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TMI Blog1997 (7) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,73,044. The CIT(Appeals) also relied on the decisions of the Supreme Court in the cases of Chuharmal v. CIT [1988] 172 ITR 250/38 Taxman 190, CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14/30 Taxman 546A and the Madras High Court decision in the case of CIT v. Bala I.M. Rao [1989] 177 ITR 114/43 Taxman 204. The assessee felt aggrieved and has filed the present appeal before the Tribunal. 3. Before us the learned counsel for the assessee argued that the CIT(Appeals) failed to appreciate that the additions in the assessment on agreed basis to the extent of Rs. 5,73,004 were made under the deeming provisions of sections 68, 69, 69A etc. and that the deeming effect of these provisions cannot have automatic application to the penalty proceedings. According to the learned counsel in view of the decision of the Hon'ble Supreme Court in the case of Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 706/33 Taxman 460A no penalty could be levied when the additions to the total income are made on agreed basis. It is stated by the learned counsel that the loan taken from marwari bankers have been surrendered for addition to the total income in the case of M.G. Enterprises. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man 58 (Punj. & Har.); Kantilal Manilal v. CIT [1982] 130 ITR 411/4 Taxman 548 (Guj.); CIT v. Jagabandhu Prasanna Kumar Ruplal Sen Poddar [1982] 133 ITR 156 (Cal.); VP. Samtani v. CIT [1983] 140 ITR 693/[1982] 9 Taxman 184 (Cal.); Kantilal Chandulal & Co. v. CIT [1982] 136 ITR 889 (Cal.); CIT v. Agency Hamdard Waqf Ltd. [1987] 166 ITR 698/31 Taxman 495 (All.); CIT v. Rupabani Theatres (P.) Ltd. [1981] 130 ITR 747/6 Taxman 265 (Cal.); CIT v. Reliable Trading Agency [1982] 138 ITR 505/[1981] 7 Taxman 315 (Cal.); and CIT v. M.B. Engg. Works (P.) Ltd. [1986] 158 ITR 509/[1985] 22 Taxman 173 (Cal.). It is further stated by the learned counsel for the assessee that while confirming the penalty under section 271(1)(c) to the extent of Rs. 5,73,044, the written submissions filed by the assessee have not been considered by the first appellate authority, and reliance was placed upon the written submissions filed before the CIT (Appeals). According to the learned counsel, the Assessing Officer has not given any specific finding about the concealment of income. According to the learned counsel, in order to avoid unnecessary and protracted litigation and also to buy peace from the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot specifically invoked by the Assessing Officer the penalty order is not sustainable. It is also submitted that the proviso to the Explanation 1 is applicable to the facts of the assessee's case as the additions were made as a result of rejection of the assessee's explanation and the explanation was bona fide and all the facts relating to the same and material to the computation of the total income had been disclosed by the assessee. It is, therefore, contended that the penalty sustained by the CIT(Appeals) is excessive and unreasonable. 4. The learned Departmental Representative, on the other hand, submitted that the order of the CIT(Appeals) sustaining the penalty for concealment under section 271(1)(c) to the extent of Rs. 5,73,044 should be confirmed. The learned DR. filed written submissions and argued the Assessing Officer levied a penalty of Rs. 10,44,016 under section 271(1)(c) on the ground that the assessee concealed the particulars of income/furnished inaccurate particulars of his income in respect of the addition of Rs. 15,54,194 to the total income. The CIT(Appeals) has reduced the quantum of penalty in respect of the following amounts: (a) Personal drawings not inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of more than a year and six months available to him to inspect the seized books of account, etc. The learned DR. stated that the contention of the assessee that the assessment has been completed on agreed basis is not correct. Though the assessee has made a petition to the Commissioner of Income-tax under section 273A on 12-2-1985 indicating his intention to disclose a sum of Rs. 9,66,150, the return of income filed on 16-7-1986 subsequent to the petition under section 273A, did not even disclose the income so intended to be offered under section 273A. The additions were made to the total income to the extent of Rs. 15,54,194 and that the amount of Rs. 5,88,044 (including agricultural income of Rs. 15,000) was added to the total income over and above the amount covered in the petition under section 273A. It is stated by the learned DR. that the assessee had contested the additions before the appellate authorities but did not succeed and the mere fact that the additions have been contested in appeal indicates that there was no agreed assessment as claimed by the assessee. The learned DR. argued that there was no full disclosure in the petition under section 273A, which covers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT [1981] 130 ITR 411/4 Taxman 548 and CIT v. Drapco Electric Corpn. [1980] 122 ITR 341 and the decision of the Tribunal in the case of Smt. Kalpagam in [IT Appeal No. 2878 (Mad.) of 1990, dated 4-11-1996] for the assessment year 1981-82. 5. We have carefully considered the facts of the case and material on record. We have also considered the paper book filed by the assessee's counsel, which contained the written submissions of Sri N. Meenakshisundaram, Chartered Accountant. We have perused the written submissions filed by the Sr. Departmental Representative also. It could be seen that when the Assessing Officer repeatedly asked the assessee to show cause why penalty under section 271(1)(c) should not be imposed, the assessee's representative, Sri N. Meenakshisundaram, C.A. filed a letter dated 26-10-1989, wherein it was stated that the assessee has filed a petition under section 273A before the Commissioner on 12-2-1985. It was further submitted (as stated by the Assessing Officer in the penalty order) as under: "In such circumstances in order to avoid unnecessary and protracted litigation and also to buy peace from the Dept., the assessee had made a full and true disclosure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower to consider the legal position and facts of the case properly and in suitable cases after considering the legal position and facts of the case, could enhance the penalty imposed by the Assessing Officer. The assessee has raised the issue of applicability of Explanation 1 to section 271(1)(c) before the CIT(Appeals) and, therefore, he is not adversely affected if the said Explanation has not been mentioned by the Assessing Officer in the penalty order. 