TMI Blog1982 (2) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... e credits were genuine and in support thereof filed confirmatory letters from the said party. The ITO accepted the assessee's contention and completed the assessment for the year 1969-70 on an income of Rs. 1,02,437. After the completion of the above assessment it came to light in the context of the assessment of other assessees that the loans appearing in the name of M/s Jagan Nath and Sons were not genuine. Indeed, Shri Jagan Nath of the said firm gave a categoric statement on the 16th of December, 1971, that he was a mere name-lender and later he filed another affidavit dated the 21st December, 1971, before the ITO, Ludhiana, affirming that all his business had been fictitious and that he had never paid any loan to any party whatsoever. Further enquiries conclusively established that Shri Jagan Nath during the course of 4-5 years had purported to effect loans to the tune of about Rs. 25 lakhs whilst he was having no business whatsoever from 1963 onwards. His family consisted of 10-12 members and the balance available with him in his bank account was nominal. A house was found to have been purchased by his wife in 1967 for Rs. 10,000 on which a mortgage of Rs. 4,000 effected by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicated. The ITO completed the assessment for the above three years on a total income of Rs. 1,33,941, Rs. 1,91,457 and Rs. 1,46,263, respectively. Simultaneously with the completion of the assessment of the above three years the ITO initiated penalty proceedings against the assessee and forwarded the same to the IAC for levy thereof under s. 271(1)(c) of the I.T. Act, 1961. The IAC came to the conclusion that the statement recorded by Shri Jagan Nath had revealed that the deposits in the assessee's books were not genuine and that in fact constituted its income from undisclosed sources. He observed that the assessee's conduct in filing the revised returns amounted to admissions that those amounts actually belonged to it. The IAC placed reliance on the Explanation added to s. 271(1)(c) of the I.T. Act with effect from the I St of April, 1964, in respect of the assessment years 1969-70 and 1970-71. Consequently, the following penalties were imposed :-- Assessment year Penalty Rs. 1969-70 31,500 1970-71 17,550 1971-72 30,400 Aggrieved by the above-mentioned imposition of penalties the assessee filed appeals before the Income-tax Appellate Tribunal and on their b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of legal literature on the import and scope of the added Explanation it may, therefore, be unnecessary to launch an exhaustive dissertation on first principles in this context. Nevertheless, in view of the sharp cleavage of judicial opinion in the various High Courts, the question has to be examined both against the backdrop of its legislative history as also on the language of the statutory Explanation itself. Adverting first to the legislative background, it calls for notice that the corresponding provision of the present s. 271 of the Act was s. 28 of the Indian I.T. Act, 1922. When the earlier statute was replaced and replaced by the present Act of 1961, s. 271 thereof retained the provisions of the earlier s. 28, virtually in pari materia therewith. It deserves highlighting that in construing the provisions of s. 28 of the 1922 Act, and the unamended s. 271(1)(c) of the present Act, there came to the fore two distinct judicial schools of thought. One was represented by the judgment of the Allahabad High Court in Lal Chand Gopaldas v. CIT [1963] 48 ITR 324 (All). Ranged on the other side was the view of the Bombay High Court in CIT v. Gokuldas Harivallabhdas [1958] 34 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the present Act as it stood prior to the amendment and subsequent thereto: -------------------------------------------------------------------------------------------------------------------------------------------------- Section 271(1)(c) of 1961 Act : Section 28 of Before Amendment After amendment 1922 Act -------------------------------------------------------------------------------------------------------------------------------------------------- (1) (2) (3) -------------------------------------------------------------------------------------------------------------------------------------------------- (1) If the Income- (1) If the Income- (1) If the Income-tax tax Officer, the Appel- tax Officer or the Appel- Officer, the Appellate late Assistant Commis- late Assistant Commis- Assistant Commissioner, sioner or the Appellate sioner in the course of or the Commissioner Tribunal, in the course any proceedings under (Appeals) in the course of of any proceeedings this Act, is satisfied any proceedings under under this Act, is satis- that any person:--... this Act, is satisfied that fied that any per- any person:-- son:--... (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section." Now, confining oneself first to the change made in cl. (c) alone, the significant thing that meets the eye is the designed omission of the word " deliberately " therefrom. It