TMI Blog1980 (7) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... lenge was ever made to their genuineness or that those were not kept regularly in the course of the assessee's business. The assessee started construction of ten-storeyed building at No. 8/9, Bentinck Street, Calcutta, during the previous year relevant to the assessment year 1962-63. The cost of construction of the building up to 31st March, 1970, as appearing in the assessee's account books, was Rs. 14,14,410. The ITO, however, was of the view that the cost of construction was understated. He, therefore, made a reference regarding the cost of construction to the departmental valuer and in accordance with his estimate took the cost of construction of the building as Rs. 23,58,500. He considered it to be an unexplained cost of construction of the property for several years from undisclosed sources amounting to Rs. 1,60,002 for the assessment year 1966-67, Rs. 2,73,075 for the assessment year 1967-68, Rs. 1,46,490 for the assessment year 1968-69 and Rs. 1,34,412 for the assessment year 1969-70. These are the relevant assessment years. But, in this connection, it has to be mentioned that in the assessment orders for the assessment years 1962-63 to 1965-66, the ITO had observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viz., Sri B.K. Banerjee and Sri S. R. Banerjee and also to show cause why the difference amounting to Rs. 9,44,090 between Rs. 14,14,410 being the accounted cost of construction up to March 31, 1970, as appearing in the books of account of the assessee, and Rs. 23,58,500, being the estimated value of construction made by the departmental valuer, Sri R. N. Roy Chowdhury, should not be treated as the assessee's concealed investment. The ITO has spread over what is considered to be concealed income of the assessee on account of the unexplained investments year wise in the manner as follows : F.Y. Amount as stated Cost of construction Difference to have been estimated in the spent by the Dept. Valuer's assessee report (Proportionate) 1 2 3 4 Rs. Rs. Rs. 1963-64 51,295 91,400 40,105 1964-65 2,23,125 3,97,800 1,74,675 1965-66 2,04,498 3,64,500 1,60,002 1966-67 3,49,175 6,22,250 2,73,075 1967-68 1,87,420 3,33,910 1,46,490 1968-69 1,71,737 3,06,150 1,34,413 1969-70 48,500 86,340 37,840 ----------------- ----------------- ---------------- 12,35,750 22,02,350 9,66,000 Up to F.Y. 1962-63 1,78,660 1,56,150 (--) 22,510 14,14,410 23,58,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the assessed income was clearly due to his gross and wilful neglect to disclose the correct extent of investment ". He, therefore, imposed penalties under the Explanation to s. 271(1)(c) of the I.T. Act, 1961, for the four years in the sums of Rs. 1,00,000, Rs. 1,00,000, Rs. 1,46,000 and Rs. 1,34,000, respectively, totalling to Rs. 4,80,000. For each of the first two years the amount of penalty imposed was roughly onethird of the statutory maximum while for each of the last two years it was exactly one-half of such maximum. On the 20th December, 1973, in appeal 'against the AAC's order, the Tribunal rejected the report of the departmental valuer. The Tribunal also did not accept the second report of the valuer, Sri. S. R. Banerjee, in the absence of supporting material. The Tribunal accepted the first report of the valuer, Sri S. R. Banerjee, and made certain additions and alterations and determined the cost of construction on the basis of the materials available before it at Rs. 20,57,756. As a result of the Tribunal's order, the additions made by the ITO were reduced by about 42.5% in each of the four assessment years involved in this reference. The assessee preferred ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mply with notices and concealment of the income, etc. Under cl. (c) of S. 271(1) of the I.T. Act, 1961, the ITO or the AAC if he was satisfied in course of the assessment proceedings that the assessee had concealed the particulars of his income or furnished inaccurate 'particulars of such income, could direct imposition of certain penalty in certain manner as indicated in sub-clauses (i), (ii) and (iii). Prior to 1964, cl. (c) of s. 271(1) required that, to attract the penal provision, the assessee should be guilty of either concealing the particulars of his income or "deliberately" furnishing inaccurate particulars of such income. The expression "deliberately" has been omitted by s. 40(i) of the Act of 1964, with effect from 1st April, 1964, and an Explanation was added which provided that where the total income returned by any person is less than 80 per cent. of the total income as assessed under s. 143 or s. 144 or s. 147 reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which had been disallowed as a deduction the assessee should unless he proved that the failure to return the correct income did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, the departmental valuer had found that the building had been constructed at a cost which he estimated at Rs. 23,58,500. Therefore, unless the assessee had given the source of investment of this additional amount, whatever be the amount, that amount must have come from some source of income of the assessee. In the facts of