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1984 Supreme(Cal) 408
High Court Of Calcutta
R. N. Pyne, Ajit K. Sengupta
COMMISSIONER OF INCOME-TAX - Appellant
Versus
BHOTICA TEXTILES - Respondent
Income-Tax Reference 346 Of 1975
Decided On : 12/14/1984
B.N.Bagchi
The onus of proof in a penalty proceeding lies on the assessee to prove that the failure to give the true facts was not due to any fraud or gross or wilful neglect. Once the assessee discharges this onus, the onus shifts to the Department to prove that there was concealment of income.
Headnote:
PENALTY - Levy of penalty - onus of proof - assessee discharged onus by producing confirmation letters from creditors - onus shifted to Department - Department failed to discharge onus - penalty cannot be imposed.
Fact of the Case:
The assessee, an unregistered firm, filed its return of income for the assessment year 1964-65, disclosing an income of Rs. 39,328. The assessment was completed under Section 144 of the Income-tax Act, 1961, on a total income of Rs. 1,86,500, comprising estimated business income of Rs. 60,000 and that from other sources at Rs. 1,26,500. The assessee failed to comply with the specific requisition to produce books of account, bank pass book, etc., on the specified date. The Income-tax Officer treated the sum total of the credit with interest at Rs. 1,26,000 as the assessee's income from undisclosed source. Penalty proceeding under Section 27l (l) (c) of the Act was initiated and the same was referred to the Inspecting Assistant Commissioner for imposition of penalty as the minimum penalty exigible would exceed Rs. 1,000.
Finding of the Court:
The Tribunal found that the assessee discharged the initial negative onus imposed on him by Section 271 (l) (c) by filing letters of confirmation and furnishing other relevant information about the creditors and their assessments. The confessional statements had not been produced before the Inspecting Assistant Commissioner who imposed the penalty in this case. The Tribunal held that the assessee discharged the burden that lay on it and thereafter the onus was shifted to the Department and the Department failed to discharge such onus in proving that there was concealment of income.
Issues: Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty levied under the Explanation to Section 271 (l) (c) of the Income-tax Act, 1961, relating to the assessment year 1964-65?
Ratio Decidendi: The onus of proof in a penalty proceeding lies on the assessee to prove that the failure to give the true facts was not due to any fraud or gross or wilful neglect. Once the assessee discharges this onus, the onus shifts to the Department to prove that there was concealment of income. In this case, the assessee discharged the onus by producing confirmation letters from the creditors and furnishing other relevant information. The Department failed to discharge the onus of proving that there was concealment of income. Therefore, the Tribunal was right in cancelling the penalty.
Final Decision: The question referred to the court is answered in the affirmative and in favour of the assessee. There will be no order as to costs.
( 1 ) FOR the assessment year 1964-65, the assessee, an unregistered firm, filed the return of income on November 5, 1964, disclosing an income of Rs. 39,328. The assessment was completed on March 3, 1969, under Section 144 of the Income-tax Act, 1961, on a total income, of Rs. 1,86,500, comprising estimated business income of Rs. 60,000 and that from other sources at Rs. 1,26,500. The said best judgment assessment under Section 144 of the said Act was made as the assessee failed to comply with the specific requisition to produce books of account, bank pass book, etc. , on the specified date. In the course of the assessment proceeding, the Income-tax Officer noticed loan accounts in the name of five parties, which inclusive of interest payments amounted to Rs. 1,26,500. Summons under Section 131 of the Act were issued to the five creditors but those could not be served on two creditors. Though the other three parties accepted the summons, they did not comply with the terms of the said summons. As the assessee did not avail of the opportunities given for producing the five creditors before him for the purpose of verification of the loans, the Income-tax Officer treated the sum total of the credit with interest at Rs. 1,26,000 as the assessee's income from undisclosed source. Penalty proceeding under Section 27l (l) (c) of the Act was initiated and the same was referred to the Inspecting Assistant Commissioner for imposition of penalty as the minimum penalty exigible would exceed Rs. 1,000.
( 2 ) IN the course of the penalty proceeding, the Inspecting Assistant Commissioner heard the assessee. In his opinion, there could not be any charge of concealment of income on account of addition to the business income. The assessee denied any charge of concealment of income inasmuch as the confirmation letters stating income-tax file number were submitted from the loan creditors, and, therefore, the onus of proving the loans was claimed to have been discharged. The Inspecting Assistant Commissioner found that after the confirmation letters were issued, three of the five creditors confessed before the Department that the loan transactions in their respective names were bogus with the exception of four transactions in the name of one M/s. Sureka Jute Co. Relying upon this confession and the assessee's inability or unwillingness to produce the creditors with their accounts, the Inspecting Assistant Commissioner made a strong presumption of concealment of income against the assessee within the meaning of the Explanation to Section 271 (l) (c) of the Act and levied a penalty of Rs. 42,000.
( 3 ) BEING aggrieved, the assessee-firm preferred an appeal before the Income-tax Appellate Tribunal against the imposition of penalty. It was contended on behalf of the assessee that the imposition of penalty was not justified because the Inspecting Assistant Commissioner had taken into account the material which was not properly brought on record. It was also submitted that the confessional statements of some of the creditors stating that the loans were bogus were yet to be admitted by giving an opportunity to the assessee by the Appellate Assistant Commissioner to whom the assessment appeal had been remanded by the Appellate Tribunal. Great emphasis was laid on the confirmation letters of the creditors who were also income-tax assessees and it was claimed on behalf of the assessee that the burden was shifted to the Department to show that the evidence given by it in support of the genuineness of the loans were false. The Revenue relied upon the confessional statements of some of the creditors. The Departmental representative submitted before the Tribunal that the assessee must be in the know of the true facts and when the assessee was unable to produce the creditors for examination, it mast be presumed that the assessee knew that the loans were not genuine and that in view of the fact that the Explanation to Section 271 (1 ) (c