bears reiteration that this word had equally found place in the earlier s 28 of the 1922 Act. With the extinction of the word " deliberately the requirement of a designed furnishing of inaccurate particulars of income was obliterated. When the legislature designedly deleted this word, it seems that it clearly did so in order to bring it in harmony and in consonance with the intent and purposes of the Explanation thereto. As long as the word " deliberately existed in cl. (c), a conscious mental element would have to be required to be established thereunder and inevitably the burden of proving thereof would have to be on the department. When the legislature contemplated a reversal, or in any case a change in this burden of proof by the addition of the Explanation thereto, it necessarily neutralised the provisions of cl. (c) by taking out therefrom the word " deliberately " and the consequential requirement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. However, as the point is not directly before us (and, therefore, has not at all been debated) we do not in any way wish to opine about the validity of a penalty notice issued prior to the determination of the assessed income. Turning now to the language of the Explanation, an analysis thereof would indicate that for the purposes of the levying of penalty the legislature here has made two clear-cut divisions. This has been done, by providing a strictly objective and, if one may so, an almost mathematical test. The touchstone therefor is the income returned by the assessee as against the income assessed by the department and designated as correct income. A case where the returned income is less than 80 per cent. of the assessed income can be squarely placed in one category. Where, however, such variation is below 20 per cent. that would fall in the second category. To the first category, where there is a larger concealment of income, the provisions of the newly added Explanation become at once applicable with the resultant attraction of the presumptions against such an assessee. However, those falling in the second category, where the variation between the returned income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n either party in judicial proceedings. The basic rule of evidence is that if the person on whom the onus to prove lies is unable to discharge the same, his cause would fail. It must, however, be reiterated that the presumption raised herein is only an initial presumption, which is rebuttable. The burden of discharging an onus to prove thereunder would again be like the one in ordinary civil proceedings, i.e., it can be so discharged by preponderance of evidence. Again, it must not be insisted upon that there is any necessary or mandatory requirement of leading evidence by any one of the parties. Such a burden can be discharged by existing material on the record in a specific case. As was pointed out earlier, the assessment proceedings and the penalty proceedings are distinct and separate. It would be permissible for an assessee under the penalty proceedings to show and prove that on the existing material itself the presumption raised by the Explanation would stand rebutted. It is apt to highlight that in the penalty proceedings within the tax field as such, there is no room for bringing in the rules of criminal law and of discharging the burden beyond all reasonable doubt. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it has been nobody's case that the insertion of the Explanation and the omission of the word " deliberately " from cl. (c) of s. 271(1) was merely declaratory of the existing law. The changes were obviously brought in to remedy a particular mischief. To say that despite the amendment in cl. (c) and the insertion of the Explanation no change was brought about in the law would be rendering the whole of these provisions nugatory and would be violating the settled canon of construction that a meaning must be given to every word in statute. The stage is now set for adverting to precedent and, as already noticed, there is no dearth thereof. It would appear that barring some marginal discordant notes there appears to be a near unanimity of authority for the view that the added Explanation to s. 271(1)(c) introduced by the Finance Act of 1964 was intended to make a clear change in the earlier law and had spelled out a categoric rule of evidence raising three rebuttable presumptions against the assessee in cases where the returned income was less than 80 per cent of the assessed income. In the forefront herein is the consistent and unbroken line of precedent in the Allahabad High Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that he was guilty of fraud or gross or wilful neglect. By saying so, in substance, the burden is shifted without any material." Totally in consonance with the above are the observations of the Division Benches of the Allahabad High Court in CIT v. Zeekoo Shoe Factory [1981] 127 ITR 837 (All), Addl. CIT v. Quality Sweet House [1981] 130 ITR 309 (All), CIT v. Chiranji Lal Shanti Swarup [1981] 130 ITR 651 (All) and Mohd. Ibrahim Azimulla v. CIT [1981] 131 ITR 680 (All). In the