TMI Blog1985 (3) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to be in the names of the wives of three of the partners of the assessee firm. Admittedly, the ITO had required the assessee to explain the nature and sources of these alleged cash credits. This was said to be furnished by the assessee but the same was categorically rejected and an amount of Rs. 26,000 was added to the income as accruing from undisclosed sources. On appeal to the AAC, this addition was in terms challenged, inter alia, but he also rejected the explanation of the assessee and upheld the addition. On further appeal by the assessee, the matter came up before the Tribunal which categorically held that the explanation offered by the assessee was rightly rejected by the taxing authorities. However, it accorded a relief of Rs. 7,500 in this account. After the completion of the assessment, the ITO initiated penalty proceedings. Since the amount of penalty leviable exceeded Rs. 1,000, he forwarded the matter to the IAC. The latter issued a show-cause notice to the assessee to which certain explanations were offered including a written reply dated May 11, 1970. The assessee's representative was also heard in the matter. Thereafter, the IAC rejected the explanation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation which must be rendered by the assessee to rebut the statutory presumption now raised against it, the case has been referred to a Full Bench for an authoritative decision. Mr. Rajgarhia, the learned counsel for the Commissioner of Income-tax, has plausibly and forcefully assailed the ambivalent stand of the Tribunal in deleting the penalty imposed. It was highlighted that it is common ground that in view of the wide divergence betwixt the income declared by the assessee and the correct income assessed under the Act, the Explanation to s. 271(1)(c) of the Act was admittedly attracted in this case. The presumption against the assessee in the said Explanation had, therefore, to be mandatorily and statutorily raised against the assessee. The purported explanation by the assessee stood categorically rejected in the assessment proceedings concurrently by the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal itself. Equally in the penalty proceedings, the AAC rejected the explanation out of hand and the Tribunal had again in no way deviated from that conclusion. Nevertheless, for wholly unwarranted reasons, the penalty had been directed to be deleted. Counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... views, the legislature envisaged, inter alia, an amendment of s. 271(1)(c) in order to shift the burden of proof in certain cases from the shoulders of the Department to clearly those of the assessee, provided specific conditions were satisfied. The underlying purpose for doing so is evident from the following paragraph 17 of the Memo explaining the provisions of the Finance Bill of 1964 : " (17) Concealment of income.-It is proposed to provide that where the income declared by an assessee in the return furnished by him is less than 80 per cent. of the assessed income (reduced by expenditure incurred bona fide for earning the income but disallowed), the assessee shall be deemed to have concealed his income or furnished inaccurate particulars thereof and be liable to penalty accordingly, unless he produces proof to establish his bona fides in the matter." The objects and purposes of the legislature in doing so seem to be manifest from the following note on clause 40 of the amending Bill, which later came to be enacted as the Finance Act (No. 5 of 1964): " Clause 40 seeks to amend section 271 of the Income-tax Act to provide that where the income returned by an assessee is l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, he or it may direct he may direct that he may direct that that such person shall such person shall pay such person shall pay pay by way of penalty by way of penalty,-... by way of penalty,-... in the case referred to in clause (a), in addition (iii) in the cases (iii) in the cases to the amount of the referred to in clause (c), referred to in clause (c), income-tax and super- in addition to any tax in addition to any tax tax, if any, payable by payable by him, a sum payable by him, a sum him, a sum not exceeding which shall not be less which shall not be less one and a half times than twenty per cent. than, but which shall that amount, and in the but which shall not not exceed twice, the cases referred to in exceed one and a half amount of the income clauses (b) and (c), in times the amount of in respect of which the addition to any tax the tax, if any, which particulars have been payable by him, a sum would have been concealed or inaccurate not exceeding one and avoided if the income particulars have been a half times the amount as returned by such furnished. of income-tax and person had been super-tax, if any, which accepted as the correct Explanation.-Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs and penalty proceedings as wholly distinct and independent of each other, at least so far as the applicability of the Explanation is concerned. The assessment proceedings necessarily precede and herein are the very foundation of the subsequent penalty proceedings, if any. In true essence, until the assessment proceedings in the shape of the final determination of the assessed income are completed, the provisions of the Explanation could hardly come into play. This is so because the objective and indeed virtually the arithmetical test (which would be elaborated hereafter) is raised basically on the income assessed which has been designated as correct income for this purpose. It is only when this correct income has been determined, that, by comparing it with the returned income of the assessee, the test of the same being less than eighty per cent. of the former can be applied. Again, it is only when this test is satisfied and the case squarely falls within the ambit of the higher levels of concealment that the later part of the Explanation would come into play. Therefore, the assessment proceedings and the penalty proceedings must be kept sharply distinct and independent from each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urely arithmetical. If the difference between the returned income and the assessed income varies between 20 per cent. or more, then the assessee straightaway falls within the net of the newly added Explanation. Once this is so, the Explanation is attracted at once and what remains thereafter is to determine the consequences of its application. A close reading of the later part of the Explanation would indicate that once it is held that it is applicable to the case of an assessee, it straightaway raises three legal presumptions against him. For clarity's sake, these may be formulated as under : (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 aforesaid correct income was due to concealment of the particulars of his income on his part ; or (iii) that such failure of the assessee was due to furnishing inaccurate particulars of such income. Now, it would follow from the above, and the factum of the presumptions spelled out therein, that in essence the Explanation is a rule of evidence. This indeed appears to be well established both on the language a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in