TMI Blog1981 (8) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 1961, before the Commissioner of Income-tax surrendering the hundi loans, peak credit of which was computed at Rs. 2,45,000 with a request to spread it over a period of 10 years and it was prayed therein that no penal proceedings might be taken against the assessee-firm. Inasmuch as the effect of that petition is relevant for the purpose of answering the question involved in this reference it may be material to refer to the relevant portion of the said petition. The said petition stated, inter alia, as follows " 2. That to meet the exigencies of the business your petitioner had to borrow money from the market and mostly through hundiwallas since the accounting year 2009 onwards ... 6. That since the accounting year 2009 to 2021 D.G. there were various credits in the names of hundiwallas which were taken or paid either by cheque or in cash. 7. That your petitioner-firm asserts that apart from transactions of cash and cheques through hundiwallas it had various hundi transactions which were discounted by banks and supported by evidence. 8. That your petitioner is annexing herewith two lists marked with letters " A " and " B ". The list " A " comprises of all hundi trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e premises the ITO completed the assessment for the assessment year 1957-58, relevant to the accounting year 2012-13, Gujarati Dewali, ex parte under s. 1,144 on a total income of Rs. 1,68,477 inclusive of Rs. 95,000, the peak credit of hundi loans as per the disclosure statement. Consequently penalty proceeding under s. 271(1)(c) was initiated and was transferred to the IAC, Range-V, Calcutta, for finalisation by him as the maximum penalty imposable would exceed Rs. 1,000. In the course of the penalty proceedings it was submitted on behalf of the assessee that since the addition of Rs. 95,000 was made on the basis of the assessee's disclosure petition it should be held that the assessee-firm had not concealed the particulars of its income. Relying upon this petition the IAC, however, held that the assessee-firm made a voluntary admission of the fact that " the credits in various hundi loan accounts were not genuine and they represented the assessee's own undisclosed income ". Consequently penalty of Rs. 16,500 was imposed and the statutory minimum was worked out at Rs. 16,174. Being aggrieved by the said order the assessee went up in appeal before the Appellate Tribunal. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty was justified. As to the quantification of penalty we are to abide by the decision of the Supreme Court in lain Brothers v. Union of India [1970] 77 ITR 107 (SC). Accordingly, the assessee-firm would be liable to penalty as provided by section 271(1) of the Income-tax Act, 1961, for the default mentioned in section 28(1) of the Indian Income-tax Act, 1922, as its case fell within the terms of section 279(2)(g) of the Income-tax Act, 1961. Relevant assessment was completed under section 144 of the Income-tax Act, 1961, on 21st March, 1970. Hence, the question of application of the provisions of section 28(1)(c) of the 1922 Act does not arise. Considering the quantum of penalty imposed in the instant case with reference to the facts and circumstances we do not find any reason to interfere with the same. " In the premises, having first declined to refer any question of law to this court, the Tribunal, as directed by this court as indicated before, has referred the question set out earlier to this court under s. 256(2) of the I.T. Act, 1961. The first question that was urged on behalf of the Revenue before us was whether there was any admission of concealed income on the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the High Court. In the meantime, the ITO imposed a penalty of Rs. 20 lakhs on the assessee-company under s. 28(1)(c) of the Indian I.T. Act, 1922, for concealment of the income to the extent of Rs. 54,36,386, comprised of the two sums. The AAC reduced the penalty to Rs. 15 lakhs on the basis of the decision of the High Court. On further appeal, the Appellate Tribunal accepted the explanation of the assessee-company that to avoid protracted proceedings a compromise was effected between the assessee and D.J. Co. whereby the sum of Rs. 40,05,825 was to be assessed in the hands of the assessee and the balance of profits retained by it and accordingly set aside the penalty. The Tribunal refused to state a case under s. 66(1) and the High Court, after issuing a rule nisi, rejected the department's application under s. 66(2). On appeal, the Supreme Court held that the High Court having issued a rule nisi ought not to have dismissed the application under s. 66(2) without a speaking order, but as the case had been argued on the merits it was not proper to remit the matter to the High Court only on that ground., It was further held that on the facts, whether or not the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question whether the Tribunal was justified in coming to the conclusion, on the facts and in the circumstances of the case, that no concealment was proved by the department, could not include an enquiry whether the Tribunal had jurisdiction to reach different conclusion from the one it had reached in the proceedings for assessment. It appears that the facts of the case before the Supreme Court were entirely different from the facts with which we are concerned. Here we are concerned with a disclosure petition. Now we have to examine the statements made in the said disclosure petition and then we have to examine the ingredients contemplated: under s. 271 (1)(c) of the I.T. Act, 1961, and try to find out whether from the said statements made in the disclosure petition it can reasonably be inferred that there was such an admission as held by the Tribunal and if there was no such admission whether penalty could be imposed under s. 271(1)(c) of the Act. This question posed before us in the background of the circumstances is certainly a question of law. Reliance was placed on behalf of the Revenue on a decision of the Punjab and Haryana High Court in the case of CIT v. Sunanda Trading Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closure petition and whether on a proper reading of the disclosure petition it could be inferred that the assessee had made admission of such facts which would attract the ingredients for attracting the provisions of s. 271(1)(c) of the Act. In the premises, we are unable to accept the contention urged on behalf of the Revenue that in the facts of the case it was not open to the assessee to challenge the conclusion arrived at by the Tribunal in this case. It is now necessary for us to consider whether the Tribunal was justified in its conclusion. Now the assessee indisputably had made the disclosure petition. We have set out the relevant terms of the disclosure petition. In the said disclosure petition though the assessee offered the amount to be assessed after spreading over the amount for a period of 10 years) we have not been able to find any statement to the effect that the assessee was stating that the amount in question represented its income or receipt of the revenue character of the year in question. If that is the position, the question is