TMI Blog1999 (4) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed by the CIT (Appeals) in the quantum and that therefore, the Assessing Officer was directed to recalculate the penalty accordingly. The Tribunal has also by its order dated 18-1-90 in the quantum appeal while deleting the addition in respect of jewellery worth Rs. 67,326 sustained the addition made amounting to Rs. 50,000 towards unaccounted cash. Consequently, the penalty leviable under section 271(1)(c) was recalculated by the Assessing Officer at Rs. 33,000. Yet, the instant second appeal by the assessee before us. 3. The learned counsel for the assessee submitted to the effect that the Assessing Officer erred in law and on the facts of this case in levying the penalty of Rs. 1,00,000 under section 271(1)(c) of the Act as there is no intention on the part of the assessee to conceal tiny income. There has been a substantial relief in the quantum appeal which would demonstrate that the points involved are questions of opinion. The Assessing Officer is not correct in levying a penalty on the additions sustained as second appeal was pending before the Tribunal in the quantum. The assessee has already furnished necessary explanations and evidence which were accepted on pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e levied based on the Explanations. Therefore, when the Explanation is not to be applied, penalty in question cannot be levied under the main provision of section 271(1)(c) especially when there is no evidence of concealment. When the case primarily depends upon preponderance of probabilities, the benefit of doubt should be given to the assessee and penalty deleted. In the absence of applicability of the Explanations the decision in the case of CIT v. Anwar Ali [1970] 76 ITR 696 (SC) becomes applicable and the onus is on the Department to prove which they failed to do. The facts narrated in the order of the Assistant Commissioner show that the return was filed in September 1983 whereas the search was in August 1982 and that therefore, there can be no question of concealment in the return filed in September 1983 when the cash has already been seized and that it was only a question of accepting the Explanation of the assessee or not. In any event, the benefit of doubt must be given to the assessee and the penalties deleted. Reliance is also placed on the decisions following: (a) CIT v. P.M. Shah [1993] 203 ITR 792 (Bom.), (b) CIT v. Dharamchand L. Shah [1993] 204 ITR 462 (Bom.) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te reasonable in sustaining the said addition of Rs. 50,000 in the hands of the assessee, but yet no finding has been given by it that there was concealment by the assessee. Under these circumstances, the grievance of the assessee before us is that just because an addition has been confirmed, the penalty cannot be automatically levied. In the instant case, the department has not demonstrated that the assessee has concealed which aspect is sine qua non for levy of penalty. Further, it was vehemently argued by the assessee that reference of the Appellate Commissioner in his order, the Explanation to section 271(1)(c) was not warranted in as much as neither the penalty order of the Assistant Commissioner nor even the notice under section 274 issued has made any reference to the Explanation. It was reiterated by the assessee that in accordance with the well settled propositions of law unless the Explanation is put to the assessee at the earliest stage itself during the assessment proceedings, penalty can never be levied based on the Explanation and that therefore, penalty can never be levied in the instant case especially when there is no evidence of concealment. Furthermore, on coming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us has also focussed our attention to the decision, again, of the Hon'ble Bombay High Court in the case of Dharamchand L. Shah wherein it was quite apparent from the order of the Assessing Officer that he had imposed penalty under section 271(1)(c) merely on the ground that certain additions were made in the assessment proceedings, and that the assessee had accepted the same, it was held that the penalty could not be imposed since the Assessing Officer failed to invoke the provisions of Explanation to section 271(1)(c) and further that the burden was on the Revenue to prove concealment of income besides that the additions made in the assessment would not automatically entitle the Revenue to impose penalty. 6.5. Further our attention was drawn to the decision of the Ahmedabad Bench of the Tribunal in a Third Member case cited wherein it was held that assuming that the assessee's case falls within the Explanation 1, inserted with effect from 1st April, 1976, the assessee's case was covered by the proviso which was deleted from 10th Sept., 1986 and further that the mere fact that the Explanation has not been found to be satisfactory would not be conclusive of the fact that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of Rs. 2,46,890 added in the assessment as unexplained jewellery. With regard to the addition of Rs. 96,559 as unexplained cash found at the time of search, after considering the assessee's explanation, the CIT(Appeals) treated Rs. 50,000 as unexplained cash and the balance as belonging to other members of the family. The Assessing Officer considered that penalty under section 271(1)(c) is leviable on the facts of the case as there was concealment of particulars of income. Taking into account all the facts and circumstances of the case, he levied a penalty of Rs. 1,00,000 under section 271(1)(c). The assessee felt aggrieved by the order of the Assessing Officer levying penalty under section 271(1)(c) and preferred appeal before the CIT(A). 