(a) Income-tax---

----Penalty---Concealment of income---Returned income less than 80 percent. of assessed income---Effect of Explanation to S.271(1)(c)-- Presumption of concealment---Presumption can be rebutted---Finding by Tribunal that assessee had a satisfactory, Explanation regarding addition to his income---Penalty could not be imposed---Indian Income Tax Act, 1961, S.271(1)(c).

(b) Income-tax---

---Reference---Finding of fact---No challenge to validity of finding-- Finding of fact is final---Indian Income Tax Act,1961, S.256. The degree of proof necessary under the Explanation to section 271(1)(c) of the Income Tax Act, 1961, is that as in a civil suit, viz. preponderance of probability. The Explanation merely raises a rebuttable presumption which could be discharged in a given case by pointing out the factors and the materials in favour of the assessee. It is settled that the findings given in assessment proceedings would be relevant and admissible materials in penalty proceedings, but those findings cannot operate as res judicata because the considerations that arise in penalty proceedings are different from those in the assessment proceedings.

It is not open to the High Court to test the correctness' of the findings of fact recorded by the Tribunal unless there is a specific question by which the findings have been assailed. When the question referred opens with the expression "whether, on the facts and circumstances of the case" it must mean on the facts as found by the Tribunal and not the facts and circumstances that may be found by the High Court on a reappraisal of the evidence.

The assessee was a partner in two firms. In the assessment year 1971-72 an addition of Rs.61,500 was made. Likewise in the assessment year 1972-73 an amount of Rs.20,000 was added as income from undisclosed sources under agricultural account. Penalty proceedings were initiated and penalty was imposed. The Tribunal found that it was admitted that the assessee owned 3-1/2 acres of land which had been leased to R.R. had been produced before the Income-tax Officer and his statement was also recorded. He accepted that the amounts in dispute were given by him to the assessee. The Tribunal deleted the penalty. On a reference:

Held, that the Tribunal had recorded at categorical finding that on the evidence led by the assessment it could not be said that on the balance of probabilities, the amounts in question were not received by the assessee from R. In the opinion of the Tribunal, the assessee had discharged the onus that lay upon him under the Explanation to section 271(1)(c) as it stood at the relevant time. The findings recorded by the Tribunal are pure findings of fact based on appreciation of evidence. The Tribunal was right in cancelling the penalties.

Karnani Properties Ltd. v. CIT (1971) 82 ITR 547 (SC) ref.

JUDGMENT

The Income-tax Appellate Tribunal, Delhi Bench, has referred the following question of law for the opinion of this Court under section 256(1) of the Income Tax Act, 1961, at the instance of the Commissioner of Income-tax, Lucknow:

"Whether, on the facts and in the circumstances of the case, the Tribunal, was justified in cancelling the penalty imposed upon the assessee on the ground that the assessee had discharged his onus under the Explanation to section 271(1)(c) of the Income Tax Act, 1961?"

The assessee was a partner in two firms, namely Janta Ice and Cold Storage, Moradabad, and Swantantra Grigh Nirman Rstriya Udyog; Moradabad. In the assessment year 1971-72 two additions of Rs.61,500 and Rs.60,000 were made to the income of the assessee as income from undisclosed sources, respectively, under the heads (i) agricultural account, and (ii) Smt. Mukhtary Begum. Likewise. in the assessment year 1972-73 and amount of Rs.20,000 was added as income from undisclosed sources under "Agricultural, account". On appeal to the Income-tax Appellate Tribunal in due course, on the quantum side, the amount of Rs.60,000 under the head "Smt. Mukhtary Begum" assessed in the assessment year 1971-72 was deleted. However, the addition of the other amounts was upheld in both the assessment years.

During the course of assessment proceedings, penalty proceedings for concealment of income under section 271(1)(c) were initiated and the assessee was subjected to a separate penalty, in both the assessment years under dispute by a common order passed by the Inspecting Assistant Commissioner of Income-tax mainly relying upon the Explanation to section 271(1)(c) as it stood at the relevant time, that the difference between the total income returned was less than eighty percent. of the total assessed income and the failure to return the correct income was on account of fraud or gross or wilful neglect on the part of the assessee. The assessee brought the matter in appeal before the Income-tax Appellate Tribunal which let off the penalties. Hence this reference at the instance of the Revenue.

