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PATNA HIGH COURT
S.S.Sandhawalia, Uday Sinha and Nazir Ahmad JJ.
Commissioner Of Income Tax
Versus
Nathulal Agarwala And Sons
Decided On : MARCH 12, 1985
INCOME TAX - Penalty - Concealment of income - Explanation to Sec.271(1)(c) of the I.T. Act, 1961 - Amendment by Finance Act, 1964 - Effect - Ratio of CIT V/s. Anwar Ali [1970] 76 ITR 696 (SC) - Whether still holds the field - Presumptions raised by the Explanation - Nature and scope - Burden of proof - Explanation of the assessee - Nature and scope.
Fact of the Case:
The assessee, M/s. Nathulal Agrawala & Sons, Hazaribagh, had declared its income at merely Rs. 22,116. The ITO, however, completed the assessment at a nearly four-fold figure of Rs. 82,378. He included in this assessment a sum of Rs. 26,000 purporting to be in the names of the wives of three of the partners of the assessee firm. The assessee came up in appeal to the Tribunal against the aforesaid penalty order. The Tribunal observed that undoubtedly the case was one where there was a difference of over twenty per cent. between the income assessed and the income returned and this had been done after rejecting the assessees explanation offered by it with regard to the cash credits mentioned above. Nevertheless, it concluded as follows: “The assessee has maintained the books of account in the ordinary course of business but the same were not accepted and some estimate of sales and rate was made. No specific item of omission of sales or purchases was pointed out by the authorities below either in the assessment order or in the penalty order. In our opinion, the authorities below were not right in levying the penalty which is deleted. The amount, if paid, is directed to be refunded.”
Finding of the Court:
1. The ratio of CIT V/s. Anwar Ali [1970] 76 ITR 696 (SC) no longer holds the field despite the designed deletion of the word “deliberately” from Section 271(1)(c) of the I.T. Act, 1961, and the pointed insertion of an exhaustive Explanation thereto by the Finance Act No. 5 of 1964. 2. The Explanation to Sec.271(1)(c) of the Act is a rule of evidence and raises three legal presumptions against the assessee: (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 income was due to concealment of the particulars of his income on his part; or (iii) that such failure of the assessee was due to furnishing inaccurate particulars of such income. 3. The presumptions raised by the Explanation are rebuttable presumptions. The initial burden of discharging the onus of rebuttal is on the assessee. However, once he does so, he would be out of the mischief of the Explanation until and unless the Department is able to establish afresh that the assessee in fact had concealed the particulars of his income or furnished inaccurate particulars thereof. 4. The burden of discharging an onus to prove under the Explanation would again be like the one in ordinary civil proceedings, i.e., it can be so discharged by preponderance of evidence. 5. In penalty proceedings within the tax field as such, there is no room for bringing in the rules of criminal law and insist on a mens rea or proof beyond all reasonable doubt. 6. The Explanation to Sec.271(1)(c) of the Act was designedly brought in to effect a change in the existing law and has spelt out a categoric rule of evidence raising three rebuttable presumptions against the assessee in cases where the returned income was less than 80 per cent. of the assessed income. 7. The assessee is required to prove an acceptable explanation for the purpose of avoidance of penalty. He may not prove what he asserts to the hilt positively but as a matter of fact materials must be brought on the record to show that what he says is reasonably valid.
Issues: 1. Whether the ratio of CIT V/s. Anwar Ali [1970] 76 ITR 696 (SC) still holds the field despite the designed deletion of the word “deliberately” from Section 271(1)(c) of the I.T. Act, 1961, and the pointed insertion of an exhaustive Explanation thereto by the Finance Act No. 5 of 1964? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in deleting the penalty of Rs. 12,000 levied by the Inspecting Assistant Commissioner under Sec.271(1)(c) read with the Explanation to that section ?