whether by merely relying on the said statement in the disclosure petition, apart from anything else, in a penalty proceeding, could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tence of material leading to that conclusion. Mr. justice Pathak, who delivered the judgment of the Supreme Court, explained the position thus at p. 461 of the report: " This is the provision as it stood at the relevant time. It is now settled law that an order imposing a penalty is the result of quasi-criminal proceedings and that the burden lies on the Revenue to establish that the disputed amount represents income and that the assessee has consciously concealed the particulars of his income or has deliberately furnished inaccurate particulars : CIT v. Anwar Ali [1970] 76 ITR 696 (SC). It is for the Revenue to prove those ingredients before a penalty can be imposed. Since the burden of proof in a penalty proceeding varies from that involved in an assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted as a finding to that effect in the penalty proceeding. In the penalty proceeding the taxing authority is bound to consider the matter afresh on the material before it and, in the light of the burden to prove resting on the Revenue, to ascertain whether a particular amount is a revenue receipt. No doubt, the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure or introducing amounts in his account books. But it is quite another thing to say that any part of that fund must necessarily be regarded as the source of unexplained expenditure incurred or of cash credits recorded during a subsequent assessment year. The mere availability of such a fund cannot, in all cases, imply that the assessee has not earned further secret profits during the relevant assessment year. Neither law nor human experience guarantees that an assessee who has been dishonest in one assessment year is bound to be honest in a subsequent assessment year. It is a matter for consideration by the taxing authority in each case whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year. In each case, the true nature of the cash deficit and the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. Evidence may exist to show that reliance cannot be placed completely on the availability of a previously earned undisclosed income. A number of circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 688, we have observed as follows : " The principle for imposing penalty, in our opinion, is now well settled by the decision of the Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696, where the Supreme Court emphasised that the proceedings under s. 28 of the Indian I.T. Act, 1922, which is in pari materia with s. 271(1)(c) of the I.T. Act, 1961, are penal in character. The gist of the offence showed that the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, incidentally we might refer that in the relevant year, with which we are concerned, this expression 'deliberately furnished inaccurate particulars' was there in the Act but subsequently, by an amendment, if there was difference between the returned income and the income subsequently found, of a certain percentage, the onus lay on the assessee to prove that such failure was not deliberate and the burden was on the assessee to establish that the receipt of the income in dispute constituted the income of the assessee. If there was no evidence on record, the Supreme Court has emphasised, except the explanation given by the assessee, which explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the sources and where he disputed the amount as revenue receipts the penalty could not be imposed. Therefore, the Supreme Court emphasised that there must be cogent material. The Supreme Court further emphasised that the entirety of the circumstances had to be taken into consideration and the mere falsity of the explanation given by the assessee did not ipso facto lead to the conclusion that from the fact that the particular income, which had been added as the income of the assessee in a particular year, it could be said that the assessee had concealed the particulars of that income for that particular year. On behalf of the assessee, it was stressed before us, and to a certain extent rightly, that the disclosure petition read in its proper context did not reveal that the assessee was admitting that this loan for the year 1957-58, or for the assessment year 1961-62, was actually the income of the assessee for this particular year. What the assessee's case was that the assessee had made income during the war years through black markets because of the high prices of iron scraps and hardwares and when these cash moneys had accumulated in the hands of the assessee those we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed, the assessee's very case in the disclosure petition goes to establish that the assessee had admitted that he earned this money in black market in selling iron scraps and hardwares, If that is the position, then, in our opinion, the assessee had deliberately concealed the particulars of his income or furnished in accurate particulars so far as the interest of Rs. 4,154 for the first year 1957-58 was concerned. Again, for the second year, that is to say, the year involved in this case, viz., 1961-62, the assessee had filed its return but the assessment had not been made. Before the assessment could be made, a voluntary disclosure had been made indicating the facts, as I have mentioned before. In that return, the assessee had shown an interest of Rs. 34,132 alleged to have been paid to those name-lenders, who had merely lent their names. If the disclosure petition is correct, then it is the irresistible conclusion that it was a deliberate act on the part of the assessee because the deliberateness would be evident from the mere fact that the assessee knowing these to be false had made this false statement to the Revenue at the time of filing of the return." Reliance was also pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1973] 92 ITR 513, to which our attention was drawn. Learned advocate for the Revenue also relied on the decision of the Rajasthan High Court in the case of CIT v. Dr. R. C. Gupta and Co. [1980] 122 ITR 567. In that case, the assessee himself had admitted that "certain amount represented his income ". In those circumstances, the Rajasthan High Court was of the view that no further evidence was necessary to show that it was the amount which represented his income and/or that it represented his concealed income. The facts of the instant case, however, are different. Reliance was also placed on certain observations of the Delhi High Court in the case of Jaswant Rai v. CBDT [1982] 133 ITR 19. In the facts of the instant case, it is not necessary for us to discuss the said decision in detail. Learned advocate for the Revenue sought to urge that where certain amount was offered by the assessee for taxation and where there was no further case of there being a pre-existing fund, then there was no further obligation or onus on the Revenue to discharge that the amount which the assessee had offered for addition to his assessment should be proved as the concealed income of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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