[Punjab and Haryana High Court (India)]
Before V. K. Bali and N. K. Agrawal, JJ
COMMISSIONER OF INCOME-TAX
Versus
LAL CHAND TIRATH RAM
Income-tax Reference No.49 of 1983, decided on 06/11/1996.
Income-tax
----Penalty---Concealment of income---Mere offering of explanation---Would not absolve assessee from levy of penalty---Explanation to be substantiated by cogent and reliable evidence ---Assessee doing business in food grains and commission agency---Some stock of goods kept with warehousing corporation---Difference between stock kept in warehousing corporation and stock shown in books of assessee---Assessee explaining that some stock of barley in warehouse belonged to S---Value of such stock added as undisclosed income of assessee---Confirmatory letter from S to the effect that he was owning land, cultivating same and delivered produce to assessee---S, a truck driver, had no material to show that he possessed land or cultivated it---No record in warehousing corporation that stock of barley brought for storage by S---Explanation offered by assessee not substantiated by cogent and reliable evidence---Levy of penalty valid---Indian Income Tax Act, 1961, S.271(l)(c), Expln., cl. (B).
Mere offering of an explanation would not absolve the assessee from the liability to penalty under section 271(1)(c), Explanation 1, clause (B) of the Income Tax Act, 1961. It is necessary for the assessee to offer an explanation and also to substantiate it.
The assessee carried on business in food-grains as commission agency. The assessee tiled a return of income for the assessment year 1976-77 showing a total income of Rs.91,329. The Assessing Officer found that some stock of goods had also been kept by the assessee in the Central Warehousing Corporation and from the information collected from them he found that there was a difference between the stock kept in the warehouse and the stock shown by the assessee in its books of account. The Assessing Officer also found that 1,299 bags of barley were available in the warehouse but the assessee could furnish details with respect to only 1,205 bags. The assessee explained that 94 bags of barley which had been kept in the warehouse belonged to one S, but no confirmation letter from S was filed nor the date of arrival of the goods was disclosed. The Assessing Officer further found that goods had been sold by the assessee on own account and not in its commission agency. Since the stock of 94 bags had not been shown by the assessee in its closing stock as on March 31, 1976, on which date the assessee's accounting year ended, its value which worked out at Rs.6,440 was added to the income of the assessee treating it as undisclosed income. Before the Commissioner (Appeals), the assessee filed a confirmatory letter from S to the effect that S had stored 100 bags of barley with the assessee from his agricultural produce and had given instructions to sell the goods at the time when the prices were high and had also confirmed to have received the sale price from the assessee. S further explained that he had 50 Bighas of land and the stock of barley had been handed over to the assessee as agricultural produce of his own field. The Commissioner of Income-tax (Appeals) on receipt of the confirmatory letter required the assessee to produce S for examination before the Assessing Officer. The Assessing Officer, after examining S, submitted a report to the Commissioner of Income-tax (Appeals) which stated that S was a truck driver and only 20 Bighas of land was owned by his family out of which S's share was only 4 Killas and that no Revenue Record was produced in support of the claim of possession and cultivation of agricultura11and. The Commissioner of Income-tax (Appeals), after examining the statement of S, rejected the assessee's explanation regarding the ownership of stock and upheld the addition of Rs.6,440 made by the Assessing Officer. The assessee's appeal before the Tribunal failed. The Assessing Officer while completing the assessment initiated penalty proceedings for furnishing inaccurate particulars by the assessee under section 271(1)(c) of the Income Tax Act, 1961, and imposed a penalty of Rs.4,959. In the course of the penalty proceedings, the assessee explained that there was no justification for the levy of penalty since the stock of 94 bags of barley had been kept by S and a valid explanation had also been offered by S and adequate evidence had been produced in support of the explanation of the assessee. The Assessing Officer rejected the explanation of the assessee. However, the Commissioner of Income-tax (Appeals) accepted the assessee's explanation and cancelled the penalty. The Tribunal upheld the order of the Commissioner (Appeals). On a reference:
Held, that S was basically a truck driver and he had no material available with him to show that he possessed or cultivated agricultura11and. There was no evidence on record to show that he had brought his stock from his field and had delivered the same to the assessee for sale. There was nothing in the record of the warehousing corporation which could indicate that the stock of 94 bags of barley had been brought for storage by S. The statement of S. contained in his confirmatory letter as well as in his examination by the Assessing Officer did not make the explanation reliable. The legal fiction or the presumption created by the Explanation had not been rebutted by the assessee by producing sufficient and reliable evidence. The assessee failed to produce the material facts on record, which would be sufficient to displace the legal presumption. The onus of proof for rebutting the presumption lay squarely on the assessee which -he failed to discharge. Therefore, the levy of penalty on the assessee was valid under clause (B) of Explanation 1 to section 271(1)(c) of the Act.