3. The CIT(A) held that with regard to jewellery the explanation of the assessee was bona fide, that the assessee has given details in this regard and therefore, no penalty under section 271(1)(c) is leviable. However, with regard to cash the CIT(A) found that the explanation of the assessee was not bona fide and he has not given all the particulars in this regard. It was therefore held that the assessee has concealed his income pertaining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emory while the later version was with reference to records, etc. The learned counsel, therefore, pleaded that the penalty levied be deleted. 5. On the other hand, the learned Departmental Representative supported the order of the CIT(A) and stated that no satisfactory explanation was given by the assessee about the availability of cash found at the time of search. Reliance was also placed on the decision of the Punjab Haryana High Court in the case of Capital Cinema v. and it was argued that it is not necessary to bring Explanation 1 to section 271(1)(c) to the notice of the assessee before imposition of penalty under section 271(1)(c), and hence merely because no reference to Explanation to section 271(1)(c) has been made by the Assessing Officer in his notice or penalty order, it cannot be said that the penalty proceedings are invalid. 6. I have considered the rival submissions, facts of the case and material on record. In the case of P.M. Shah decided by the Mumbai High Court the facts of the case were that, during the course of assessment proceedings for the assessment year 1967-68 the ITO recorded his satisfaction that the assessee had concealed his income. Since the mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of section 271(1). Therefore, under this Explanation to section 271(1)(c) the assessee was to be given an opportunity to show that failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. In P.M. Shah's case relied on by the assessee's counsel, there was no evidence to show that the IAC or the ITO ever brought to the assessee's notice that Explanation to section 271(1)(c) was attracted to his case. 8. Similarly, in the case of Dharamchand L. Shah, relied on by the assessee's counsel, penalty under section 271(1)(c) was imposed without invoking the Explanation thereto. In that case the ITO made addition of Rs. 84,000 being market value of gold biscuits with foreign markings by invoking the provisions of section 69A of the Act. In first appeal the AAC upheld the finding of the ITO in regard to the ownership of the gold but took the view that an addition to be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. Unless and until the assessee is made aware of the applicability of the Explanation (as applicable in the assessment year 1967-68), he was not able to discharge the onus which lies on him. It was under these circumstances, their Lordships of the Mumbai High Court held that when the Explanation is being resorted to by the ITO or by the IAC, in penalty proceedings, it is essential that the assessee must be informed that penalty proceedings are being commenced under the Explanation to section 271(1)(c). In the case of Dharamchand L. Shah, referred to earlier also, Explanation to section 271(1)(c) was not invoked by the IAC while imposing penalty under section 271(1)(c) for the assessment year 1971-72. It is under these circumstances their Lordships held that since the IAC has failed to invoke the provisions of the Explanation to section 271(1)(c), penalty could not be invoked. 10. In the assessee's case now under consideration penalty under section 271(1)(c) was imposed in the assessment year 1983-84. The Explanation to section 271(1)(c) which was applicable in the aforesaid case decided by the Mumbai High Court has been substituted by another Explanation by Taxation Laws (Ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not reject this contention on the ground that the Explanation was not taken support of by the ITO and was not pleaded before the AAC. Similarly, in the case of CIT v. Saraf Trading Corpn. [1987] 167 ITR 909 (Ker.) their Lordships held that the Explanation provides only a rule of evidence raising a rebuttable presumption in certain circumstancs. In the case of Capital Cinema penalty under section 271(1)(c) of the Income-tax Act, 1961 was imposed as the income returned by the assessee was less than 80% of the income assessed and that the old Explanation 1 to section 271(1)(c) which was in operation upto the assessment year 1975-76 was invoked. Their Lordships held that if the income is beyond 20% of the returned income, then the Explanation became applicable and presumption have to be raised against the assessee which he can rebut. Their Lordships further held that the Explanation has to be read with section 271(1)(c) and there is no question of considering the Explanation as separate or distinct from it. The law has to be applied to the given facts. Even if, in the order, a specific