TMI Blog1992 (12) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... 99,984. 3. The Income-tax Officer took up the case for investigation and issued a notice under section 143(2) of the Income-tax Act. While examining the books of account, the ITO noticed certain cash credits in the names of some creditors including Sri Ramavatar Sharma and his wife Smt. Bhagirathi Sharma. The ITO directed the appellant to produce confirmation letters in support of the cash credits and also to produce Sri Ramavatar Sharma and Smt. Bhagirathi Sharma for recording their deposition. He thus directed the assessee to prove the identity and the creditworthiness of the creditors and the genuineness of the transactions. As a result of the direction of the ITO, the assessee produced confirmation letter from Sri Ramavatar Sharma in which the creditor certified that he had given a loan of Rs. 62,000 to M/s. Shivlal Dulichand Agarwal from his personal account. It was also mentioned in the said confirmation letter that Sri Ramavatar Sharma was assessed to income-tax. It has also mentioned that the loan was advanced by account payee cheque. Smt. Bhagirathi Sharma also filed a similar confirmation letter and brought to the notice of the ITO that she had advanced a loan of Rs. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moneys on the basis of the forms signed by me and this amount was credited to my account in their books of account. This money was deposited in the Bank is belonging to them only. Regarding the interest it is at the rate of 12 per cent p.a. As per this understanding they give me the cheques for interest which I received for Rs. 4,000/33 after deducting Rs. 457 towards T.D.S. I have withdrawn this int. and of this I had given 50 per cent ant. to M/s. Shivlal Doolichand Agarwal. Regarding my wife Smt. Bhagirathi Sharma, I got her signatures on the money deposit forms and also cheques issued in favour of M/s Shivlal Dhoolichand Agarwal for Rs. 55,000. Here also the above party deposited their moneys in the Bank and credited my wife's account. The above money is not belonging to my wife. To support this credit a file was built up in the name of my wife, with the help of Shri P. R. Mittal. Regarding the interest, we got the cheque deposited in our account and pay back 50 per cent to M/s. Shivlal Dhoolichand Agarwal. The above confession on the reverse page given at the end of my sworn deposition is the only truth. The earlier part of my statement was incorrect and I am apologetic for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t must be either 50 per cent or 60 per cent to him and balance is for the firm. (Q) There is a credit in the account of Smt. Bhagirathi Sharma, W/o Ramavatar Sharma for Rs. 55,000 on 23-3-1983. As admitted by Shri Ramavatar Sharma this amt. belongs to you and that you are given credit to her for this amt. in your books. What do you say to this? (A) In this case also like in the case of Shri Ramavatar Sharma we have deposited our moneys in her account and given credit to her for this amt. Similarly, out of the interest credited to her a/c. @ 12 per cent p.a. about 50 per cent or 60 per cent was for the creditor and the balance to the firm. We request pardon from the Department for this thing that happened in our case. I request the ITO also to consider our case sympathetically and condone our default. (Q) As the above referred credits are out of your moneys only and not belonging to the said creditor, I propose to treat the same as unexplained cash credits and assess as the income of the firm for the assessment year 1984-85 as the firm's income from ' undisclosed sources '. Do you have any objection ? (A) We have no objection for this, but we request that, no other severe ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant. 8. During the course of assessment proceedings, the ITO also initiated penalty proceedings under section 271(1)(c) by issuing a notice under section 2 74 of the IT Act. The ITO wanted the assessee to show cause as to why, he should not be held guilty of concealment within the provisions of section 271(1)(c) of IT Act. The show-cause notice issued by the ITO was replied to by the appellant vide its letter dated 17-3-1987. For the purpose of decision in the case, we consider it very relevant to reproduce the explanation of the assessee in the said letter which was written by Sri Omprakash : "I invite your kind attention to the show-cause notice issued on 10-3-1987 giving us an opportunity of hearing for levy of penalties under section 271(1)(c) and under section 273(1)(a) of the Act. In this connection I invite your kind attention to the assessment order dated 28-3-1985 wherein the statement of Mr. Ramavatar Sharma was reproduced. The Income-tax Officer handling the matters at the relevant time issued summons requiring my presence in connection with the above assessment proceedings. The Income-tax Officer showed me the sworn deposition dated 13-3-1985 of Mr. Ram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans taken by the assessee-firm from Sri Ramavatar Sharma and his wife Smt. Bhagirathi Sharma were genuine. It was also mentioned that Sri Sharma may have confessed with a view to avoid his own income-tax problems. It was also mentioned that the assessee had agreed for the addition with a view to avoid litigation and to buy peace. A request to the Commissioner was, therefore, made that the penalties under sections 273 and 271(1)(c) and interest under sections 215 and 217 should be waived. The said petition was, however, rejected by the Commissioner. 