TMI Blog1964 (9) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... ear at ₹ 3,337. It is an admitted fact that he did not maintain any books of accounts in respect of his employment. The returns filed by him were in due course investigated by the Income-tax Officer and in completing the assessments, he brought to tax additional amounts of ₹ 17,390 and ₹ 29,483 for the two years respectively as income from undisclosed sources. The assessment order for the assessment year 1952-1953 shows that though the assessee had filed his returns for that year declaring therein only ₹ 3,337 as his total income, it was found by the Income-tax Officer that during that year he had purchased a motor-car for ₹ 10,250, a piece of land for ₹ 9,330 and had commenced construction of a house upon that piece of land. The construction of the house was commenced in November, 1951, that is to say, during the account year 1951- 1952, and was completed some time in April or May, 1952, during the account period 1952-53. On the discovery by him of the acquisition during the relevant period of these assets, the Income-tax Officer called upon the assessee to furnish information regarding the sources of these expenditures. Thereupon, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d underestimated the building cost to about ₹ 23,000 and estimated that cost at ₹ 40,000 and taking that figure to be correct and adding ₹ 1,400, being the income not disclosed in the returns, held that the total assessable income against the income disclosed by the assessee, namely, ₹ 9,890, was ₹ 40,563. Thus the Income-tax Officer brought to tax additional amounts of ₹ 17,390 and ₹ 29,483 as income from undisclosed sources respectively for the two assessment years. In the appeals filed by the assessee before the Appellate Assistant Commissioner, these amounts were reduced to ₹ 15,245 and ₹ 15,083 respectively. The record shows that the assessee did not file any further appeal from the orders passed by the Appellate Assistant Commissioner and acquiesced in the said amounts. The amount of ₹ 15,083 added for the assessment year 1953-54, however, included ₹ 2,000 received as bonus from Messrs. Nanavati Co., but since its source was disclosed it could not be said to be income from undisclosed sources and to that extent, the order passed by the Appellate Assistant Commissioner was factually incorrect. On the very d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from his father, the assessee had shifted his ground in this explanation from the one taken by him earlier during the assessment proceedings in the sense that whereas his case earlier was that he had taken ₹ 15,250 in the aggregate from his father, in his explanation in these penalty proceedings he had changed his case and stated that he had only taken ₹ 10,000 from his father. Regarding the assessee's allegation that he had withdrawn ₹ 10,000 from the Central Bank of India Ltd., Rajkot, which amount was required by him for the construction of the house, the Income-tax Officer found that this part of the explanation also was false because the officer had discovered on an inquiry from the bank that though the assessee had withdrawn this amount from his account, he had not utilised the amount so withdrawn towards the cost of construction but had instead converted it into a fixed deposit. This was clear from the bank's letter dated November 29, 1957, in which the bank had informed the Income-tax Officer that a short deposit receipt for ₹ 10,000 was issued by the bank in favour of the assessee against withdrawals of the like amounts on March 13, 1952. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y which he has not disclosed and which has really gone into the cost of construction and which the assessee has been running about to prove by various untrue statements . The assessee admittedly had received a sum of ₹ 5,000 from Messrs. Abdulla Fidaali Co. by a cheque dated December 31, 1951. The Income-tax Officer's view, therefore, was that the assessee must have received considerable amounts as remuneration from the different concerns for whom he had worked at Delhi. The conclusion arrived at by him was: It would thus be clear that (i) the assessee met his personal expenses, deliberately stated by him at a very low figure, out of concealed income, (ii) the bank balances were not available to him for house construction as alleged, (iii) the story of loan from the father is patently false and the fact of income from race and rummy is deliberately cooked up. In addition the assessee also invented the names of persons as providing source of income about whose non-existence there is not the least doubt. It is clear from this order that the Income-tax Officer gave two findings, (a) that the assessee had shifted his case and given different explanations with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound of falsity the Income- tax Officer in paragraph 7 of his order relied upon three circumstances, namely, (a) the changing of his case in regard to his having obtained moneys from his father, (b) abandoning of as many as five sources which had been earlier shown as such, and (c) his failure to include the commission amount of ₹ 1,400 in his returns. Rejecting the assessee's explanation on the grounds aforesaid, the Income-tax Officer came to the conclusion that the assessee had committed the offence under section 28(1)(c) as in the previous year and imposed a penalty of ₹ 2,855 for this assessment year. Against the two