reference to the Explanation is not mentioned but the Explanation is applied and the onus i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the earlier Explanation which was operative upto assessment year 1975-76. Under the newly substituted Explanation applicable w.e.f. 1-4-1976, where in respect of any facts material to the computation of income, if the assessee gives no explanation at all, or the explanation is found to be false, or such person offers an explanation which is not bona fide, then the amount added or disallowed in the assessment arising out of such facts shall be deemed to be the concealed income. Therefore, the scope and nature of the Explanation to section 271(1)(c) upto the assessment year 1975-76 and the scope and nature of Explanation-1 to section 271(1)(c) w.e.f. 1-4-1976 are different totally. In view of the decisions of the Gujarat High Court referred in para 11 above and the decisions of the Punjab Haryana High Court referred to in the immediately preceding paragraph, which were in respect of old Explanation upto the assessment year 1975-76, and in view of the nature and scope of new Explanation-1 to section 271(1)(c), I am of the considered opinion that the decisions of the Mumbai High Court in the cases of P.M. Shah and Dharamchand L. Shah relied on by the assessee's counsel, are not app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omestic functions. He categorically denied that it was business cash. The assessee cannot also be definite in his answer to the query whether it represented unaccounted income. This statement was given on 14-9-1982 at the time of search. Assessee's brother was also examined and he categorically testified that he did not have any savings and that he did not gift any money to his brother for safe custody and that he did not receive any cash gift during the last two years. After the examination of his brother, the assessee subsequently on 25-11-1982 came with a different version and stated that the cash balance represent savings of his father, minor daughter, mother and sisters and also amount drawn as remuneration from M/s. Dhandapani Co. (P.) Ltd. Before the Tribunal, the assessee's counsel claimed that books of M/s. Dhandapani Co. (P.) Ltd. and M/s. Kamalaya showed sufficient cash balances. It was stated before the Tribunal with reference to the statement given at the time of search that the assessee was confused and could not answer properly. The assessee was having a bank account for several years and it was difficult to understand how such large cash was being kept at a time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellate stage for the first time before the Tribunal and not produced either at the assessment stage or at the first appellate stage. The Tribunal while disposing of the quantum appeal of the assessee stated that attempt made at the stage of appeal does not inspire confidence because the assessee had categorically denied at the time of search that the cash represented business cash. 3. None of the wealth-tax returns of family members, assessee and his brother indicated any cash balance on the relevant valuation dates. 16. In view of these facts, there is evidence on record to show that the cash of Rs. 50,000 considered as unexplained by the CIT(A) and the Tribunal in the quantum appeal proceedings, has not been explained by the assessee and his explanation that cash balance belong to the family members is false and Explanation 1 to section 271(1)(c) applies. The assessee has not rebutted the presumption under the said Explanation. As held by the Supreme Court, in the context of Explanation 1 to section 271(1)(c) (operating upto 1975-76), regarding burden of proof on the assessee (CIT v. K.R. Sadayappan [1990] 185 ITR 49 (SC), the presumption of concealment was rebuttable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AAC cancelled the penalty. The Tribunal observed that though the assessee did not go further in appeal when the AAC confirmed the addition of Rs. 20,000, one did not know whether the said addition would have been confirmed before the Tribunal. It was further observed that disbelieving an explanation does not prove concealment. The Tribunal upheld the order of cancellation. On a reference, their Lordships of the Orissa High Court held as under: "Held, that, in the instant case, the explanation of the assessee so far as genuineness of credit of the lender was concerned was not accepted. The assessee's appeal before the AAC failed. It was observed that the assessee offered an explanation but no material or evidence to substantiate the same. The Tribunal came to a presumptous conclusion that the assessee may have succeded in the appeal, had it come before the Tribunal against the addition. No basis or reason had been indicated for such conclusion. The Tribunal did not consider the case of the assessee keeping in view the new Explanation 1 to section 271(1)(c) applicable on and after April 1, 1976. By operation of the Explanation, the onus lay on the assessee and findings given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new Explanation applicable w.e.f. 1-4-1976 to section 271(1)(c). The burden is not on the Department to prove that the cash of Rs. 50,000 which was confirmed by the Tribunal, was unaccounted income of the assessee. Since the assessee has failed to discharge the onus and the