CIT v. K.R. Sadayappan (1990) 1851TR 49 (SC) ref.
R.P. Sawhney for the Commissioner.
A.C. Jain for the Assessee.
JUDGMENT
N.K. AGRAWAL, J.---This is an application under section 256(1) of the Income Tax Act, 1961 (for short, "the Act"), at the instance of the Revenue for opinion on the following question of law:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no penalty was leviable on the assessee under section 271(1)(c) of the Act?"
The assessee was a partnership firm and carried on business in foodgrains as commission agents. Some purchases and sales were made on own account also. The assessee-firm filed a return of income for the assessment year 1976-77 showing total income at Rs.91,329. The Assessing Officer, during the assessment proceedings, noticed that some stock of goods had also been kept by the assessee in the warehouse of Central Warehousing Corporation at Amritsar. He noticed from the information collected from the warehousing corporation that there was a difference between the stock kept in the warehouse and the stock shown by the assessee in its books of account. The assessee-firm was required to reconcile the difference. The assessee firm furnished the required information about the stock kept in the warehouse. It was found that 1,299 bags of barley (jaun) were available in the warehouse as on March 31, 1976, but the assessee could furnish details with respect to 1,205 bags only. The accounting year of the assessee ended on March 31, 1976. The assessee submitted an explanation that 94 bags of barley, which had been kept in .the warehouse belonged to one Sardul Singh. No confirmation from the owner was, however, filed nor the date of arrival of the goods was disclosed. It was also found by the Assessing Officer that the goods had been sold by the assessee-firm on own account and not in its commission agency. Since the stock of 94 bags had not been shown by the assessee in its closing stock as on March 31, 1976, its value was worked out at the rate of 92 per quintal at Rs.6,440. The value of the stock so worked out at Rs.6,440 was added to the assessee's income, treating the same to be undisclosed income.
In the assessee's appeal against the addition of Rs.6,440, a confirmatory letter from Sardul Singh was filed by the assessee before the Commissioner of Income-tax (Appeals). Sardul Singh affirmed in his confirmatory letter that he had stored 100 bags of barley with the assessee?firm from his agricultural produce. He further stated. in his confirmatory letter that he had instructed the assessee-firm to sell the goods at the time when the prices were high. He further confirmed to have received the sale price from the assessee-firm. Sardul Singh explained that he had 50 bighas of land and the stock of barley had been handed over to the assessee-firm as the agricultural produce of his own fiejd. The Commissioner of Income-tax (Appeals), on receipt of the confirmatory letter, required the assessee to produce Sardul Singh for detailed examination before the Assessing Officer so as to arrive at the truth: The Assessing Officer was required to examine Sardul Singh.
The Assessing Officer, on receipt of a direction from the Commissioner of Income-tax (Appeals), examined Sardul Singh and thereafter, submitted his report before the Commissioner of Income-tax (Appeals). Sardul Singh admitted in his statement that he was a truck driver and agricultura11and of 20 bighas was owned by his family. He claimed to have a share of 4 Killas only. No Revenue Record was, however, produced in support of the claim of possession and cultivation of the agricultura11and.
The Commissioner of Income-tax, after examining the statement of Sardul Singh, rejected the assessee's explanation regarding the ownership of the stock and upheld the addition of Rs.6,440 made by the Assessing Officer.
The assessee went in further appeal before the Income-tax Appellate Tribunal (for short, the Tribunal) but failed.
The Assessing Officer, while completing the assessment, had initiated penalty proceedings for furnishing inaccurate particulars under section 271(1)(c) of the Act. A penalty of Rs.4,959 was levied. The assessee explained, during the penalty proceedings, that the stock of 94 bags of barley had been kept by Sardul Singh and, since a valid explanation had been offered and adequate evidence had been produced in support of this explanation, there was no justification for the levy of any penalty under section 271(1)(c) of the Act. As the Assessing Officer did not agree with the assessee's plea, the assessee went in appeal before the Commissioner against the levy of penalty with the same plea and it was accepted. The Revenue went in appeal before the Tribunal against the order of the Commissioner of Income-tax cancelling the penalty, but the order of the Commissioner was upheld by the Tribunal.