10. To complete the factual position, it is also essential to mention that in addition to levy of penalty under section 271(1)(c), the assessee was also prosecuted under section 276C of the IT Act and under sections 193 and 196 of Indian Penal Code, 1860. The department had filed the prosecution petition which was finally decided by the Andhra Pradesh High Court. The decision of the High Court in ITO v. Shivlal Dhulichand Agarwal [1990] 184 ITR 414.The Honourable High Court did not admit the confession of Sri Ramavatar Sharma as an evidence and for the reasons recorded in the said order, the Honourable Judge acquitted the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable doubt. On the facts, the Honourable High Court held : " R had not been examined and his statement had not been proved. Therefore, the Court could not consider his statement. The material on record clearly showed that R and his wife were giving loans and earning interest and they were income-tax assessees and they filed returns and their cases were decided by the income-tax authorities. Therefore, excepting the statement of the partner admitting that the amounts belonged to the firm which statement was retracted by the partner in the Court on the ground that it was made to purchase peace, there was no evidence on record to show that R and his wife had not advanced any amount to the assessee-firm. The firm filed a waiver petition under section 273(a) within days of the assessment order stating that they had agreed to treat the amount as belonging to the firm with a view to purchase peace. Thus, the firm had put forth the case which was put forth before the Court by the partner even before the prosecution was launched. Considering all the facts and circumstances of the case, it could not be said that the statement of the partner was voluntary. In the circumstances of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso brought to the notice of the commissioner that Sri Sharma may have confessed due to his own income-tax problems. The assessee agreed to be assessed on the said amount with a view to avoid possible litigation and to purchase peace with the department. The said petition to the Commissioner, therefore, conclusively proves that the assessee had agreed to be assessed with a view to purchase peace and, therefore, it cannot be punished under section 271(1)(c) of the IT Act. 14. The levy of penalty under section 271(1)(c) without giving any opportunity to the assessee to cross examine the creditor was also not proper on the part of the Assessing Officer. The learned counsel points out that the act of the ITO is violative of the principles of natural justice. As a matter of fact, vide its letter dated 27-2-1986, placed at page 33 of the material papers, a request was made to the Assessing Officer to allow the right of cross-examination to the assessee. As per the last paragraph of the said letter, it was submitted that if the penalty under section 271(1)(c) is to be proceeded with, the assessee should be given the right of cross-examination. However, without adducing any reasonable ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Sri Ramavatar Sharma in his sworn deposition is true. He also admitted that the firm had deposited its own money into the bank account of Sri Ramavatar Sharma against which the cheque for identical amount was obtained. Sri Omprakash also admitted that 50 per cent to 60 per cent of the interest amount was to be received back by the assessee-firm. Thus, the modus operandi narrated by Sri Sharma was confirmed by the partner Sri Omprakash. Sri Omprakash also agreed for the addition in the total income of the firm and was also apologetic for the lapse. These facts, therefore, conclusively prove that the assessee was guilty of concealment. The learned departmental representative contends that beyond this the Revenue need not prove anything else. 17. Sri Raghava Rao also points out that the penalties imposable under the Income-tax Act are distinct and apart from the offences and prosecution. These two, therefore, cannot be equated. The provisions regarding penalties under the various sections of the Income-tax Act are contained in Chapter XXI while the offences and prosecution are dealt with in Chapter XXII of the Act. Both the provisions are, therefore, distinct and have to be decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,--- (i) in a case where the amount sought to be evaded exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine ; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine." The learned departmental representative thus points out that section 276C uses the word " wilfully " while there is no such word in section 271(1)(c). As a matter of fact, the word " deliberately " in section 271(1)(c) was omitted by Finance Act, 1964, with effect from 1-4-1964. The language of section 271(1)(c), therefore, indicates that there is no need to prove mens rea in cases of levy of penalty under section 271(1)(c) of the IT Act. In the case of prosecution under section 276C. however, mens rea has to be proved because of the use of the word " wilfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings are not conclusive but the totality of the circumstances including the findings recorded in the assessment proceedings are good and relevant