a taxing statute are civil proceedings of remedial or coercive nature imposing an additional tax as a sanction for the speedy collection of revenue. Therefore, the imposition of penalty for a tax delinquency cannot possibly be equated with the conviction and sentence for a criminal offence." It follows from the above that the penalty proceedings are separate and distinct from any nuances of criminality and it is, therefore, inapt to use the terminology of criminal law, like an offence, crime, or charge, etc., which should be scrupulously avoided. Lastly, in this context, it appears that apart from the clear language of the Explanation, it also has the support of a sound rationale behind it. In case of concealment of income and tax evasion (it must be regretfully said that this seems to have, in a way, become a national syndrome) the modus of concealment is obviously within the special knowledge of the assessee. The settled, and virtually the hallowed, rule of evidence in this context is epitomised by s. 106 of the Evidence Act: "106. When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him." It was in the light of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that a meaning must be given to every word in a statute. The rule of interpretation in the celebrated Heydon's case [1584] 3 Co. Rep. 7a, is thus clearly attracted. One must at once look to what was the state of the law before the making of the amendment and what was the mischief or defect for which the law did not earlier provide and what remedy has now been provided by the Legislature and equally the reasons for that remedy. The stage is now set for adverting to precedent and inevitably pride of place must be given to CIT v. Anwar Ali [1970] 76 ITR 696 (SC). perusal of the judgment therein makes it mainfest that the question that had arisen was with regard to the assessment year 1947-48 and, expressly, the law applicable was the unamended provision of s. 28(1)(c) of the Indian I.T. Act, 1922. The primary question which seems to have been determined was whether the imposition of penalty is in the nature of a penal provision, which was answered in the affirmative. The ancillary question was with regard to the nature of the burden upon the Department for establishing that the assessee is liable to payment of penalty under the applicable provisions of s. 28(1)(c) of the 1922 Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Finance Act of 1964, which came into force on 1st April, 1964. Clause (c) as it stood after the amendment provided that if an assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income, it is no longer necessary to establish that those actions were deliberate on the part of the assessee. The view that it is necessary to establish that the assessee deliberately acted in defiance of law, etc., is not tenable after 1st April, 1964. The Explanation which was added with effect from 1st April, 1964, completely reversed the burden of proof in cases where the returned income was less than 80 per cent. of the assessed income. In this class of cases the Explanation provided that the assessee shall be deemed to have concealed the particulars of income or furnished, inaccurate particulars of such income for the purpose of cl. (c) 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. In other words, the presumption is that the assessee has concealed or furnished inaccurate particulars. This presumption is rebuttable only if the assessee proves affirmatively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ud or gross or wilful neglect on his part. " A later Division Bench of the Orissa High Court in CIT v. Puranmal Prabhudhayal [1977] 106 ITR 675 has again conformed to the earlier view. In a recent judgment in CIT v. Rupabani Theatres P. Ltd. [1981] 130 ITR 747, the Calcutta High Court has exhaustively considered this aspect and taking an identical view has observed as follows (at p. 765 of the report); " In effect, this, in our opinion, makes explicit what was implicit in the previous Explanation and in an appropriate case, in our opinion, unless certain presumptions are made, that is to say, presuming it to be an income of the assessee for that year, no question of deeming to have furnished inaccurate particulars or concealed that income would arise. The Tribunal, therefore, in our opinion, was wrong in the legal approach that after the introduction of the Explanation, no change was intended which affected the observations of the Supreme Court. Change undoubtedly was intended to be effected, not to nullify the observations of the Supreme Court because those observations were made long after the Explanation had come into effect, but to implement the legislative policy which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior to 1964) had held the field and precedents had interpreted the same. However, it would seem that even after the amendment and the radical change in law, the earlier ghost has still continued to permeate judicial thought for a considerable time. Reference in this context may chronologically be made to Addl. CIT v. Kashiram Mathura Prasad [1979] 119 ITR 497 (Pat), CIT v. Gopal Vastralaya [1980] 122 ITR 527 (Pat), CIT v. Binod Co. [1980] 122 ITR 832 (Pat) and CIT v. Chotanagpur Glass Works [1984] 145 ITR 225 (Pat). It calls for pointed notice that in CIT v. Gopal Vastralaya [1980] 122 ITR 527 (Pat), the Division Bench approved and followed the decision of the Punjab and Haryana High Court in Addl. CIT v. Karnail Singh V. Kaleran [1974] 94 ITR 505, which has been subsequently overruled by the Full Bench in its parent court in Vishwakarma Industries v. CIT [1982] 135 ITR 652 (P H). On the other hand, there is a clear and categoric view within this court that the amendment of s. 271(1)(c) was intended to bring a radical change and, in fact, to override the line of reasoning of earlier cases and later symbolised by Anwar Ali's case. Reference in this context may be made to CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. Equally it may not be inflexibly necessary to lead fresh evidence and it would be permissible in the penalty proceedings for the assessee to show and prove that on the existing material itself, the presumptions raised by the Explanation stand rebutted. All that now remains is to consider the question rightly posed in the referring order whether it is enough for the assessee in a penalty proceeding to just set out any sort of explanation and whether the taxing authorities are obliged to accept that explanation without regard to its worth or credibility. It is plain that in the post-amendment situation after the Finance Act of 1964, the question is primarily one of fact to be decided by the courts competent to do so rather than one involving any niceties of the law. Once the Explanation is attracted, the law raises a legal presumption that the assessee was guilty of concealing the particulars of his income or of furnishing inaccurate particulars thereof. The onus to dislodge that presumption is thus placed squarely on the assessee and he has to show that this has not arisen from any fraud or gross or wilful neglect on his part. Therefore, it is for the courts of fact to arrive ..... X X X X Extracts X X X X X X X X Extracts X X X X
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