TMI Blog1999 (11) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ation received by it amounting to Rs. 5,09,872. The said sum of Rs. 2,99,996 was credited to the current account of four partners of the assessee in equal shares, The claim was that the partners of the firm happened to be the shareholders of a company by name "Hotel Winrace (P.) Ltd.", and the amount in question was due to the said company under an agreement dated March 31, 1976. The Assessing Officer noticed that the corresponding entry crediting commission in the account of the company was made on March 31, 1977, dividing the amount and crediting it to the accounts of four shareholders equally. He further noted from a letter dated March 3, 1978, of Greaves International Ltd., Bombay, from which the assessee had received commission to Hotel Winrace (P.) Ltd., that it had not appointed the latter as its agent prior to March, 1978, and there was no reason why commission should have been paid by it to the assessee had Hotel Winrace (P.) Ltd. been the agent. The agreement executed by two of the partners of the assessee-firm, one on behalf of the assessee itself and the other on behalf of the company, and the apportionment and crediting of amount in the books of the assessee itself to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated October 14, 1983. The Commissioner of Income-tax (Appeals) confirmed the imposition of penalty on the ground that the assessee's claim of payment of commission by it to the company was false, and consequential addition of amount on the ground that it was actually a payment to the partners, thereby forming a part of the assessee's own total income, had prevented the assessee from getting away with reduced tax demand. The matter was carried in appeal before the Tribunal. One of the members, i.e., judicial Member, held that the addition had been upheld in appeals on a ground different from that on which it had been made in the assessment order, and in view of the decision of the Calcutta High Court in CIT v. Ananda Bazar Patrika (P.) Ltd. [1979] 116 ITR 416, the Income-tax Officer had no jurisdiction to proceed on the basis of modified finding and further since disallowance was made only under section 40(b) of the Act, there was no question of any concealment. He also held that even by applying the Explanation to section 271(1)(c), the claim of the assessee cannot be said to be false and, therefore, there should not be any deemed concealment. On the other hand, the Accountant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned. There are three stages of amendment of section 271(1)(c). The periods are : (a) prior to April 1, 1964 ; (b) April 1, 1964 to March 31, 1976 ; and (c) after April 1, 1976. Originally, the word "deliberately" existed which was omitted by the Finance Act, 1964, with effect from April 1, 1964. An Explanation was inserted at the end of sub-section (1) of section 271 by the said Finance Act (section 40 of the Finance Act, 1964). In between, by the Finance Act, 1968, the base for levy of penalty became the amount of concealment as against the quantum of tax sought to be avoided under the then existing provisions. Subsequently, further amendments were brought by the Taxation Laws (Amendment) Act, 1975 (section 61 of the said amending Act). Four Explanations were substituted for the Explanation introduced by the Finance Act, 1964. The effect of the said amendment, so far as we are concerned, is that where, in respect of facts material to the computation of the total income of the assessee, he furnishes no explanation, or he cannot substantiate the explanation offered by him, or the explanation offered by him is found to be false, the relevant income shall be deemed to be his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same and material to the computation of his total income have been disclosed by him." The question of onus is of primary and added importance in legal acrimony. In CIT v. Anwar Ali [1970] 76 ITR 696, the apex court laid down that, before a person could be visited with a penalty for concealment, etc., the Revenue must prove that the amount in question was the income of the assessee and that he had concealed it with a motive. It was further held that penalty could not be imposed merely because any explanation given by the assessee in regard to the items in question was not believed to be true. The position of law on or after April 1, 1976, is that where, in respect of any item of credit, (a) the assessee fails to offer an explanation, or (b) the assessee offers an explanation which the taxing officer considers to be false, or (c) the assessee offers 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). What sections 68, 69, 69A, 69B and 69C deem for the purpose of assessment was injected for the purpose of penalty by operation of a deeming provision. A proviso was added to the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A conspectus of the Explanation added by the Finance Act, 1964, and the subsequent substituted Explanations, 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 are within the special knowledge of the assessee. Section 106 of the Evidence Act, 1872, gives statutory recognition to this universally accepted rule of evidence. There is no discretion conferred on the Assessing Officer as to whether he can invoke the Explanation or not. Explanation 1, which primarily concerns the case at hand, automatically comes into operation when, in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the Assessing Officer or the first appellate authority, or an explanation is offered which is not substanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had claimed, under an agreement dated March 31, 1976, commission to be paid to Hotel Winrace Ltd. The partners of the assessee-firm were also shareholders of the company and commission paid by the assessee was credited to the accounts of the partners in the assessee-firm. It is not in dispute that the income in question has been taken to the credit of Hotel Winrace (P.) Ltd. and distributed to the shareholders. The amount was included in the assessee's total income and the assessment had been made on that basis and because of income and loss from other heads, the tax paid by the company on this commission was much less than what would have been paid, had the commission been given directly to the partners and disallowed under section 40(b). Yet the fact remains that the existence of the company, the agreement and the liability to pay amount to the company had not been proved to be false, even though doubts had been thrown by indicating that the agreement had been signed by the two partners, one on behalf of the firm and the other on behalf of the company and the amount had been paid through the accounts of partners. In this backdrop, the Tribunal had found in the quantum a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiated. Great emphasis is made by learned counsel for the Revenue on this conclusion to submit that having accepted that penalty proceedings have been properly initiated, the Vice-President-Third Member should not have held that penalty was not imposable. To appreciate this submission, it is necessary to take note of the further observations of the Vice-President-Third Member. It was clearly observed by him that he was left with Explanation 1(B) which provided that where the assessee offers an explanation which is yet to be substantiated, and fails to prove that such explanation is bona fide, then the amount added or disallowed may be deemed to represent the concealed income. The assessee's explanation was that commission was paid to the company whose shareholders also were partners of the assessee-firm. In that background, the Third Member observed that there was nothing on record to show. that the explanation offered by the assessee was not bona fide. It is difficult to accept the stand of learned counsel for the Revenue that by making this observation, the Vice-President-Third Member had placed the onus on the Revenue to establish that the assessee had concealed income, so as to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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