this case, as established, we are of the opinion that s. 69 of the Act was clearly attracted and if s. 69 was clearly attracted, the argument of the assessee, that the assessee was not obliged to furnish the particulars of his investment by law or to submit any particulars of return of investment by law and as, such there cannot be any question of concealment of income or of furnishing inaccurate particulars arises, cannot be accepted. The moment s. 69 is attracted It becomes, by the fiction of law, the income of the assessee. If it becomes the income of the assessee and if that income is not returned then that return remains unreturned. The question is whether the expression " concealment " requires an element of mens rea or deliberate act of secreting. It was urged that even though in the case of adding this amount as income of the assessee for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. It appears to us, however, that s. 69 of the I.T. Act, 1961 makes the unexplained investment to be the income of the assessee and that position has to be accepted in the penal proceedings because that has been confirmed though for a reduced amount by the Income-tax Appellate Tribunal in the quantum appeal which will be deemed to be the income of the assessee for that financial year. Therefore, it is not open, in our opinion, by virtue of s. 69, to say that it does not represent the income. The law deemed such an unexplained investment to be the income of the assessee. Therefore, once it was deemed to be the income of the assessee, the observations of the Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696 (SC) referred to hereinbefore, could not be of much assistance to the assessee because it was no longer open to say that the inference of rejection of the assessee's explanation did not give rise to the fact that the disputed amount did not represent the income. The inference follows as the deeming provision makes such unexplained investment as the income of the assessee by the fiction of law and unless we boggle our imagination, against which the Supreme Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, as we have mentioned before, the ITO asked the assessee to reconcile the difference between the two accounts, viz., the accounts given by the valuer of the assessee as well as the amount given by the assessee and the assessee was asked to show cause why the difference, being the amount of cost found out as estimated cost by the departmental valuer and the cost shown in the books of account of the assessee, that is to say, the particulars furnished by the assessee should not be treated as the income of the assessee. The ITO has noted that the amount remained unexplained and has noted further that the assessee had entered incorrect particulars in his books of account. The IAC in his order observed that there was gross and wilful neglect to disclose the correct expenditure of the investment, that is to say, the correct quantum of investment made from the concealed income. In that expression, in our opinion, the IAC was upholding both the charges, that is to say, if the assessee had disclosed the correct expenditure of the investment that would have tantamounted to the furnishing of the correct particulars which could have been deemed to have been the income of the assessee by virtu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT v. Lakhdhir Lalji [1972] 85 ITR 77. There the ITO added a sum of Rs. 58,000 which he held that the assessee had realised by the sale of 1,383 bags of garlic and concealed, and issued notice to the assessee under s. 274 of the I.T. Act, 1961, for levying penalty for concealment of income. As the amount of penalty leviable would have been more than Rs. 1,000, he referred the case to the JAC. On appeal from the assessment order, the AAC had held that 1,383 bags of garlic were included in the stock of the assessee and that sum of Rs. 34,000 should be added on the footing of under-valuation of the stock and not Rs. 58,000. The IAC took note of the AAC's order and levied a penalty of Rs. 7,400 under s. 271(1)(c) on the ground that the assessee had deliberately furnished inaccurate particulars of his income. On appeal from the IAC's order levying penalty, the Appellate Tribunal held that the order of the IAC was without jurisdiction as his jurisdiction was restricted to those items of concealment of income with regard to which the ITO was satisfied that there was concealment of income. On reference to the High Court it was held that the penalty proceedings had been commenced agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Jammu and Kashmir High Court in the case of Addl. CIT v. Sadiq Ali Bros. [1973] 92 ITR 276, where the Chief justice S.Murtaza Fazl Ali found that from a perusal of s. 271(1) of the I.T. Act, 1961, it was manifest that before this section could apply, the authority concerned must be satisfied that the assessee had concealed the, particulars of his income or deliberately furnished inaccurate particulars of such income. Although the section did not require mens rea, yet, as the provisions were of a purely penal nature, some amount of culpable negligence or wilful omission on the part of the assessee must be