TMI Blog1980 (9) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... concealment ? " This reference relates to the assessment for the assessment year 1964-65. In the books of account of the assessee-company, there were cash credits aggregating to Rs. 26,000 in the name of four ladies who were alleged to be related to one of the directors. The ITO did not accept the explanation offered with regard to these cash credits and added these as the assessee's income from undisclosed sources and, consequently, disallowed the interest claimed thereon. The ITO also initiated penalty proceedings under s. 271(1)(c) of the I.T. Act, 1961, for concealment of income with regard to the amount of cash credits and interest. From the order of the ITO, it appears, that the names of the four ladies and the sums standing in their respective names were as follows : Rs. " (a) Sm. Jyostna Nawn Sm.Swagata Nawn 6,000 on 8-5-63 (b) Sm. Jyostna Nawn 6,000 on 8-4-63 (c) Sm. Nanda Rani Dutt 3,000 on 27-5-63 (d) Sm. Nilima Nawn 11,000 on 14-4-63 -------------- 26,000 They are all related to Sudhir Chandra Nawn, a director of the assessee-company jyostna Nawn is the wife of Sudhir Chandra Nawn and Swagata Nawn is their minor daughter. Smt. Nanda Rani Du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Regarding Smt. Swagata Nawn, Smt. Jyostna Nawn, her mother, has stated in a letter dated 11th November, 1965, that her husband, Sri Sudhir Nawn, used to make regular contribution to my said daughters apart from all other expenses of her. My daughter, Smt. Swagata, saved almost the entire money received from her father for years together and kept the same with me'. As in her own case neither has she produced any evidence nor the assessee was able to produce any evidence that Smt. Swagata possessed a cash sum of Rs. 6,000 before 8th May, 1963. In the allied case of M/s. Premier Theatres Pvt. Ltd. in which also Sri Sudhir Ch. Nawn is a director, cash deposits have been observed in the names of his many unmarried daughters and married daughters. Same explanation has been offered with regard to the sources of the sums said to have been advanced by them in that case. Without strict proof that the daughters of Sri Sudhir Ch. Nawn had any savings at any time from the alleged contributions said to have been made by their father, I am unable to accept that Smt. Swagata had any money with her to advance same as loan. In the circumstances, this sum of Rs. 6,000 as well is being assessed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he had no other source of income except the partnership income. His total withdrawal during the year from the R. F. has been shown above. The last withdrawal was made on 30th March, 1964, i. e., on the last day of the accounting year. Therefore, he must have spent the earlier withdrawals or at least a part of them to meet the family expenses during the year under consideration. Taking these facts into consideration it will appear that the statement of Smt. Nilima Nawn that she received Rs. 11,000 from Sri Subodh Ch. Das on 14th May, 1963, is not correct. Further, he stated in this connection that the alleged loan received from Smt. Nilima Nawn and others by the assessee, as disclosed above, was for the purpose of advancing a loan in turn by the assessee to M/s. R.B.A.A. Traders. Therefore, if Sri Subodh Ch. Das had, any money with him to pay any loan then it would be meaningless for him to pay the same to Smt. Nilima Nawn who in turn would pay the same to the assessee, M/s. Rupabani Theatres Pvt. Ltd., in order that M/s. Rupabani Theatres Pvt. Ltd. in turn may pay the loan to M/s. R.B.A.A. Traders of which Sri Subodh Ch. Das himself is a partner. Therefore, the alleged loan of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not corroborated by any documentary evidence and in these circumstances the IAC was of the view that the assessee had committed the offence contemplated by s. 271(1)(c) of the I.T. Act, 1961, and that fact had been proved from the evidence on record. The assessee filed an appeal before the Tribunal. It was urged that the revenue had failed to prove that the amount of Rs. 26,000 or the interest of Rs. 1,096 thereon was the assessee's income which it had concealed in the return. The revenue, on the other hand, placed reliance on the Explanation to s. 271(1)(c) and, after considering the relevant contentions, the Tribunal was of the view that the penalty could not be imposed on this account. In view of the finding of the Tribunal, on which we will have to make some comments, it is better to set out that relevant portion of the observations of the Tribunal which reads as follows: " The ruling in Anwar Ali's case [1970] 76 ITR 696 (SC) will still apply and it would be necessary for the department to show that the amount added as the assessee's income from undisclosed sources was, in fact, its taxable income of this year, which it had failed to disclose in the return. The burden on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... important to bear in mind the development of law from