evidence. That in a penalty under section 271(1)(c) mens rea need not be proved has also been laid down in the following decisions : Gujarat Travancore Agency v. CIT [1989] 177 ITR 455 (SC) ; CIT v. I.M. Patel Co. [1992] 196 ITR 297 (SC) ; and CIT v. Kalyan Das Rastogi [1992] 193 ITR 713 (SC). Thus, with the help of the above noted judicial pronouncements, the learned departmental representative states that proving mens rea is not a condition precedent for the penalties under Chapter XXI of the Income-tax Act. 19. Coming to the decision of the Andhra Pradesh High Court in the assessee's own case in Shivlal Dhulichand Agarwal the learned departmental representative asserts that while acquitting the accused in a prosecution trial, their Lordships of the High Court did so by mainly following the decision of the Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696. However, after amendment of the Act and the omission of the word " deliberately " from section 271(1)(c) and enactment of Explanation 1 to the said sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatever Sri Sharma had stated was the truth. Perhaps, the partner Sri Omprakash was aware of the falsity of the transaction and, therefore, he thought that no purpose would be served by examining Sri Ramavatar Sharma. If the deposition of Sri Sharma was not factually correct, the assessee would not have allowed the opportunity of cross-examination to go by without any reason. Thus, the very fact that Sri Omprakash refused to examine Sri Ramavatar Sharma would conclusively prove that the loan transaction was bogus and the assessee had introduced its own money in the garb of loan in the name of Sri Ramavatar Sharma and his wife. 21. The learned departmental representative strongly refutes the allegation of the assessee that the statement of Sri Omprakash was obtained by inducement or threat. He points out that there is no material on record to suggest that the ITO has offered any inducement or had issued any threat to obtain the statement from Sri Omprakash. Moreover, the learned departmental representative has also filed a copy of the order-sheet which bears the signature of Sri Y. Ratnakar. The order-sheet entry dated 27-3-1985 reads as under : " Shri Omprakash Agarwal, Partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While dealing with the addition under section 69 of the IT Act, the Calcutta High Court, in the case of Rahmat Development Engg. Corpn. v. CIT [1981] 130 ITR 602, had laid down that section 69 of the Act deems unexplained investment to be the income of the assessee and that deposition has to be accepted in penalty proceedings also. The moment section 69 is attracted, the unexplained investments become, by a fiction of law, the income of the assessee. If they become the income of the assessee and that income is not returned, there is a non-disclosure of income. By drawing our attention to the decision of the Bombay High Court in the case of Western Automobiles (India) v. CIT [1978) 112 ITR 1048, the learned departmental representative points out that where cash credits are discovered in the accounts and the assessee accepts the amounts as his income for the year in question, it would be sufficient to discharge the onus of the Revenue in penalty proceedings by relying upon this admission. At that stage, the onus would shift to the assessee to show in the penalty proceedings that the admission made by the assessee was incorrect, or that it was wrongly or illegally made, or that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held : " Though where an assessee admits a cash credit or a deposit to be his income and surrenders it for assessment to tax, no further onus is left upon the Department to prove the charge of concealment, in the instant case, the admission of the assessee did not appear to be voluntary or free. It was clear that after the assessee had written the first letter disowning the cash credit, there was a discussion between its representative and the Income-tax Officer, as a result whereof the cash deposits were surrendered for assessment as desired provided no penalty was imposed. The Income-tax Officer must have induced the assessee to surrender the cash deposits so as to avoid penalty which would be as high as one and half times the tax sought to be evaded. It was also clear from the letter quoted above that some sort of assurance was given by the Income-tax Officer to the assessee that if the amount was offered for assessment, no penalty would be levied. It was upon those considerations that the Tribunal appeared to have held that the charge of concealment was not proved and the Tribunal was justified in doing so." " This view, the learned counsel submits, is also supported b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and section 276C can also be very well seen from the language employed in both the sections. Section 276C uses the word " wilfully " which signifies that for the successful prosecution, the prosecutor has to prove mens rea and a charge has to be brought beyond all reasonable doubt. Such is not the requirement under section 271(1)(c) of the IT Act. As a matter of fact, there was a judicial difference of opinion regarding penalty under section 271(1)(c) when the word " deliberately " in the said section was in the statute book. After the removal of the said word " deliberately ", the position has become very clear and is without any ambiguity. The decision in a criminal case, therefore, cannot be blindly applied to a penalty which is more or less a civil obligation and has to be decided on the basis of preponderance of probabilities. 