established before penalty could be levied. In that case, in the assessment of the assessee, a registered firm, for the assessment years 1964-65 and 1965,66, the ITO, with the consent of the assessee, had made certain additions in the trading account of the assessee and certain additions out of unexplained cash credits amounting to Rs. 96,630 and Rs. 91,970 in the two years respectively. The IAC had levied penalties under s. 271 of the I.T. Act, 1961, of Rs. 15,000 and Rs. 7,000 in respect of the two years. The Appellate Tribunal had deleted the penalties holding that it was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses, as reiterated by the narration of the facts. In this case, the assessee was called upon to explain the discrepancy. The assessee denied that there was any discrepancy. The assessee stated that the amount it had claimed was explained in its books, where the aggregate amount of Rs. 2,11,226 had to be spent for the building for the year ending 31st March, 1971, and 31st March, 1972, and the assessee had given the explanation that certain portions had been constructed at the cost of the tenants. The ITO in his order noted that as to the claim put forward by the assessee before the department certain items of flooring and cubicles were made by the tenants at their own cost, the tenants were Summoned under s. 131 upon intimation to the assessee, who appeared before him with their books of account, which were examined, and the deposition of the tenants representatives and examination of their books were conducted in the presence of the authorised representative of the assessee and a significant note was recorded by the ITO that the authorised representative of the assessee did not cross-examine them. This is apparent from the order of the ITO for the assessment year 1966-67 as appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncealment or positive act of concealment of income or of inaccurate particulars. Therefore, in our opinion, the decision of the Division Bench of the Jammu and Kashmir High Court, in the facts as found by the Tribunal in this case, do not support the assessee's contention. Reliance was also placed on the decision of the Patna High Court in the case of CIT v. Patna Timber Works [1977] 106 ITR 452, where the Division Bench of the Patna High Court was concerned with the case of penalty arising after the introduction of the Explanation to s. 271(1)(c) of the I.T. Act, 1961. It was observed that under the provisions of s. 271(1)(c) of the I.T. Act, 1961, as soon as it was found that there was a difference of more than 20% between the returned and the income assessed, cl. (c) came into operation by the rule of presumption engrafted in the explanation and it was for the assessee to prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. If he succeeded in discharging that onus, no penalty could be imposed under s. 271(1)(c). When a case was covered by the Explanation, then on the failure of the assessee to discharge the on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was patently wrong in the eye of law and if the assessee had taken some care and exercised some diligence, he would not have committed the act or omission. In other words, the particulars furnished were inaccurate to the knowledge of the assessee at the time of the return or must be deemed to be inaccurate to his knowledge in the eye of law, because the act was done with wilful or gross neglect. The Division Bench of the Patna High Court further went on to observe that the standard of proof applicable to prove a positive fact and the one which was required to prove a negative fact could not be the same. A high standard was always applied for the proof of a positive fact while the standard of preponderance of probability was sufficient to prove a negative fact. The assessee, within the meaning of the Explanation, was required to prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. Ordinarily and generally, there could not be any direct evidence to prove such a fact. The assessee merely had to place materials of the primary facts or the circumstances which in all reasonable probability would show that he was not gui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt was about 13 per cent. As against this, the officer estimated the gross profit at 25 per cent. and applied the flat rate. Thus, the materials in the assessment order itself enabled the assessee to discharge its onus of proving that its failure to furnish the correct income, that is, the assessed income, was not as a result of any fraud or gross or wilful neglect on its part. The officer did not find that it was possible for the assessee in the nature of its business to maintain day to day manufacturing account or his stock account nor did he find, any defect in the accounts maintained by the assessee. He did not reject the accounts. He merely applied the proviso to s. 145(1) of the Act which in terms did not attract s. 144. On the facts of the case, therefore, the denial of the assessee or its representative at the time of the argument before the IAC was sufficient and it was thereafter necessary for the department to place further materials to show that over and above the materials