Patna High Court, Chief justice Untwalia, speaking for the Bench in CIT v. Patna Timber Works [1977] 106 ITR 452 (Pat), after an exhaustive discussion, observed as follows (p. 459): " I shall, therefore, first proceed to find out what is the meaning of the Explanation. If a case is not covered by the Explanation, the burden to prove facts to attract the imposition of penalty under section 271(1)(c) is still on the department. )But in a case which is covered by the Explanation, the burden has been thrown on the assessee to prove absence of certain ingredients; otherwise it will be permissible to draw the presumption of fact that the assessee has concealed the particulars of his income or furnished inaccu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was felt necessary to ensure implementation of these provisions." The other High Courts also seem to have taken a stand consistent with the above. A Division Bench of the Gujarat High Court in CIT v. Drapco Electric Corporation [1980] 122 ITR 341 (Guj) and later followed in Kantilal Manilal v. CIT [1981] 130 ITR 411 (Guj) expressed an identical opinion. To the same effect is the judgment of the Madhya Pradesh High Court in Addl. CIT v. Bhartiya Bhandar [1980] 122 ITR 622 (MP) and that of the Rajasthan High Court in CIT v. Dr. R. C. Gupta and Co. [1980] 122 ITR 567 (Raj). Faced with a stone wall of principle and prece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning of section 271(1)(c). The Explanation raises a legal fiction and the assessee is straightaway brought within the ambit of section 271 (1)(c). It is then not necessary for the revenue to show affirmatively by producing the material that the assessee has in fact concealed the particulars of his income or furnished inaccurate particulars of such income. The fact of the total returned income being less than eighty per cent. of the total income assessed is sufficient to bring the assessee within the penal provision enacted in section 271(1)(c). That is achieved by the legal fiction enacted in the Explanation. But, this legal fiction can be displaced if the assessee proves that the failure to return the correct income, that is the total income assessed, did not arise from any fraud or gross or wilful neglect on his part. If the assessee wants to repel the legal fiction and throw the burden of bringing the case within section 271(1)(c) again on the revenue, as it would be in the absence of the Explanation, the assessee has to show-and this burden is upon him that his failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part." In view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 271 (1) and the addition of the Explanation thereto, is untenable. The massive weight of precedent noted above is directly contrary to such a view. Equally it calls for notice that the Bench in Karnail Singh's case [1974] 94 ITR 505 (P H) altogether failed to take notice of the designed omission of the word " deliberately " from cl. (c) of s. 271 (1). That this amendment was meaningful and relevant is undisputed and, consequently, the failure to consider the same also tends to warp the reasoning in the case. Further, the observations made in Karnail Singh's case [1974] 94 ITR 505 (P H) that, despite the presumption raised against the assessee by the Explanation in the category coming within its ambit, it was still incumbent, in penalty proceedings, on the department to prove that the assessed income was truly the income of the assessee, is a corollary of its earlier view and consequentially is erroneous. Indeed, taking such a view would remove the very cornerstone of the Explanation and render it nugatory. This is so because of the fact that unless the assessed income is accepted as the correct income of the assessee himself (and the Explanation in terms says so) the ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case [1974] 94 ITR 505 (P H) does not lay down the law correctly. In the light of the aforesaid legal proposition one may now advert to the two questions referred by the Tribunal and noticed in full in para. 6 above. As regards question (i), it was not disputed before us that for the assessment year 1969-70 the income returned by the assessee was less than 80 per cent. of the assessed income. The Explanation to s. 271(1)(c) was, therefore, clearly attracted to the case for this assessment year. The department had placed reliance, inter alia, on the statement of Shri Jagan Nath, who had categorically admitted that the cash credits to which he was a party, far from being genuine, were totally fictitious. This in a way was virtually admitted on behalf of the assessee in its letters to the department and also the subsequent filing of the revised returns. Learned counsel for the assessee could not even remotely urge that all this material was in any way irrelevant for the consideration of the imposition of penalty. In view of the Explanation, three adverse presumptions arose against the assessee and the onus lay on them to rebut the same. The Tribunal came to clear-cut finding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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