TMI Blog1986 (1) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... la. In support, he filed a confirmation letter from the creditor. The Income-tax Officer, however, disbelieved the case of the assessee. He held that the loan transaction was not genuine. The assessee's claim of having paid a sum of Rs. 1,500 as interest to the said creditor was also disallowed. He held that the amount of Rs. 25,000 represented the assessee's income from undisclosed sources. He included the sum of Rs. 25,000 and assessed the total income at Rs. 94,560. Penalty proceedings were also commenced in respect of the cash credit of Rs. 25,000. Since the minimum penalty leviable was more than Rs. 1,000, the case was referred to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner held that the assessee failed to prove the genuine character of the alleged cash credit. It represented an unexplained cash credit and the assessee should have shown the same as part of taxable income in the return. The assessee failed to do that and resorted to further concealment by claiming bogus expense of interest of Rs. 1,500. The assessee was liable for omitting to show most of the taxable income in the return. He went on to hold that the Explanation to section 271( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnished inaccurate particulars. This decision was affirmed by the Supreme Court in CIT v. Khoday Eswarsa and Sons [1972] 83 ITR 369. The question which arises for determination before us is as to the import, implication and scope of section 27 l(1)(c) read with its Explanation. Section 271(1)(c) as originally enacted provided: " 271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person . ...... (c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,-..." The Finance Act of 1964 which came into effect from April 1, 1964, made two significant amendments in clause (c). It omitted the word " deliberately " from that clause. It added an Explanation which reads as follows : "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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own when it comes to the inevitable corollaries of that state of things. The Explanation, therefore, removes the burden which under section 28(1)(c) of the Act of 1922 as well as under section 271(l)(c) of the Act of 1961 as originally enacted, lay on the Income-tax Department to prove affirmatively that the disputed amount or receipt was the income of the assessee and its particulars were concealed or inaccurately furnished. The satisfaction reached in the course of the assessment proceedings is, in penalty proceedings governed by the Explanation, automatically replaced by a presumption that the disputed receipt or amount was the income of the assessee in respect of which the assessee either concealed the particulars or furnished inaccurate particulars. It is then not necessary for the Revenue to show affirmatively by producing material that the disputed receipt or amount was the income of the assessee of which he concealed the particulars or furnished inaccurate particulars. It is thus clear that in cases governed by the Explanation, the decision of the Supreme Court in Anwar Ali's case [1970] 76 ITR 696, that the burden is on the Department to establish that the receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answer to the question is in the affirmative, the legal fiction enacted in the Explanation cannot arise and the Revenue must fail in its attempt to impose penalty on the assessee. " Since the burden of proof is on the assessee, the assessee is entitled to prove or to establish the requisite facts. He can rely upon the material on record of the assessment proceedings as well. He can contend that the explanation given by him which has been disbelieved (a finding which is relevant but not conclusive) should be looked into from the point of view whether there was any fraud or any gross or wilful neglect on his part. The authority has to consider the totality of the circumstances and then answer the question whether the assessee has not committed fraud or gross or wilful neglect, on a preponderance of probabilities. For the assessee, reliance was placed on the decision of the Punjab and Haryana High Court in CIT v. Karnail Singh V. Kaleran [1974] 94 ITR 505. In that case, it was held that in a case covered by the Explanation, the decision of the Supreme Court in Anwar Ali's case [1970] 76 ITR 696 to the effect that the burden of proof to show that the disputed amount or receipt was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of failure to furnish return of income without reasonable cause in clause (a), failure to comply with statutory notice without reasonable cause in clause (b) and for concealment of particulars of income or furnishing inaccurate particulars of such income in clause (c). The word " concealment " has a definite legal connotation. Mere inadvertent omission or accidental failure to disclose particulars of income cannot be regarded as concealment. This aspect of the matter was pointed out by Sabyasachi Mukherji J. in the case of CIT v. Rupabani Theatre P. Ltd. [1981] 130 ITR 747 (Cal), where it was observed that the expression " concealment " has to be understood in contradistinction to the expression " failure ". Concealment requires a positive act. In the case of CIT v. Anwar Ali [1970] 76 ITR 696, the Supreme Court observed (at page 701) : " Before penalty can be imposed, the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. " The amendment in 1964 has done away with the requirement of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... squarely on the assessee and not even a fringe of that onus has been discharged. The Tribunal referred to the judgment of the Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696 and upheld the contention of the assessee that the principles laid down in that judgment were still good law and there was no evidence to hold that the assessee has concealed the particulars of its income. The Tribunal relied on the judgment of the Punjab and Haryana High Court in the case of Addl. CIT v. Karnail Singh V. Kaleran [1974] 94 ITR 505. This judgment of the Punjab and Haryana High Court was overruled subsequently by a Full Bench judgment of that court in the case of Vishwakarma Industries v. CIT [1982] 135 ITR 652. In that case, it was held by the Full Bench that (headnote) " once the Explanation is held to be applicable to the case of an assessee, it straightaway raises three legal presumptions, viz. : (i) That the amount of the assessed income is the correct income and it is in fact the income of the assessee himself; (ii) that the failure of the assessee to return the correct assessed income was due to fraud; or (iii) that the failure of the assessee to return the correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neglect on the part of the assessee in the circumstances stated therein. This much is clear that by the Explanation the Legislature has introduced a legal fiction by which concealment of the type that merits penalty is deemed to have taken place in the circumstances mentioned in the Explanation. Accidental or inadvertent omission or failure to furnish full and correct particulars of income cannot be a ground for imposition of penalty and has not been made a ground for imposition of penalty. The next question is whether the principles laid down in the case of CIT v. Anwar Ali [1967] 65 ITR 95 (Cal), survive after the introduction of the Explanation to cases which come within the ambit of the Explanation. It has to be borne in mind that the Supreme Court in the case of Anwar A1i [1970] 76 ITR 696, affirmed the principles enunciated in a long line of decisions of the various High Courts starting with the judgment of the Bombay High Court in the case of CIT v. Gokuldas Harivallabhdas [1958] 34 ITR 98. In Gokuldas' case, Chagla C.J., expressed the view that penalty could not be regarded merely as an additional tax. The proceedings were of penal nature. Unlike in the assessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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