Shri R.P. Sawhney, learned senior counsel for the Department, has argued that it was a case of furnishing inaccurate particulars, leading to the concealment of income and, therefore, levy of penalty by the Assessing Officer is wholly justified. There was no evidence to show that Sardul Singh possessed or had cultivated land. There was no evidence to indicate the production of barley from his field nor was there any evidence whatsoever to indicate that Sardul Singh had brought his produce to the assessee's place for sale. It is stated that Sardul Singh was admittedly a truck driver. The assessee had also filed initially a confirmatory letter from Sardul Singh and, thereafter, on a direction from the Commissioner of Income-tax (Appeals), produced Sardul Singh before the Assessing Officer. The assertion by Sardul Singh that he had brought the stock to the assessee's place for sale was not at all supported by any evidence and, therefore, the oral evidence had no worth nor was reliable as such. It is also pointed out by Shri Sawhney that the assessee-firm had shown stock in its own account and, thus, it was amply clear that the stock belonged to the assessee only. The assessee-firm had shown a debit entry in its account and given credit of the value of the goods to the account of Sardul Singh. By these two entries, it was made to indicate that the assessee-firm had purchased goods from Sardul Singh. There was, however, no evidence to support the delivery of the goods by Sardul Singh to the assessee-firm.
Section 271(1)(c) of the Act permits the levy of penalty if an assessee had concealed the particulars of his income or had furnished inaccurate particulars of such income. Explanation I, which was relevant, was substituted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976. Since the assessment year in this case is 1976-77, it is the substituted Explanation which is relevant. Explanation 1 read as under:
"Explanation. I.---Where in respect of, any facts material to the computation of the total income of any person under this Act,---
(A) such person fails to offer an explanation or offers an explanation which is found by the Income-tax Officer or the Appellate Assistant Commissioner to be false, or
(B) such person offers an explanation which he is not able to substantiate, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this subsection, be deemed to represent the income in respect of which particulars have been concealed:
Provided that nothing contained in this Explanation shall apply to a case referred to in clause (B) in aspect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him. "
Clause (c) of section 271(1) had been earlier amended by the Finance Act, 1964, with effect from April 1, 1964, whereby the word "deliberately" was omitted. Earlier when the word "deliberately" existed there, the second part of clause (c) read as under:
"deliberately furnished inaccurate particulars of such income. "
After the word 'deliberately" was omitted with effect from April 1, 1964, mere furnishing of inaccurate particulars attracted the levy of penalty. Explanation 1 had also been inserted earlier by the Finance Act, 1964, but was substituted by the Taxation Laws (Amendment) Act, ' 975, with effect from April 1, 1976. The provision as it existed in the relevant assessment year 1976-77 can be divided into two parts---
(i) concealment of the particulars of income, and
(ii) inaccurate particulars of such income given in the return.
These parts have to be read as independent parts and any ingredient may be the cause for the imposition of penalty. Both the parts may be overlapping in some cases. But both the parts have been used distinctly and these are with respect to two separate offences. The two charges can subsist in many cases. The effect of the Explanation, as introduced by the Finance Act, 1964, and the deletion of the word "deliberately", was that the onus had been shifted from the Department to the assessee. The Explanation amounts to a rule of evidence which is, however, not absolute but rebuttable. The presumption, which arose from the Explanation, can be rebutted by the assessee by relying upon the material available on record in the penalty proceedings. If an assessee offered an explanation but was not able to substantiate the same, a presumption would arise from clause (B) of Explanation 1 that he had furnished inaccurate particulars of his income. There is, however, an exception to this rule that an assessee may not be treated to be guilty of having furnished inaccurate particulars if the explanation offered by him is bona fide and all the material facts were disclosed by him. So long as an assessee's explanation is not found to be bona fide and if the assessee had not disclosed all the material facts, he would not be entitled to any benefit under the proviso. The initial burden of proof has been cast on the assessee to displace the presumption arising in certain cases. The assessee can discharge the onus either by direct evidence or circumstantial evidence or both. The cumulative effect of all the facts will be taken into consideration. The assessee is entitled to show and establish by material and relevant facts which may go to affect his liability or the quantum of penalty. Whether the burden of proof in a given case has been discharged on a set of facts is a question of fact. The Explanation raises only a presumption and the burden is cast on the assessee to rebut that presumption. This can be discharged either by independent evidence led during the penalty proceedings, or by a closer scrutiny or appraisal of the existing facts and data available. The presumption under the Explanation to section 271(1)(c) of the Act can be displaced by an assessee by proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect.