6. In the case of CIT v. Prathi Hardware Stores [1993] 203 ITR 641 (Ori.), the facts of the case were that the cash credits of Rs. 20,000 were found in the assessee's accounts. It claimed that a loan of Rs. 20,000 was obtained from one Sri R.V.P. Ganapathi Rao on different occasions. The ITO examined the said Ganapathi Rao who admitted to have advanced the loan and explained that this amount was saved out of commission which he had earned as commission agent. According to Sri Ganapathi Rao, the amount was not kept in the bank because of an apprehension that, if the fact of his having the amount was known to his brother, he would have been forced to use the amount in the business of his brother, which he did not want to do. The I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68, 69, 69A and 69C deem for the purpose of assessment was injected for the purpose of penalty by operation of a deemed provision. A proviso was added to the new Explanation. It concerns cases where the assessee offers an explanation which he is not able to substantiate. Consequently, the provision intended to save such amount from imposition of penalty, although the same had been added to the assessee's income in the assessment, if the assessee's explanation is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him." Their Lordships further held at pages 648 to 650 as under: "A conspectus of the Explanation added by the Finance Act, 1964, and the subsequent substituted Explanation makes it clear that the statute visualised the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. In essence, the Explanation (both after 1964 and 1976) is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. The rationale behind this view is that the basic facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s discharged, the assessee would be out of the mischief unless further evidence is adduced. It is plain on principle that it is not the law that the moment any fantastic or unacceptable explanation is offered, the burden placed would be discharged and the presumption rebutted. As pointed out by the Apex Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14/30 Taxman 546A, the burden placed upon the assessee is not discharged by any fantastic explanation. It must be an explanation acceptable to the fact-finding body. The position on and after April 1, 1976 is clear that where, in respect of any item of credit, the assessee has offered an explanation which the taxing officer has considered to be false or the assessee has offered an explanation but no material or evidence to substantiate it, he shall be deemed to have concealed such income within the meaning of section 271(1)(c). A further condition was imposed with effect from September 10, 1986, with which we are not concerned. In the case at hand, the explanation of the assessee so far as the genuineness of credit of the lender was concerned was not accepted. The assessee's appeal before the AAC failed. It was observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1] 130 ITR 411/4 Taxman 548 the Gujarat High Court held as under : "The Explanation to section 271(1)(c) of the Income-tax Act, 1961, enacts a rule of evidence and the authority which imposes penalty is competent to invoke its aid in reaching the final conclusion on the question of concealment, although it may not have been resorted to at the stage when the reference was made to the authority imposing the penalty. Therefore, merely because the Explanation has not been referred to in the show-cause notices, there is no legal bar invoking the Explanation during the course of the penalty proceedings." 8. Similarly, the Division Bench of the Gujarat High Court in the case of CIT v. Drapco Electric Corpn. [1980] 122 ITR 341 held (headnote at p. 344) as under :--- "Since the Explanation enacts merely a rule of evidence, it is competent to the authority which imposes the penalty to invoke its aid in reaching the final conclusion on the question of concealment, although the ITO may not have resorted to it at the stage when he made the reference to the authority." 9. In the case of CIT v. Rajeshwar Singh [1986] 162 ITR 173 (Punj. & Har.) the ITO did not invoke Explanation to section 271 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory letter as well as in his examination by the Assessing Officer did not make the explanation reliable. Their Lordships found that the legal fiction or the presumption created by the Explanation had not been rebutted by the assessee by producing sufficient and reliable evidence and that the assessee failed to produce the material facts on record, which would be sufficient to displace the legal presumption. It was held that the onus of proof for rebutting the presumption lay squarely on the assessee which he failed to discharge. Therefore, the Hon'ble High Court held that the levy of penalty on the assessee was valid under clause (B) of Explanation 1 to section 271(1)(c) of the Act. What is significant in the aforementioned decision is that it appeared from the facts of the case that Explanation 1 to section 271(1)(c) was not referred either by the Assessing Officer or by the CIT(Appeals), or by the Tribunal. But the Hon'ble Punjab & Haryana High Court referred to the said Explanation even for the first time in order to consider whether the assessee had concealed the particulars of his income, or furnished inaccurate particulars of income, within the meaning of section 271(1)(c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable to the assessee's case is a rule of evidence. Presumptions which are rebuttable in nature are available to be withdrawn. The initial burden of discharging the onus of rebuttable is on the assessee. 