Ratio Decidendi: 1. The ratio of CIT V/s. Anwar Ali [1970] 76 ITR 696 (SC) no longer holds the field despite the designed deletion of the word “deliberately” from Section 271(1)(c) of the I.T. Act, 1961, and the pointed insertion of an exhaustive Explanation thereto by the Finance Act No. 5 of 1964. 2. The Explanation to Sec.271(1)(c) of the Act is a rule of evidence and raises three legal presumptions against the assessee: (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 income was due to concealment of the particulars of his income on his part; or (iii) that such failure of the assessee was due to furnishing inaccurate particulars of such income. 3. The presumptions raised by the Explanation are rebuttable presumptions. The initial burden of discharging the onus of rebuttal is on the assessee. However, once he does so, he would be out of the mischief of the Explanation until and unless the Department is able to establish afresh that the assessee in fact had concealed the particulars of his income or furnished inaccurate particulars thereof. 4. The burden of discharging an onus to prove under the Explanation would again be like the one in ordinary civil proceedings, i.e., it can be so discharged by preponderance of evidence. 5. In penalty proceedings within the tax field as such, there is no room for bringing in the rules of criminal law and insist on a mens rea or proof beyond all reasonable doubt. 6. The Explanation to Sec.271(1)(c) of the Act was designedly brought in to effect a change in the existing law and has spelt out a categoric rule of evidence raising three rebuttable presumptions against the assessee in cases where the returned income was less than 80 per cent. of the assessed income. 7. The assessee is required to prove an acceptable explanation for the purpose of avoidance of penalty. He may not prove what he asserts to the hilt positively but as a matter of fact materials must be brought on the record to show that what he says is reasonably valid.
Final Decision: The question of law referred to the Full Bench is answered in the negative, that is, in favour of the Revenue and against the assessee.
Sandhawalia, J.
1. Whether the ratio of CIT V/s. Anwar Ali [1970] 76 ITR 696 (SC) still holds the field despite the designed deletion of the word "deliberately" from Section 271(1)(c) of the I.T. Act, 1961, and the pointed insertion of an exhaustive Explanation thereto by the Finance Act No. 5 of 1964 has come to be the focal question in this reference to the Full Bench. Equally at issue is the correctness of either one of the two strands of parallel judicial thought within this court itself.
2. Somewhat regretfully it must be noticed that the issues aforesaid arise from an assessment made way back for the year 1964-65. The assessee, M/s. Nathulal Agrawala & Sons, Hazaribagh, had declared its income at merely Rs. 22,116. The ITO, however, completed the assessment at a nearly four-fold figure of Rs. 82,378. He included in this assessment a sum of Rs. 26,000 purporting to be in the names of the wives of three of the partners of the assessee firm. Admittedly, the ITO had required the assessee to explain the nature and sources of these alleged cash credits. This was said to be furnished by the assessee but the same was categorically rejected and an amount of Rs. 26,000 was added to the income as accruing from undisclosed sources. On appeal to the AAC, this addition was in terms challenged, inter alia, but he also rejected the explanation of the assessee and upheld the addition. On further appeal by the assessee, the matter came up before the Tribunal which categorically held that the explanation offered by the assessee was rightly rejected by the taxing authorities. However, it accorded a relief of Rs. 7,500 in this account.
3. After the completion of the assessment, the ITO initiated penalty proceedings. Since the amount of penalty leviable exceeded Rs. 1,000, he forwarded the matter to the IAC. The latter issued a show-cause notice to the assessee to which certain explanations were offered including a written reply dated May 11, 1970. The assessees representative was also heard in the matter. Thereafter, the IAC rejected the explanation and held that in view of the amended provisions of the Finance Act of 1964, the added Explanation to Section 271(1)(c) of the I.T. Act, 1961, was clearly attracted. He, consequently, imposed a penalty of Rs. 12,000. The assessee came up in appeal to the Tribunal against the aforesaid penalty order. The Tribunal observed that undoubtedly the case was one where there was a difference of over twenty per cent. between the income assessed and the inqome returned and this had been done after rejecting the assessees explanation offered by it with regard to the cash credits mentioned above. Nevertheless, it concluded as follows :
"The assessee has maintained the books of account in the ordinary course of business but the same were not accepted and some estimate of sales and rate was made. No specific item of omission of sales or purchases was pointed out by the authorities below either in the assessment order or in the penalty order. In our opinion, the authorities below were not right in levying the penalty which is deleted. The amount, if paid, is directed to be refunded."
4. On the aforesaid facts, the following question of law has now been referred to this court by the Tribunal, at the instance of the Commissioner of Income-tax, Bihar:
"Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in deleting the penalty of Rs. 12,000 levied by the Inspecting Assistant Commissioner under Sec.271(1)(c) read with the Explanation to that section ?"
5. This case originally came up for hearing before a Division Bench consisting of my learned brothers, Uday Sinha and Nazir Ahmad JJ. It was forcefully urged before them that even within this court, there appeared to be two strands of thought with regard to the scope and ambit of the Explanation to Section 271(1)(c) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), after the amendment by the Finance Act of 19
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