28. We are also unable to follow the ratio of the decision of the jurisdictional High Court in the assessee's own case in Shivlal Dhulichand Agarwal's case in view of the fact that for the purpose of prosecution, the confessional statement of Sri Ramavatar Sharma was not admitted as an evidence. The testimony given by the creditor, Sri Ramavatar Shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tar Sharma against which the cheques were issued. Sri Sharma also explained the modus operandi of the interest amount to be returned partly to the assessee-firm itself. This statement of Sri Ramavatar Sharma, as already mentioned above, was put before the partner Sri Omprakash. A careful reading of the statement of Sri Omprakash does not reveal any inducement given by the ITO or any threat issued to him. Sri Omprakash, without any ambiguity, admitted that the assessee-firm had deposited " our monies " in the bank account of Sri Ramavatar Sharma and his wife Smt. Bhagirathi Sharma. The admission of depositing " our monies " clearly indicates that the assessee-firm had deposited its unaccounted money in the bank accounts of Sri Ramavatar Sharma and Smt. Bhagirathi Sharma. We are, therefore, in no doubt that it was a collusive transaction and the assessee had deposited his own money in the bank accounts of Sri Sharma and his wife with a view to show the bogus loans in his books of account. It may also be mentioned that the ITO had specifically asked Sri Omprakash whether he wished to cross-examine Sri Ramavatar Sharma. However, the partner affirmed the statement of Sri Ramavatar Sharm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r credits are genuine and correct. These are not out of our moneys. Only those two credits referred to above are not real and true credits. All others are genuine, correct and true." The statement of Sri Omprakash, therefore, reveals that the statement given by him was voluntary and without any inducement or throat as alleged by the learned counsel. If there had been any inducement or threat, the assessee may have admitted all the credits as bogus. However, in a very positive and vehement manner. Sri Omprakash stated that the other credits were not out of " our moneys ". He stated that the other credits were genuine and the assessee was in a position to prove the same. We fail to understand how the inducement or threat, as alleged by the learned counsel, was only in the case of Sri Ramavatar Sharma and his wife and not in the case of other creditors. We are, therefore, of the very firm view that both Sri Ramavatar Sharma, the creditor, and Sri Omprakash, the partner of the assessee-firm, had spoken the truth. 32. We are also not convinced that the sworn statement of Sri Omprakash was obtained by inducement or threat. A copy of the statement of Sri Omprakash placed before us rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the partner himself was aware that the addition as income from undisclosed sources may lead to other penal consequences. If the ITO had in fact given the assurance that no penal consequences would follow, there was no necessity for the partner to make a request that no other severe action should be taken against the firm. This, therefore, proves that there was no assurance given by the ITO and the inducement or threat by which the deposition is stated to have been obtained is a figment of imagination and an afterthought. We are, therefore, convinced that there was no inducement or threat or assurance by the ITO. 34. One more important factor to be noticed in this case is that admittedly the money has not been returned to Sri Ramavatar Sharma. Neither the assessee admits to have returned the money to Sri Ramavatar Sharma nor the latter admits to have received it back. Had it been a genuine transaction, the assessee was duty-bound to return the money to Sri Ramavatar Sharma and his wife. As a matter of fact, no such action has been taken by the assessee which also goes to show that the cash credits were bogus and the assessee had introduced its own funds in the guise of loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." It would be seen that this Explanation 1 considerably reduces, if not altogether removes, the department's onus to prove the concealment in assessments based on unexplained cash credits, unexplained investments and the like. By and large, therefore, it can now be said that the doctrine of Anwar Ali's case has been eroded and after Explanation 1, penalty under section 271 (1)(c) tends to become almost automatic. In this regard, our views are strengthened by the ratio of the decision in the case of Imperial Automobiles. We are, therefore, in agreement with the learned departmental representative that even under Explanation 1, the assessee is guilty of deemed concealment. As a matter of fact, we need not at all go to the Explanation in this case as the fact of concealment has already been established by the department. 37. Much has been made out by the learned counsel for the appellant regarding the right of cross-examination of Sri Ramavatar Sharma. It is true that the assessee had also taken a specific ground before the CIT (Appeals) th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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