orders, the assessee filed appeals before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner heard the appeals together and passed a common order dated August 18, 1959, dismissing both the appeals. The assessee's case before the Appellate Assistant Commissioner was that the added amounts were considered to be income from undisclosed sources merely on the basis that the Income-tax Officer had not accepted his explanation, that the Income-tax Officer had failed to establish that the amounts treated as income from undi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer and the Appellate Assistant Commissioner, Rajkot, and which were payments received for service rendered. And since these are payments received by him for services rendered as would be clear from the appellant's activities right from 1947-48 onwards, I hold that these payments are the income of the appellant which have been concealed and about which inaccurate particulars have been given deliberately by the appellant both for assessment year 1952-53 as well as 1953-54. I, therefore, consider that the appellant comes within the orbit of section 28(1)(c), and a penalty has correctly been levied on him for both the years on this account, because the facts in this case are different than the one decided by the Bombay High Court and referred to by the appellant. Though the Appellate Assistant Commissioner was not correct with regard to the bonus amount of ₹ 2,000, his finding with regard to the rest was a positive finding that the case of penalty did not rest merely on the ground that the explanation of the assessee was false, but that the moneys spent in acquiring the assets represented his income and that that income was concealed. In a furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion, it would be necessary to consider the ratio laid down in the case of Gokuldas Harivallabhdas [1958] 34 I.T.R. 98. The assessee there was assessed to tax on an income of ₹ 15,203 which the department held to be income from undisclosed sources. A partnership was being carried on by two brothers, Chimanlal and Manilal. Manilal died in Samvat year 2000. In the account year, Samvat year 2003 corresponding to the assessment year 1948-49, the assessee-firm was constituted by two partners, Chimanlal and Rasiklal, the son of Manilal. Up to Samvat year 2002, the firm carried on business at Nadiad only, but on October 25, 1948, the assessee opened a branch in Bombay and cash credits to the extent of ₹ 15,203 appeared in the books of account of the Bombay branch. When the assessee was called upon to explain this entry, his explanation was that his brother, Chimanlal, had sold the ornaments of his first wife and had kept with him the sale proceeds. After his brother died, his widow continued to remain in the house, but she left after about two years and after she left, the amount was divided half and half between the branch of Manilal and Chimanlal's branch. The Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence. Therefore, the decision in Gokuldas Harivallabhdas [1958] 34 I.T.R. 98 does lay down that though mere falsity of an assessee's explanation would not conclude that the receipt constitutes income of the assessee, if there is other additional material, the Income-tax Officer is entitled to satisfy himself from such additional material that the receipt constitutes the assessee's income and furthermore, that the findings in assessment proceedings, though not res judicata, form relevant materials on which the department can act. What the Tribunal seems to have done in this case was that it set aside the order of the Appellate Assistant Commissioner on the mere ground that mere falsity of the assessee's explanation would not conclude that the amounts held to be income from undisclosed sources constituted the assessee's income. Of course, according to the Bombay decision, it would not conclude, but that was not the only thing that the decision laid down. On the facts before the High Court, the only evidence was the explanation of the assessee which was not believed and it was, therefore, that the High Court held that its mere falsity would not conclude the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer and the Appellate Assistant Commissioner and ought to have decided whether they were established and, if so, whether the assessee could be said to have concealed the income or deliberately given inaccurate particulars regarding such income. In support of his first contention, the learned Advocate-General relied on the Allahabad decision in Lal Chand Gopal Das v. Commissioner of Income-tax [1963] 48 I.T.R. 324, as supporting his contention that the Bombay view that penalty proceedings are penal proceedings and that therefore the burden of showing that the sum held to be income from undisclosed sources is the income of the assessee is on the department, is no longer good law. He, however, made it clear that he relied on the Allahabad decision only for the purpose of showing that at least one High Court had expressed the view that certain decisions of the Supreme Court had held that proceedings under section 28(1) cannot be regarded as penal proceedings and that the Allahabad view was that the dictum in Gokuldas Harivallabhdas' [1958] 34 I.T.R. 98 case that they were penal proceedings was no longer good law. The facts in Lal Chand's case [1963] 48 I.T.R. 324 were that d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the circumstances, the only inference according to him was that