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TMI Blog1973 (10) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... ), 143(2) and 131 of the Act. He was examined at considerable length and thereafter the Income-tax Officer assessed him on an income of Rs. 1,77,842. The break up of this income is as follows : (a) Income from interest as declared - Rs. 163. (b) Amount recovered by the police in possession of the assessee, the source of which was not satisfactorily explained and which was treated as the assessee's income from undisclosed source - Rs. 1,72 679. (c) Deposit in bank regarding the source of which there was no satisfactory explanation-Rs. 5,000 According to the Income-tax Officer the correct income thus was Rs. 1,77,842 as against Rs. 163 declared by the assessee. The assessee was taxed on this income and ultimately the Tribunal maintained the assessment to the tune of Rs. 1,37,679. The Income-tax Officer also initiated penalty proceedings under section 271(1)(c) of the Act, and as the minimum penalty in the case of the assessee worked at more than Rs. 1,000 the proceedings were referred to the Inspecting Assistant Commissioner of Income-tax. The said Commissioner heard the assessee and ordered a penalty of Rs. 50,000. The assessee filed an appeal against the order of the Inspecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnail Singh. And much less that it, is his concealed income. They have been able to rope in the assessee under section 69A, because the assessee has not been able to prove his case. While the assessment of the amount in the absence of evidence furnished by the assessee may be well founded the penalty on the basis of such assessment cannot be, because the material which may be sufficient for assessment may not be sufficient for penalty. The revenue has to prove positively that the material which is sufficient for assessment is also sufficient for penalty. The mere assessment of the amount does not automatically lead to the imposition of penalty. The revenue has assessed the amount under section 69A, because the assessee has not been able to prove that he is not the owner of the said money because the explanation offered by him has' not been in the opinion of the Income-tax Officer satisfactory and, therefore, the revenue has deemed the said amount to be his,income for the financial year. It is one thing that the assessee has not been able to prove that he is not the owner of the amount but it is another thing that the assessee has been proved to be the owner of the amount. Where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished. Explanation.-Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless 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 this sub-section ...... The contention of Mr. Awasthy is that the Explanation says that "where the total income returned by the assessee is less than 80 per cent. of his assessed income which is the true income such, assessee shall unless he proves that failure to return the correct income did not ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an additional tax were made in a different context and for a different purpose. It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings (Hindustan Steel Ltd. v. State of Orissa ). In England also it has never been doubted that such proceedings are penal in character. (Fattorini (Thomas) (Lancashire) Ltd. v. Inland Revenue Commissioners). This brings us to the main ratio of the judgment in Anwar Ali's case The Supreme Court was dealing with section 28(1) of the Indian Income-tax Act, 1922, and while dealing with this provision, which is more or less analogous to section 271(1)(c) of the Act, their Lordships observed as follows : " The next question is that when proceedings under section 28 are penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable to payment of penalty. As has been rightly observed by Chagla C.J. in Commissioner of Income-tax v. Gokuldas Harivallabhdas, the gist of the offence under section 28(1)(c) is that the asssssee has concealed the particulars of his income or deliberately furnished inaccurate particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion referred to as the correct such person had been accepted income). as assessed under section as the correct income: 143 or section 144 or section 147 (reduced by the expenditure incurred Provided that- bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction) such person shall, unless 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 this sub-section. The purpose of the Explanation seems to differentiate between two types of assessees : those who have reported correct income up to eighty per cent. and those who have not. In the case of one the onus of proving lies on the department and in the case of the other on the assessee. In other words, if an assessee has correctly disclosed his income up to 80 per cent. or more, the onus is on the department to prove that his failure to correctly return the remaining 20 per cent. or less, as the case may be, arose from any fraud or any gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer to infer dishonest disregard of law on the part of the assessee for the imposition of the penalty. The principle of the decision of the Supreme Court is only to the effect that by the mere rejection of the explanation of the assessee to the show-cause notice it does not automatically follow that the necessary ingredient of section 271(1)(a) of the Income-tax Act, 1961, has been made out. It is the duty of the department to point out circumstances from which an inference that the assessee acted deliberately in violation of law can be drawn." These observations prove that the Explanation was merely appended to section 271(1) for the purpose of onus, that is, in what circumstances the onus will be on the assessee and in what circumstances the onus will be on the department, and that it was not inserted to detract or get over the decision of the Supreme Court. When Mr. Awasthy was asked as to what were the objects and reasons for the Explanation to section 271(1) of the Act and whether it was added in order to get over the decision of the Supreme Court, the learned counsel was unable to say so. It is well-known that whenever the legislature amends an Act or introduces a new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... picious and that in a business of this type the stock available with the assessee should have been much more in view of the turnover shown in the books, are mere surmises. The Tribunal was also of opinion that the finding of the Income-tax Officer that in a business of this type it can never happen that there would be no closing stock was also a mere conjecture These and other circumstances mentioned in the order of the Appellate Tribunal read in the light of the explanation given by the assessee led the Tribunal to the conclusion that the assessee has proved that there was no fraud or gross or wilful negligence on its part in the failure to return the correct income." This court had an occasion to consider the provisions of section 271 of the Act in Gumani Ram Siri Ram v. Commissioner of Income-tax and observed as under : " So far as the Tribunal is concerned it assumed that the amount of Rs. 12,000 represents the income of the assessee and proceeded on that basis. It will be apparent from the two orders already referred to that from the only circumstance that the amount of Rs. 12,000 was surrendered by the assessee an inference has been drawn that the amount represents the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. The question will arise whether those particulars relate to income or something other than income. It cannot be assumed in every case that whatever amount is possessed in the form of cash is necessarily income. A thief may have in his pocket money stolen from somebody, and that cannot be said to be income and if this illustration is kept in view the decision of the Supreme Court in Anwar Ali's case shows that it had nothing to do with the Explanation and it would have proceeded on the same lines irrespective of the Explanation. Therefore, we are unable to accept the contention of Mr. Awasthy that the Explanation would have made any difference to the ratio in Anwar Ali's case so far as the interpretation of section 28 of the 1922 Act is concerned if it had been part of it. In our opinion the ratio of that decision holds good also with regard to section 271(1)(c). It is evident that the requirement of section 271(1)(c) so far as the concealment of the particulars is concerned is a common factor in Anwar Ali's case as well as in the present case. At this stage it will be useful to refer to section 69A of the Act, which is in the following terms : Where in any financial year the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being that of a highly penal provision. The question arises as to the effect of the Explanation in cases where there is a cash credit in the assessee's books or the assessee is found to be in possession of money or other asset, and the explanation given by the assessee is not accepted by the department with the result that the amount is assessed as income under section 68, 69, 69A or 69B, or where the assessment is made on the basis of an estimate of income. There are two ways of approaching this question, both of which converge on the same conclusion : (a) As is established by the cases cited above, in order to justify the levy of a penalty two factors must co-exist : (i) there must be some materials or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income, it being not enough for the purposes of penalty that the amount has been assessed as income ; and (ii) the circumstances must show that there was animus, i.e., conscious concealment or conscious furnishing of inaccurate particulars on the part of the assessee. The Explanation has no bearing on (i), but it has a bearing only on (ii). The Explanation does not make the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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