time to time. Prior to 1971, the position so far as this aspect was concerned was guided by s. 28(1)(c) of the Indian I.T. Act, 1922. Now, the question as to what were the ingredients or what were the essential elements to attract the provisions of the application of that section came up for consideration before the Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696. There, the Supreme Court observed, dealing with s. 28(1)(c) of the Indian I.T. Act, 1922, that the proceedings under s. 28 of the Indian I.T. Act, 1922, were penal in character. The gist of the offence under that section was that the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and the burden was on the department to establish that the receipt of the amount in dispute constituted the income of the assessee. If there was no evidence on the record except the explanation given by the assessee, which explanation had been found to be false, it did not follow that the receipt constituted taxable income. It was perfectly legitimate to say that the mere fact that the explanation of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sons [1972] 83 ITR 369. There also the Supreme Court was dealing with the provisions of s. 28(1)(c) of the Indian I.T. Act, 1922, and reiterated that penalty proceedings were penal in character and the department must establish that the receipt of the amount in dispute constituted the undisclosed income of the assessee. Apart from the falsity, of the explanation given by the assessee the revenue must prove, before any penalty could be imposed, by cogent material or evidence from which it could be inferred that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the sum and that the disputed amount was a revenue receipt. The same view was also reiterated by the Supreme Court in the recent decision in the case of Anantharam Veerasinghaiah Co. v. CIT [1980] 123 ITR 457. There, the Supreme Court reiterated that where an intangible addition was made to the book profits during the assessment proceedings, which was on the basis that the amount represented by that addition constituted the undisclosed income of the assessee, that income, although commonly described as " intangible ", was as much part of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which has been disallowed as a deduction), such person shall, 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, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section. " The relevant year with which we are concerned is covered by this position of law. It may incidentally be mentioned that since 1st April, 1976, by s. 61 of the T.L. (Amend.) Act, 1975, the present Explanation has been substituted and it reads as follows : " Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act, (A) such person fails to offer an explanation or offers an explanation which is found by the Income-tax Officer or the Appellate Assistant Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 1964, s. 271(1)(c) required that there should have a positive or active act on the part of the assessee to conceal particulars of his income or to deliberately furnish inaccurate particulars. But by virtue of the addition of the Explanation, if the difference between the assessed income and the returned income was of certain magnitude, then unless the assessee proved that such difference was not caused by reason of failure to return the correct income from any fraud or any gross or wilful neglect, he should be deemed to have committed a positive act of concealment or of deliberately furnishing inaccurate particulars. The particulars of income that is also provided by the Explanation, but means " particulars of such income for the purposes of clause (c) of this sub-section ", that is to say, inaccurate particulars of income which was required to be furnished and the failure of which has been made penal under s. 271(1)(c) of the Act. It was contended and we shall presently note that it was held in certain decisions that the Explanation introduced only a fiction that the assessee had concealed the income or had furnished inaccurate particulars deliberately, and that it did not m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt observed that there could be no failure to make a return, unless notice had been issued under s. 22(1) or s. 22(2) of the Indian I.T. Act, 1922, and there had been a default in complying with that notice. Therefore, the fiction that the failure to send an estimate had to be deemed to be a failure to send a return necessarily involved a fiction that notice had been issued under s. 22, and that had not been complied with. This, therefore, reiterates that if a fiction has to operate, then normally it would be proper to assume all those facts, though not expressly enjoined by the direction to do so, upon which alone the fiction could operate. This principle was again reiterated by the Supreme Court in the case of Addl. ITO v. E. Alfred [1962] 44 ITR 442, where Hidayatullah J., as the learned Chief justice then was, observed that when a thing was deemed to be something