explanation of the assessee is not bona fide and is found to be false, the CIT(A) was justified in confirming the penalty imposed under section 271(1)(c) in respect of the cash of Rs. 50,000 (which was confirmed in appeal by the Tribunal also in the quantum proceedings) and in directing the Assessing Officer to recalculate the penalty accordingly. In view of these facts, I confirm the order of the CIT (Appeals) and dismiss the appeal filed by the assessee. REFERENCE TO THE HONOURABLE THE PRESIDENT UNDER SECTION 255(4) OF THE I.T. ACT, 1961 As we differ in opinion after due deliberation on the points in adjudication in this appeal, we refer to the Hon'ble The President of the Tribunal for hearing by one or more of the other Members of the Tribunal to be constituted by him as Third Member, the point of difference stated below: "On the facts, under the circumstances and in the probabilities of the case, as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Calcutta, Hyderabad and some other places also. The assessee is said to be the 4th son of his father. At the time of search in the assessee's house, besides himself and his wife, his parents as well as some others were living. The search under section 132(1) of the Act took place on 14th September, 1982. It is stated that all the places where the firm has got its branches, namely Madras, Hyderabad, Calcutta etc. were also searched. During the search, huge quantity of jewellery and cash of Rs. 96,559 were seized. The assessee was examined during which he stated that the jewellery belonged to various members of the family consisting of his mother, his wife, his sister-in-law and his two sisters. The value of the said jewellery seized was worth Rs. 2,46,890. The assessee files income-tax return admitting a total income of Rs. 1,26,135. However, the Assessing Officer completed the assessment on 30-11-1983 on a total income of Rs. 5,32,480. In the first instance the Assessing Officer considered the jewellery of Rs. 2,46,990 and Rs. 96,559 cash seized as unexplained investment of the assessee and added the same as part of his income from undisclosed sources. At the time of assessment wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On being questioned as to how much represented savings and how much gifts the appellant could not give categorical and specific answer as he did not know. It was further observed that this cash did not belong to the business. In respect of a question, viz. whether the cash belonged to the unaccounted income of the appellant, the appellant replied that he could not definitely say anything. The appellant's brother was also examined on the same date, who stated that he did not remember whether any money was given to his father or his brother. He stated further that he did not have any savings at all. On the basis of these statements, the appellant was questioned again on 25-11-1982, when he took the stand that the entire cash did not belong to him and that some of them represented the cash balance of the associate concern, M/s. Kamalalaya, which was kept for security purposes. It was stated that Rs. 30,000 belonged to M/s. Kamalalaya and Rs. 30,000 represented his remuneration as Director from M/s. Dhandapani Company (P.) Ltd., and that the balance belonged to his father, minor children, mother and others who were present in the house. Shri T.N. Soundararajan, the brother of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "9. . . The only argument now raised against the addition centres round the cash book extracts from M/s. Dhandapani Co. (P.) Ltd. and Kamalalaya. Unfortunately the cash book was not written up on the date of search and for more than two months entries had not been made. At the time of search the appellant was elaborately questioned. In answer to question No. 1 the appellant deposed as under:- "The cash belongs to me and my brother Sri T.N. Soundararajan approximately in the ratio 50:50. The cash is with me since a year. It represented our savings and gifts received on domestic function." We reproduce below the answer to question Nos. 9 and 10:- "Q.9 : Is this amount drawn from your business cash? Ans.: No. It is not business cash". Q.10. I put it to you that this amount has been accumulated out of your unaccounted income. What do you say? Ans.: I cannot definitely say anything." This was on 14-9-1982 at the time of search. Subsequently, he gave another statement on 25-11-1982 indicating that Rs. 30,000 represented cash balance of Kamalalaya and Rupees 30,000 represented remuneration from the company. A sum of Rs. 15,000 is claimed to belong to his mother and for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f and later had changed his version. Therefore, it cannot be stated that his explanation is bona fide and also he has given all the particulars in this regard. Therefore, the levy of penalty is adequately covered by Explanation 1 to section 271(1) of the Income-tax Act. Thus he sustained the penalty of Rs. 1 lakh under section 271(1)(c). 6. Further aggrieved, the assessee came up in second appeal before this Tribunal. The learned Judicial Member felt that the appeal is worthy to be allowed, whereas the learned Accountant Member felt that in his view he should have confirmed the order of the CIT(Appeals). Thus in order to resolve the point of dispute between the Members I constituted myself as Third Member under section 255(4) of the Act. 7. I have heard Shri P.B. Vijayaraghavan, the learned Advocate for the assessee and Shri T. Goraknathan, the learned Departmental Representative. After hearing both sides, I entirely agree with the learned Judicial Member and hold that it is not a good case where penalty can be sustained. My reasons are as follows. 