The Supreme Court in CIT v. K.R. Sadayappan (1990) 185ITR 49, has pointed out that the presumption under the Explanation can be rebutted by cogent, reliable and relevant materials. If the assessee advances a reasonable explanation, then the onus may shift back to the Revenue. The explanation need not be proved affirmatively and may be shown to be reasonable and probable. If the assessee fails to show that his explanation was reasonable or probable, the penalty must follow.
In the case of the assessee, the assessee had, no doubt, offered an explanation but was riot able to substantiate the same. He neither filed any confirmation from the person who had claimed to be the owner of the stock nor could he produce him before the Assessing Officer. However, at the appellate stage, he did succeed in producing a confirmatory letter and, on a direction from the Commissioner, he produced Sardul Singh also before the Assessing Officer for examination. The facts emerging from the statement of Sardul Singh did not make out a case in the assessee's favour that he was able to substantiate it. Sardul Singh was basically a truck driver and he had no material available with him to show that he possessed or cultivated agricultura11and. There was no evidence on record to show that he had brought his stock from his field and had delivered the same to the assessee for sale. There was nothing on the record of the warehousing corporation which could indicate that the stock of 94 bags of barley had been brought for storage by Sardul Singh. Thus, the explanation offered by the assessee-firm was not substantiated by cogent and reliable evidence at all. Mere submission of an explanation is not sufficient unless the assessee is able to substantiate it. If, however, the assessee's explanation is found to be bona fide and all the material facts were disclosed by the assessee, then alone, under the proviso, the presumption would not arise. From the facts in the present case, the explanation offered by the assessee did not appear a bona fide explanation nor were all material facts brought on record. It was necessary to substantiate, the explanation by producing adequate evidence about the cultivation of land by Sardul Singh and also about the delivery of the produce to the assessee. Neither of the two has been shown.
The Tribunal upheld the cancellation of the penalty order on the plea that the Assessing Officer had derived satisfaction from those facts, which were brought on record by the assessee at the appellate stage. On this ground, the Tribunal found it appropriate to uphold the order of cancellation made by the Commissioner of Income-tax (Appeals). Shri Sawhney, learned senior counsel for the Department, has argued that this view expressed by the Tribunal was wholly unsustainable because the Assessing Officer had, at the time of original assessment, directed the issuance of notice under section 271(1)(c) of the Act and, therefore, his satisfaction was not based on the facts which were subsequently brought on record by the assessee at the appellate stage. Be that as it may, the primary question, which arises here, relates to the application of clause (B) of Explanation 1 and the effect of the b proviso, which provides an exception to the general rule of evidence contained in clause (B). As has already been seen, mere offering of an explanation would not absolve an assessee from the liability of penalty. It is necessary for the assessee to offer an explanation and also to substantiate it. The statement of Sardul Singh contained in his confirmatory letter as well as in his examination by the Assessing Officer, does not make the explanation reliable. The legal fiction or the presumption created by the Explanation has not been rebutted by the assessee by producing sufficient and reliable evidence. The assessee failed to produce the material facts on record, which would be sufficient to displace the legal presumption. The principa11ogical import of the Explanation is to shift the burden of proof from the Department to the shoulders of the assessee. The onus of proof for rebutting the presumption lay squarely on the assessee.
In the result, the levy of penalty in the case of the assessee 'is found to be valid and justified in the light of clause (B) of Explanation 1 to section 271(1)(c) of the Act. The Tribunal's finding that penalty was not leviable, cannot be sustained. The assessee failed to substantiate his explanation nor was there any material to show that the explanation offered by the assessee was bona fide and that all the material facts had been disclosed by him. The question of law is, therefore, answered in the negative, in favour of the Revenue and against the assessee.
C.M.A./1757/FC???????????????????????????????????????????????????????????????????????????????? Reference answered.