else, it was to be treated as if it was that thing, though, in fact, it was not. The original assessee being dead before the notice, either general or special, to him, he could not be treated as an assessee and the process of the Act was, by fiction, made available against different person like a legal representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fiction. This being the position, different courts have construed the effect of the Explanation differently. There is one line of cases where it had been held that even after the introduction of the Explanation in 1964, the onus was on the revenue to prove that the income was the income of the assessee and that the revenue had to discharge that not merely by the fact that the explanation given by the assessee has been considered to be false. It was submitted on behalf of the assessee that in order to justify the levy of a penalty, two factors should co exist: (i) there must be some materials or circumstances leading to the reasonable conclusion that the amount did represent the assessee's income, it being not enough for the purposes of penalty that the amount had been assessed as income; and (ii) the circumstances must show that there was animus, i.e., conscious concealment or conscious furnishing of inaccurate particulars on the part of the assessee. The Explanation had no bearing on the first part, i.e., to say, the revenue must still adduce evidence that the amount represented the assessee's income but the Explanation introduced in 1964 has a bearing only on the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rthy [1980] 121 ITR 326. We must also consider an important decision of this court, namely, the decision in the case of CIT v. W. J. Walker and Company [1979] 117 ITR 690. There, in the assessment proceedings for the assessment year 1964-65, the assessee explained to the ITO that a cash credit of Rs. 50,000 in his accounts was a loan from a party and produced a confirmation letter from the party. But the party's clerk deposed before the officer that the party had not given any loan. The officer also perused the income-tax returns of the party and was not satisfied with the creditworthiness of the party and held that the loan was not genuine, and added the amount to the income of the assessee. On a reference by the ITO, the IAC levied penalty on the assessee for having deliberately filed an incorrect return. On appeal, the Tribunal held that even after the introduction of the Explanation to s. 271(1)(c), the decision of the Supreme Court in Anwar Ali's case [1970] 76 ITR 696 would apply and holding that the fraud or wilful neglect could not be presumed in the absence of any indication at all that there was any fraud or wilful neglect, when the assessee had some evidence to the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as entirely wrong in its understanding of the Explanation. The entire approach of the Tribunal is also erroneous, because a confirmatory letter does not prove the creditworthiness of creditor which must be proved as a fact by an assessee. The Tribunal has further failed to appreciate the relevant facts found by the authorities below." It must be observed that the Division Bench was not concerned with the specific question as to the effect of the provision, that is to say, whether the word " deemed " merely indicated that the assessee had concealed the particulars of income deliberately in order to furnish inaccurate particulars and also whether that assessed income should have been deemed to be the income of the assessee. The decision was rendered on the view of the Tribunal that no change had been introduced by the introduction of the Explanation. Therefore, in the light of the above facts and circumstances of the case, the Division Bench remitted rightly, with respect, in our opinion, the case to the Tribunal to decide the question afresh after taking into consideration the Explanation, which, undoubtedly had brought about certain changes. The extent of that change and effect, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the Legislature wanted that ss. 69 and 69A should be considered to be deemed to be the income of the assessee (sic) though that section appears in Chap. VI under the heading " Aggregation of Income and Set Off or Carry Forward of Loss ". In s. 69 it does not make this sum to be the deemed income of the assessee. Section 69 is the section which is applicable in the facts of the instant case, that is to say, the sum found credited in the books of account is a particular sum which is credited in the books of account in respect of which satisfactory explanation to the revenue authorities has not been given by the assessee. The assessee is only liable to income-tax in respect of its income for the previous year. This is an aspect which, in our opinion, should be considered though we need not express any final opinion on this aspect. In Income-tax Reference No. 355 of 1977 [Rahmat Development Engineering Corporation v. CIT [1981] 130 ITR 602 (Cal)] (judgment delivered on 3rd July, 1980, and 