11. In the assessee's case before us the Assessing Officer detected certain bank deposits and other investments to the tune of Rs. 5,73,044. The assessee has given no explanation about the source and nature of such investments in banks and in Meera Papers (P.) Ltd., and also investments made in minors' names. In the absence of any explanation by the assessee it has to be held that the assessee did not discharge the onus which lay on him. 12. Explanation 1 to section 271(1)(c), which has been considered by the CIT(Appeals) in the present case, is reproduced below : "Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act--- (A) such person fails to offer an explanation or offers an explanation which is found by the ITO or the AAC [or the Commissioner (Appeals)] to be false, or (B) such person offers an explanation which he is not able to substantiate, then the amount added or disallowed in computing the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income was less than 80 per cent of the income assessed. Deemed income comprising of value of unexplained articles was added to the disclosed income, and penalty under section 271(1)(c) was imposed by the Assessing Officer. The Hon'ble Supreme Court held that the expression 'income' as used in section 69A of the Income-tax Act, 1961, had a wide meaning which meant anything which came in or resulted in gain. The Apex Court also held that, on the facts, a legitimate inference could be drawn that the assessee had income which he had invested in purchasing the wrist watches and could be held to be the owner of the watches and their value could be deemed to be his income by virtue of section 69A. Since in the assessee's case before us, no explanation had been given about the deposits in bank and other investments made by him, the ratio laid down by the Hon'ble Supreme Court in the case of Chuharmal v. CIT [1988] 172 ITR 250 is squarely applicable. 15.1 In the case of CIT v. Krishna & Co. [1979] 120 ITR 144 (Mad.), the facts of the case were that the books of the assessee showed certain borrowings and repayments from certain bankers. The ITO found that the transaction in question was bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety of the levy of penalty on the assessee adverting to the presumptions arising from the Explanation to section 271(1)(c) and the disclosing of those presumptions by materials placed by the assessee. Their Lordships further held that apart from merely stating that the stand of the assessee was that the borrowals were true and that there were no other circumstances which would prima facie indicate that the version of the assessee could not be true, the Tribunal had not adverted to any material placed by the assessee to dislodge the presumption. It was therefore, held by the Hon'ble Madras High Court that the levy of penalty was valid and the Tribunal was not justified in cancelling it. 16.1 Applying the ratio laid down by the Hon'ble Madras High Court in the case of CIT v. K. Govindarajulu Naidu [1991] 190 ITR 318/56 Taxman 117 in the present assessee's case, we hold that the assessee has not given any explanation about the nature and source of deposits in bank and other investments which were detected by the Assessing Officer and therefore, there is no reason why penalty under section 271(1)(c) should not be imposed on the assessee. 17. The learned counsel for the assessee reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Hon'ble High Court found that in the penalty order, there was not a word said about the applicability of the Explanation to section 271(1)(c). When the matter went before the Tribunal, the assessee was absent, but the Tribunal went into the merits of the appeal in the presence of the Departmental Representative. The High Court further found that in the order of the Tribunal there was nothing to show that at the time of hearing the D.R. invoked the Explanation to section 271(1)(c) in an effort to sustain the order of penalty. In this context, the Hon'ble Madras High Court held that with regard to application of Explanation to section 271(1)(c) the Tribunal has not gone into it and this Explanation was not invoked by the IAC in the order levying penalty nor was it raised by the Department before the Tribunal. Accordingly the Department could not raise the issue regarding Explanation to section 271(1)(c) before the High Court and the Tribunal was justified in not considering it. But the facts and circumstances of the assessee's case before us are totally different. Explanation 1 to section 271(1)(c) has been argued by the assessee's counsel before the CIT(Appeals) and the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income or during the course of assessment proceedings. The total income of the assessee was assessed by the Assessing Officer at Rs. 17,86,860, which reveals staggering difference between the returned income and the assessed income. Considering the facts and circumstances of the assessee's case we are satisfied that the assessee has concealed the particulars of his income and also had furnished inaccurate particulars of his total income. The fact that the assessee had agreed for addition after the Assessing Officer detected the deposits in bank, investments made by the assessee, etc., would prove that the assessee had made no effort to declare correct taxable income in his return. If the return of income filed by the assessee had been accepted under section 143(1) without scrutiny, then it would have resulted in evasion of taxes legitimately due to the State. Agreeing to the addition to the total income on account of deposits, investments, etc., made by the assessee, when such deposits, investments, etc., were detected by the Assessing Officer, could not be a reason for absolving the assessee from the penalty. When the assessee himself had agreed to the addition of concealed in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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