We have heard learned counsel for the parties.

It may be observed that the two amounts which were sustained as income from undisclosed sources, according to the assessee, were received from one Ram Swarup, who was produced before the Income-tax Officer and his statement was also recorded. He accepted that the amounts in dispute were given by him to the assessee. It is not disputed that Ram Swarup was cultivating the land of the assessee. According to the. assessee, he owned 3-1/2 acres of land which was under dispute with the Municipal Board for the past seven years and was in the possession of Sri Ram Swarup from time of the assessee's father, who died in May 1965. According to the assessee, he entered into a written agreement, dated July 15, 1969, for a period of 12 years with Ram Swarup under which he was required to pay Rs.80,000 to the assessee out of the sale of agricultural produce together with some vegetables which had to be grown in the land. Sri Ram Swarup in his statement before the Income-tax Officer testified to the payment of Rs.81,500 having been made by him and his explanation was that the money was available with him out of the sale proceeds of land which he had sold for Rs.70,848 by a sale-deed, dated December 27, 1968. While deleting the penalty, the Tribunal recorded its finding as under:

"The assessee had done all that was in his power to prove the genuineness of the deposits in question. It was not doubted that the w assessee did own 3-1/2 acres of land. Shri Ram Swarup, to whom this land was leased was also undisputably cultivating and was in possession of these lands. It is, therefore, not clear as to how could it be held that Shri Ram Swarup had no income from the land and he did not make any payment to the assessee. Shri Ram Swarup had also given the source of payments and that was the sale proceeds of his own land in terms of sale-deed, dated December 27,1968, for a consideration of Rs.70, 848. We are of the view that this evidence is sufficient to raise probabilities and create doubts, the benefit of which can be given to the assessee in the course of the penalty proceedings. In the circumstances, we hold that the onus that lay on the assessee under the Explanation to section 271(1)(c) was discharged. Hence, we cancel the impugned penalties."

It may be observed that the degree of proof necessary under the Explanation' to section 271(1)(c) aforesaid is that in a civil suit, viz., preponderance of probability. The Explanation merely raises a rebuttable presumption which could be discharged in a given. case by pointing out the factors and the materials in favour of the assessee. It is settled that the findings given in assessment proceedings, would be relevant and admissible materials in penalty proceedings, but those findings cannot operate as res judicata because the considerations that arise in penalty proceedings are different from those in the assessment proceedings. It is evident from the order of the income-tax Appellate Tribunal that it has recorded a categorical finding that on the evidence led by the assessee it could not be said that on the balance of probabilities, the amounts in question were not received by the assessee from Sri Ram Swarup. In the opinion of the Tribunal, the assessee had discharged the onus that lay upon him under the Explanation to section 271(1)(c) as it -stood at the relevant time. The findings recorded by the Tribunal are pure findings of fact based on appreciation of evidence.

Learned counsel for the Revenue, however, contends that the findings of the Tribunal were vitiated inasmuch as, on material that was placed before the Tribunal another view was possible if the facts were appreciated in their true context. We are afraid that it is not open to this Court to test. the correctness of the findings of fact recorded by the Tribunal unless there is a specific question by which the findings have been assailed. The question referred to us opens with the expression "whether, on the facts and circumstances, of the case" which must mean on the facts as found by the Tribunal and not the facts and circumstances that may be found by the High Court on a reappraisal of the evidence. In taking this view, we are supported by a decision of the Supreme Court in Karnani Properties Ltd. v. CIT (1971) 82 ITR 547, where the Supreme Court held as under (headnote):

"When the question referred to the High Court speaks of 'on the facts and in the circumstances of the case it means on the facts and circumstances found by. the Tribunal and not facts and circumstances that may be found by the High Court on a reappraisal of the evidence. In the absence of a question whether the findings were vitiated for any reason being before the High Court, the High Court has no jurisdiction to go behind or question the statements of fact made by the Tribunal. "

On the facts and circumstances of the case, we have no hesitation in holding that the Tribunal was right in cancelling the penalties on the ground that the assessee had discharged its burden under the Explanation to section 271(1)(c). The question referred to this Court is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

M.B.A./3262/FC Reference answered.