7th July, 1980), we had to deal with the imposition of the penalty in the case of an unexplained investment. The facts of that case were significantly different and we need not detain ourse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re; nor is it theoretically possible or desirable, in our opinion, to lay down any abstract proposition that the nature of the evidence to prove a negative fact would be less than the nature of the evidence to prove a positive fact. In these matters it is, in our opinion, appropriate to decide each question on the facts and circumstances of the case bearing in mind the basic principles and these are that the evidence in the assessment proceedings are not by themselves conclusive, the circumstances under which the fact that certain sums added as the income of the assessee in the assessment proceeding do not ipso facto make the same the income of the assessee in the penalty proceedings but the circumstances under which such assessment has come to be made and the nature of the evidence produced in the assessment proceedings, are material and may provide some good evidence for coming to certain conclusions. The fact that there has been rejection of the explanation given by the assessee about the source is also not conclusive of the fact either of concealment of income which is a positive act or negative or furnishing inaccurate particulars, which is presumed by the operation of the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the assessee must succeed on the facts because the department had failed to prove that the amount of Rs. 26,000 and the interest thereon was assessable income of the assessee which it had failed to disclose." The Tribunal, it appears, was basing its conclusion not only on the view it had taken on the theory of onus but also on the basis of its finding of facts. There is no question of challenging this finding, which the Tribunal records, as perverse. Therefore, though the Tribunal was not correct on its interpretation of law, as it had based its findings on facts also which have not been challenged, the conclusion that the department has failed to prove the concealment of the sums mentioned in question No. 1 cannot be assailed or altered. We answer question No. accordingly. This brings us to the second question, which we have set out before. We have seen the requirement of the section, as it stood at the relevant time, that is to say, in order to attract s. 271, sub-s. (1)(c), it was necessary for the ITO to be satisfied that the assessee has " concealed " the particulars of his income or " furnished inaccurate particulars " and we have also noted that the Explanation enjoine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with. It was urged that as the law presumed that the assessee should have committed the offence, learned advocate for the revenue contended that in such cases an absolute liability was created. We are unable to accept this position. If the absolute liability is created then, in such cases, no question of onus on the assessee to prove that either he was not guilty of fraud or gross or wilful neglect would have been provided for. What perhaps learned advocate for the revenue really sought to say, which he did not say, was that it was not an absolute liability but it was a liability created by the statute. But even that position cannot be accepted because what was required was " concealment ", that is to say, an active or positive act of the assessee. But the nature of proof is shifted in certain contingencies to the assessee by the presumption, a rebuttable presumption introduced in the Explanation. But that does not in any way affect the requirements or the ingredients of the section. The position, however, would be different if an absolute liability is created in respect of certain act, that is to say, if the statute completely prohibits doing or undoing certain conduct and wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nants sub-let part of the premises to sub-tenants on a lease similarly terminable. On July 22, 1954, the landlords gave the tenants notice to quit on December 25 of that year, and the tenants gave their sub-tenants notice to quit on the same date. Both notices were rendered ineffective by the coming into operation of the Landlord and Tenants Act, 1954, on October 1, 1954. But the tenants surrendered their tenancy without any consideration in January or February, 1955. The landlord subsequently gave the sub-tenants a valid notice terminating their sub-tenancy under the Act of 1954 and opposed the sub-tenants application for a new tenancy under s. 24(1) on the ground that they intended to occupy the premises for the purposes of their business. The sub-tenants contended that the landlords were not entitled to oppose their application on this ground because their interest in the premises had been purchased within 5 years before the termination of the tenancy contrary to s. 30(2) by virtue of the intermediate tenants surrender of their tenancy. It was held that the landlords were entitled to oppose