8. We are concerned with the assessment year 1983-84. The law as applicable to the facts is the law as on 1 -4-1983. Section 271( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1986:- "(and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him)". The above words which were introduced by the Finance Act, 1986 were taken to be part of Explanation 1(B) even by Finance Act, 1983 by the learned Accountant Member, as can be seen from the extracted portion of the Explanation given in para 14 of his orders. Thus the contention of the learned counsel for the assessee was that instead of applying the correct state of law, the amended law which came very much later to the assessment year in question was applied to the facts and thus palpable error of law was committed by him. Secondly, it was contended that in the notice issued under section 274 prior to the initiation of the penalty proceedings the Income-tax Officer did not invoke Explanation 1 given under section 271(1)(c) which, inter alia, deals with deemed concealment. The assessee was not put on guard about the invocation of the Explanation 1 to section 271(1)(c) and without intimating the invocation of the Explanation 1 and the intention of the Assessing Officer to sustain the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- "The Explanation to section 271(1)(c) of the Income-tax Act, 1961, extends the provisions of clause (c). Therefore, once the Explanation is also invoked in the show-cause notice, the burden is not only shifted on the assessee but is also heavy to prove that he had not concealed particulars of his income or furnished inaccurate particulars thereof. However, in the absence of invoking the Explanation specifically, the burden would remain on the Revenue to bring the assessee's case within the mischief of the main provisions of section 271(1)(c). Assessment proceedings and penalty proceedings are two separate and distinct proceedings. The fact that certain additions were made in the assessment proceedings would not automatically justify the imposition of penalty under section 271(1)(c). It is also a well established principle that the provisions relating to penalty proceedings are quasi-criminal in nature and, therefore, the burden is large on the Revenue to establish the charge before imposing penalty under section 271(1)(c), more so, when the Explanation to that section has not been invoked, the provisions of section 69A are enabling provisions for making certain additions if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had concealed the particulars of its income or furnished inaccurate particulars thereof. The Judicial Member has rightly deleted the impugned penalty." 12. The learned counsel for the assessee also relied upon the decision in CIT v. V. Ponnuswamy Naidu [1995] 128 Taxation 376 (Mad.). Another decision cited on behalf of the assessee was Mussadilal Ram Bharose's case. In that case the question was whether the assessee sufficiently discharged its onus by producing relevant and sufficient material. It was held that when the Tribunal concluded that the assessee had discharged its onus to prove that the difference was not owing to gross or wilful neglect or fraud, it is a conclusion of fact. 13. My attention was also drawn to the decision in CIT v. G.D. Naidu [1987] 165 ITR 63 (Mad.). In that case the assessee had taken a particular position in assessment proceedings. A contrary view was taken by the ITO. The question was whether under the circumstances any penalty was called for under section 271(1)(c). The High Court held that simply because the position taken by the assessee was not accepted by the Income-tax Officer does not automatically attract penalty under section 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 132(4A) of the Act for that purpose. This argument cannot be accepted in view of the fact that the presumption raised under section 132(4A) can be invoked only for purpose of proceedings initiated under section 132. That means while completing an assessment under section 132(5) or the, appeal proceedings under section 132(11) cannot be invoked in the regular assessment proceedings. The learned departmental representative contended that at the initial stages the assessee sought to explain that the amount belongs to himself and his brother, Shri Soundararjan and it represents savings and cash gifts. The assessee has been an income-tax assessee since 1964. His brother Soundararajan denied in his statement that he had any savings. He also denied any gift having been received. The learned departmental representative sought to rely upon the decision of the Madhya Pradesh High Court in 210 ITR 682 (MP) - S.S. Ratanchand Bholanath v. CIT, where it is held that when the assessment order became final and binding on both parties, neither party can be permitted to re-open it in the penalty proceedings. Further the learned departmental representative also relied upon the decision of the Hon ..... 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