these deposits were not deposits from outsiders, but the appellant's own money in the nature of business profits introduced into the books and described as receipts from byoparies and which was subsequently withdrawn after some time. The assessee went up in further appeal but the Tribunal rejected his explanation that after the lapse of four years, he could not remember the names of the depositors, as being no explanation at all. The High Court noted that the basis of the finding of the authorities below that the assessee concealed the particulars of his income or deliberately furnished inaccurate particulars, was not merely the finding on the materials in the assessment proceedings, but also certain additional materials in the penalty proceedings. It would, therefore, be correct to say that the case before the High Court was not one depending only on the falsity of the assessee's explanation, but also in addition thereto certain other materials found in the penalty proceedings. However, there is no gainsaying that the High Court has observed that the Supreme Court decision in C.A. Abraham v. Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinct proceedings, section 44 could be resorted to only for assessing tax due by a firm, business whereof had been discontinued, but a penalty order would not fall under the scope of section 44. Dealing with this contention, the Supreme Court observed that section 44 set up machinery for assessing the tax liability of firms which had discontinued their business and provided for three consequences, (1) that on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner was liable in respect of income, profits and gains of the firm to be assessed jointly and severally, (2) each partner was liable to pay the amount of tax payable by the firm, and (3) that the provisions of Chapter IV, so far as may be, applied to such assessment. The Supreme Court observed that the liability declared by section 44 was undoubtedly to assessment under Chapter IV, but the expression assessment used therein did not merely mean computation of income, and that the expression assessment was used in the Income-tax Act, with different connotations. At page 430 of the report, it has been stated that the expression assessment used in the various section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... improper distribution of profits. The defaults made in furnishing a return of the total income, in complying with a notice under sub-section (4) of section 22 or sub-section (2) of section 23 and in concealing the particulars of income or deliberately furnishing inadequate particulars of such income are penalised under that section. The defaults enumerated therein relate to the process of assessment. Section 28, therefore, is a provision enacted for facilitating the proper assessment of taxable income and can properly be said to apply to an assessment made under Chapter IV. It is true that at page 430 of the report, the Supreme Court has used the expression liability to pay additional tax which is designated penalty , which is relied upon by the learned Advocate-General as indicating the nature of penalty under section 28(1)(c) and the decision also states that it is imposed as part of the machinery for assessment of tax liability, but at the same time, it should be observed that the Supreme Court has also stated (a) that the liability under section 28(1)(c) arises on the existence of the conditions therein set out, and (b) that the penalty is not uniform, and (c) that its im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the Hyderabad Act dealt with the liability to pay income-tax and penalty in distinct provisions, and therefore felt that if the legislature intended to keep alive the Hyderabad Act for the levy of penalty also, it could have said so in clear terms instead of limiting the operation only to levy, assessment and collection. The Supreme Court held that the High Court erred in holding that proceedings for the imposition of penalty could not be continued after the enactment of section 13(1) of the Finance Act, 1950, and that the fact that the Hyderabad Act had distinct provisions regarding recovery of tax due and penalty did not make any difference and that that fact had not altered the true character of the penalty imposed under the two Acts, namely, that penalty was an additional tax imposed upon the person in view of his dishonest or contumacious conduct. It will be seen that in this decision also, the Supreme Court was again dealing with the question as to the scope and extent of the expression assessment in the light of the fact that the Income-tax Act as also the Hyderabad Act used that expression in different connotations, sometimes as meaning only the computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advocate-General were made to illustrate the distinction between a prosecution within the meaning of article 20(2) and a proceeding before customs officers under section 167(8) of the Sea Customs Act. The question before the Supreme Court was not one arising under section 28 of the Income-tax Act and furthermore the decision nowhere states that the provisions of section 167(8) of the Sea Customs Act are not of a penal nature. Though proceedings under section 167(8) of that Act are, as observed there, in the nature of revenue proceedings, it is clearly stated that penalties which a customs officer would impose under that section are intended not only to recoup the loss of revenue resulting from