TMI Blog1993 (4) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... aling in cloth and building construction. In the course of assessment proceedings for the assessment years 1971-72 and 1972-73, it was revealed that the assessee had received a sum of Rs. 54,890 as jackpot winnings from the Royal Western India Turf Club (RWITC) during the previous year ending on March 31, 1971, and similar jackpot winnings of Rs. 63,386 during the previous year ending on March 31, 1972. In this connection, the assessee produced RWITC vouchers showing the following receipts : Assessment year 1971-72 : Rs. 27-1-1971 38,257.50 Treble Pool 14-3-1971 16,632.00 Jackpot ------------------ 54.889.50 ------------------ Assessment year 1972-73 : Rs. 11-04-1971 17,889.00 Jackpot 05-12-1971 11,003.00 Jackpot 01-01-1972 14,849.50 Jackpot 17-03-1972 8,741.00 26-03-1972 10,993.00 ------------------ 63,385.50 ------------------ The Income-tax Officer recorded the statement of the assessee in this regard and also the statement of one Shri N. M. Virwani, from whom the assessee is said to have obtained the tips. The assessee deposed before the Income-tax Officer that he had started going to the race course in 1971 and stopped doing so af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1972-73. The Income-tax Officer, therefore, invoked the provisions of section 69 of the Act and treated the income of the assessee as his undisclosed income of the relevant assessment years.. On appeal by the assessee, the Appellate Assistant Commissioner deleted the additions made by the Income-tax Officer on the ground that the additions had been made only on circumstantial evidence. The finding of the Appellate Assistant Commissioner was, however, reversed by the Tribunal on appeal by the Revenue. The Tribunal, while allowing the appeal of the Revenue against the order of the Appellate Assistant Commissioner and affirming the additions made by the Income-tax Officer, observed as follows : "In our opinion, on the facts, it must be said that the assessee has put up a false story in this regard and the amount received from the RWITC did not represent genuine race winnings, but represented only the encashment of winning tickets purchased from others at a premium in order to convert his undisclosed income into white money. There was also nothing improper on the part of the Income-tax Officer in relying on circumstantial evidence for this purpose inasmuch as no direct evidence of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, recorded a clear finding of fact that the explanation offered by the assessee was false. However, curiously enough, despite such a finding, the Tribunal set aside the penalty imposed by the Inspecting Assistant Commissioner on the ground that for sustaining the penalty, something more than falsity of the explanation was necessary. The understanding of the Tribunal of section 271(1)(c) of the Act read with the Explanation thereto may be seen from the following passage in its order : " No doubt the explanation offered by the assessee has been held to be false. Further no doubt the Explanation to section 271(1)(c) was very much on the statute book and has been referred to by the learned Inspecting Assistant Commissioner ; in fact, he has relied on the same. However, something more than the falsity of the explanation is necessary to justify penalty even after considering the Explanation to section 271(1)(c) as it stood then. No doubt the burden is on the assessee to establish that there was no fraud or gross or wilful neglect on his part. This is a negative burden. In our view, the assessee should be treated as having discharged this negative burden and hence very light burden by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... glect 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. " It may be mentioned that the above Explanation was inserted by the Finance Act, 1964, with effect from April 1, 1964, and it continued in the same form till March 31, 1976, when it was substituted by four new Explanations with which we are not concerned in the present case. Sub-section (2) of section 274 which is also relevant, at the material time, stood thus : "(2) Notwithstanding anything contained in clause (iii) of sub- section (1) of section 271, if in a case falling under clause (c) of that sub section, the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty five thousand rupees, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose, have all the powers conferred under this Chapter for the imposition of penalty." Counsel for the Revenue submits that having arrived at a definite finding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate from assessment proceedings and different considerations arise in penalty proceedings than those in assessment proceedings. As such, the findings arrived at in the assessment proceedings cannot be held to be conclusive nor can they operate as res judicata in the penalty proceedings. An assessee is entitled to adduce any evidence which he had not adduced in assessment proceedings in support of his contention that failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. The assessee is entitled, in the penalty proceedings, to take up new pleas which he had not taken in the course of assessment proceedings and all such evidence adduced by the assessee or pleas taken by him are to be duly considered by the concerned authorities while deciding the question of levy of penalty. The only thing that needs consideration in this case is the effect of the Explanation which was added with effect from April 1, 1964, and was applicable to the penalty proceedings in question. Under the law as it stood prior to the incorporation of the above Explanation in 1964, the onus was on the Revenue to prove that the assessee had furnished incorrect par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The rebuttal must be on materials relevant and cogent." (emphasis supplied). The aforesaid view has been followed and reiterated by the Supreme Court in CIT v. K. R. Sadayappan [1990] 185 ITR 49. In this case also it was reiterated that the presumption raised by the Explanation can be rebutted only by cogent, reliable and relevant materials. The Inspecting Assistant Commissioner as well as the Tribunal considered the explanation of the assessee in the light of the facts and circumstances of the case and not only found it to be unreliable but arrived at a categorical finding that the explanation offered by the assessee was false. Having arrived at such a finding of fact, the Tribunal, in our opinion, committed a patent error of law in holding that something more than falsity of explanation was necessary to justify the penalty even after the introduction of the Explanation to section 271(1)(c). The Tribunal was also not correct in such circumstances in holding that the Inspecting Assistant Commissioner was not justified in imposing penalty without any substantive positive evidence to reject the assessee's explanation. We find it extremely difficult to agree with the interpretat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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