in the assessment order there were facts and circumstances on which the failure of the assessee to return the correct income could be attributed to its act of gross or wilful neglect. The Tribunal h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations, the learned Chief justice discussed the facts of that case (Orissa) and came to the conclusion that the decision of the Tribunal was correct. Reliance was placed on the said decision in the instant case before us on the ground that here also the accounts had not been rejected. That is true. But, in the facts of this case, the explanation of the assessee in the assessment proceedings was a relevant factor. The assessee did not really dispute that there was a difference between the estimated value of the cost of construction, recorded cost in the assessee's books of account and the estimates submitted by the assessee's valuer as also the estimated cost of the valuation made by the department. The assessee sought to give an explanation. But that explanation was not accepted. The explanation was not so much that the income Was not inflated but the money was spent from other source, viz., realisation from tenants which the assessee failed to prove with very cogent reasons as mentioned by the Tribunal. If that is the position then, in our opinion, the facts of this case would turn on a different footing, as the Supreme Court had often reiterated that though the rejection o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O that any particular entries in the books of account were false or any particular items of purchase or sale were omitted to be entered in the books of account. It was only because the figures of profit appearing in the books of account could not be verified by him on account of lack of verificatory records that the ITO estimated and the court held that there was no obligation on the assessee to maintain any verificatory records so that lack of maintenance of such records could not be regarded as neglect on the part of the assessee. But, in the instant case, that is not the position. Here, the assessee did maintain its record. That record and the entries in the books of account, on examination by the officer in the facts of this case, were found to be incorrect and incorrect to the knowledge of the assessee. Therefore, the ratio of the principles enunciated in that decision would not be applicable to the facts of this case. Reliance was placed on the case of CIT v. Narang Bros. [1975] 98 ITR 462 (Delhi). There, the court held that the assessee, in the peculiar circumstances, who was required to prove the negative, Would be taken to have discharged the onus if he, in the absence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T. Act, 1961, an amount of Rs. 81,142 which had been assessed in the raids conducted in the assessee's shop and the residences of the partners, on September 6, 1963. The IAC imposed a penalty under s. 271(1)(c) of the Act. On appeal, the Appellate Tribunal set aside the penalty holding that apart from the fact that the amount was included by Virtue of the provisions of s. 69A, there was no other material gathered by the IAC from which it could be inferred that the amount represented the income of the assessee for the accounting year ending on 30th June, 1963, and accordingly there was non-concealment of income established. It was held that the amount was included in the assessment because the raid happened to be within the financial year 1964-65, and merely on that it did not follow that the amount represented the income of the previous year of the assessee for which it was bound to file the return and disclose the amount. Section 271(1)(c) could be invoked if the assessee had concealed the income which he was bound to disclose for the relevant assessment year and not in respect of the amount which was included by virtue of s. 69A in the assessment for the said assessment year. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of assessment. Reliance was also placed on the decision of this court in the case of Dilip Kumar Mitra v. CIT [1980] 125 ITR 8. There the assessee, an individual, did not disclose the income from the business carried on by the firm, viz., Hindusthan Trading Co. the ITO included the income of the said firm on assumption. The AAC dismissed the appeal. The Tribunal found that the assessee admitted in earlier appeal that the business belonged to him. In that view of the matter, it upheld the inclusion of the income from the said business. In the penalty proceedings, the IAC held that the assessee had concealed the particulars of income and furnished inaccurate particulars thereof with regard to the income from the business of the firm and levied penalty under s. 271(1)(c). The levy of penalty was sustained by the Tribunal. On a reference, it was held that, in the facts and circumstances of the case, the lower authority was, justified in levying the penalty on the assessee on the business income from the firm. On the second question the High Court reformed the question whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the quantum o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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