the sub-tenants' application for a new tenancy on the ground that they intended to occupy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. That principle of absolute statutory liability cannot be attracted in view of the language used in this section, with which we are concerned. More or less similar situation arose before the Court of Appeal in England in the case of R v. Howells [1977] 3 All ER 417 (CA). There the court was concerned with s. 1(1) of the Firearms Act, 1968 of England, which provided as follows: " Subject to any exemption under this Act, it is an offence for a person-(a) to have in his possession, or to purchase or acquire, a firearm to which this section applies without holding a firearm certificate in force at the time, or otherwise than as authorised by such a certificate ........" It was an offence to be in possession, or to purchase or to acquire firearm without holding a firearm certificate under the Firearms Act and the offence was absolute whether knowingly or admittedly. There, the observations of Lord Reid in the decision in the case of Sweet v. Parsley [1969] I All ER 347 at page 349 (HL) were quoted, where Lord Reid observed that their first duty was to consider the words of the Dangerous Drugs Act, 1965; if they showed a clear intention to create an absolute offence, that was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitial prescription in favour of the need for mens rea, we have to ascertain whether the presumption is overborne by the language of the enactment, read in the light of the objects and purposes of the Act, and particularly whether the enforcement of the law and the attainment of its purpose would not be rendered futile in the event of such an ingredient being considered necessary." Again, in the case of Nathulal v. State of Madhya Pradesh, AIR 1966 SC 43, the Supreme Court reiterated that a guilty mind was an ingredient of a criminal offence unless excluded by the statute. The exclusion of mens rea by necessary implication should normally be avoided. This precise question, however, was considered by the Supreme Court in the case of Kapurchand Shrimal v. TRO [1969] 72 ITR 623. In that case upon a HUF committing default in payment of income-tax due by it for the assessment years 1955-56 to 1959-60 certificates were issued under s. 46(2) of the Indian I.T. Act, 1922, for the recovery of tax due by the family, and properties and the outstandings of the family were attached. The Supreme Court observed, dealing with the argument on behalf of the revenue, as follows at page 627 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to arrest and detention on failure to pay the tax due is also incurred by the assessee alone. The manager, by virtue of his status, is competent to represent the Hindu undivided family, but on that account he cannot, for the purpose of section 222 of the Act of 1961, be deemed to be the assessee when the assessment is made against the Hindu undivided family and certificate for recovery is issued against the family." Again dealing with sections 276, 276A, 277 and 278 of the I.T. Act, 1961, the Supreme Court at page 629 of the report ([1969] 72 ITR) observed as follows : " Sections 276, 276A, 277 and 278 on which reliance was placed by counsel for the revenue in support of his argument also do not assist him. These sections occur in a chapter relating, to penalties, and they seek to penalise failure to carry out specific provisions mentioned therein. We are unable to hold that the expression 'person' in sections 276, 276A and 277 is used in the sense in which it is defined in section 2(31) of the Act. For each specific act which is deemed to be an offence under those provisions an individual who without reasonable cause or excuse fails to do the acts prescribed by statute or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uenced the decision of the court. Before we conclude we must also incidentally refer to the observation of the Division Bench of the Jammu and Kashmir High Court in the case of Addl. CIT v. Sadiq Ali Bros. [1973] 92 ITR 276, where it was observed 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 should be satisfied that the assessee had concealed the particulars of his income or had deliberately furnished inaccurate particulars of such income. The Division Bench observed that although the section did not require mens rea, yet, as the provisions were purely of penal nature, some amount of culpable negligence or wilful omission on the part of the assessee must be established before the penalty could be levied. We are unable to appreciate the observation because mens rea in essence is a state of mental volition. Therefore, if the section requires that culpable negligence or willful omission on the part of the assessee must be established, s. 271 does not require mens rea. If it does require that culpable negligence or wilful omission on the part of the assessee must be proved, then the guilty mind ..... X X X X Extracts X X X X X X X X Extracts X X X X
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