such infringement but also to prevent a recurrence of such infringements. It follows that so far as the latter object is concerned, the provisions would, at any rate, be penal in nature and the onus of proof of an infringement thereof would be upon the customs authorities. Though penalty proceedings under section 28 of the Act are included in the expression assessment and the section finds its place in the chapter dealing with assessment and the true nature of penalty as held by the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one. Before we complete our consideration of this point, we must refer to a judgment of the High Court of Madras in P.K. Kalasami Nadar v. Commissioner of Income-tax [1962] 46 I.T.R. 1056. The facts in that case were somewhat similar to those in the Bombay decision in Gokuldas Harivallabhdas [1958] 34 I.T.R. 98. The assessee, who was a trader in grocery, also carried on business as a public carrier running the service of transport by lorries. In respect of assessment year 1950-51, he submitted a return of his total income as ₹ 7,113 without including his income from the lorry business. The lorry business was run both in his name and in the name of his minor son. In response to a notice issued in the course of assessment proceedings, he furnished details of profits from his lorry business and the assessing officer treated the information as a return of his income from the lorry business. Two credit entries in favour of the assessee of ₹ 26,360 and ₹ 15,000 were found in the accounts of the lorry business and the aggregate of these amounts was treated as income of the assessee from undisclosed sources of remittances from Burma. This was done because the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he penalty proceedings under the Act had their concurrence. But the High Court then proceeded to say that the fact that the burden of proof was on the department did not conclude all questions, and held that considering the penal nature of the proceedings, the facts before the Income-tax Officer must establish a high degree of probability of the assessee being guilty of the charge against him. The High Court then observed, differing from the Bombay view in Gokuldas Harivallabhdas' case [1958] 34 I.T.R. 98, that in the case before them, the cash credits in the assessment proceedings, which had then become final, were treated as income liable to tax. That finding against the assessee would not of course conclude the question whether the amounts constituted his income or not, and it would have been open to the assessee even in proceedings under section 28 to show that they were not his income and the department could not have prevented him from adducing proof in that behalf holding that a different view had been taken in the assessment proceedings. The High Court then observed that the department, however, was not precluded from relying upon the finding in the assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount as cash receipt and the department had found it to be taxable income and further that the assessee had been unable to sustain the position that it represented capital and not the income, would entitle the Income-tax Officer to infer that the assessee was guilty of the charge under section 28. With the greatest respect, to say that an inference of giving false particulars of income can be drawn from the fact that the assessee had made cash entries, would be begging the question, for, the disputed amount might still be capital and not income except that the assessee had not given for his own reasons a true explanation regarding it. His mere failure to explain, surely, would not in law turn capital into income. Is it so impossible that though a disputed amount is in fact a capital receipt, an assessee for some reason of his own may not wish to reveal the true reason and may give an unsatisfactory or even a false explanation and that reason is then not accepted and the Income-tax Officer thereupon treats it as income from undisclosed sources. But though it may be so treated for the purposes of assessment proceedings where, as aforesaid, the burden is upon the assessee to expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , constituted additional circumstances, all of which would, if found to have been established by the Tribunal, be relevant and admissible. These are, (1) that the assessee, besides acting as the agent of the firms admitted by him, was working for other parties also, which would mean that he had not disclosed remunerations earned by him from them; (2) that the assessee had shifted his grounds as it suited him; (3) that some of the sources of moneys spent by him on the construction of the house, which he had first set out, were subsequently abandoned by him, and (4) that the commission amount of ₹ 1,400 shown by him as available for the cost of construction was admittedly not disclosed in the returns. If the Tribunal had considered these additional circumstances or materials and was satisfied that they were established, it was possible that they might have led the Tribunal to come to a finding that the added amounts constituted income of the assessee and that there was concealment of his income or that he was guilty of furnishing false particulars regarding his income. Unfortunately, the Tribunal did not consider whether these circumstances, as found by the taxing authorities, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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