TMI Blog1979 (6) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... o the accounting year ending with March 31, 1966, declaring an income of Rs. 20,120. In the course of the assessment proceedings the ITO noticed in the rice mill business all aggregate amount of Rs. 25,490, which was credited periodically in the name of the assessee. The assessee was required by the assessing authority to adduce evidence in support of the said credits. He filed a revised return on March 11, 1969, at the time of the hearing of the case, declaring an income of Rs. 45,600. The ITO determined the total income at Rs.65,800. On appeal it was reduced by the AAC to Rs.51,760. Before completing the assessment, the ITO initiated proceedings under s. 271(1)(c) of the Act and referred the matter under s. 274(2) of the Act to the IAC, who held that the assessee did not come forward voluntarily to file the revised return but did so only when he found that the ITO was on the right track and detected concealment and levied a penalty of Rs. 15,000 resorting to the provisions of the Explanation to s. 271(1)(c) of the Act. On appeal, the Appellate Tribunal found that the assessee categorically asserted that the loans are of genuine nature and included the same in the revised return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty and levied on account of the dishonest and contumacious conduct of the assessee, and (2) it is penal in character and is akin to criminal proceedings. We may at this stage notice the decided cases on this aspect. In England penalty proceedings were never doubted to be of penal character : vide Fattorini [Thoma)(Lanchasire) Ltd. v. IRC [1943] 11 ITR (Suppl) 50 (HL). The earliest Indian decision worth noticing is that of the Bombay High Court in C.I.T v. Gokuldas Harivallabhdas [1958] 34 ITR 98, wherein it was held that proceedings under s. 28(1)(c) of Indian I.T. Act, 1922, are penal in character and the onus is on the revenue to establish that the assessee was guilty of concealment of particulars of income and that the mere false explanation without further proof that a particular receipt necessarily constituted income of the assessee would not justify the levy of penalty although it was open to the revenue, where the explanation of the assessee was found to be false, to treat the receipts as the assessee's income from undisclosed sources. With regard to the onus of proof and the nature of penalty proceedings Chagla C.J. observed : "........... the assessee is not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm and its imposition depends upon the exercise of discretion by the taxing authorities; but it is imposed as a part of the machinery for assessment of tax liability." This view was reiterated again in CIT v. Bhikaji Dadabhai Co. [1961] 42 ITR 123 (SC), and it was observed thus at page 128 : " This court regarded penalty as an additional tax imposed upon a person in view of his dishonest or contumacious conduct. " The Allahabad High Court in Lal Chand Gopal Das v. CIT [1963] 48 ITR 324 followed the view of the Supreme Court in C. A. Abraham's case [1961] 41 ITR 425. As ruled by the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696, 700 : " It is significant that in C. A. Abraham's case, this court was not called upon to determine whether penalty proceedings were penal or of quasi-penal nature and the observations made with regard to penalty being an additional tax were made in a different context and for a different purpose." Therein the assessee's explanation regarding the undisclosed bank account of the cash deposit of Rs. 87,000 that the same represented diverse amounts entrusted to him by relatives who had got panicky during communal riots in Bihar in 1947, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alsity of the explanation given by the assessee, the department must have before it before levying penalty cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is a revenue receipt. No doubt the original assessment proceedings, for computing the tax may be a good item of evidence in the penalty proceedings but the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment. " A Division Bench of this court in CIT v. Koduri Papa Rao [1976] 102 ITR 834 has held that falsity of the explanation relating to an item of income in the assessment proceedings without any material could not be sufficient to justify levy of penalty under s. 28(1)(c) of the Indian I.T. Act, 1922. The Division Bench of this court consisting of one of us (Kondaiah J., as he then was) and A. D. V. Reddy J., summed up the legal position relating to the true nature and character of the penalty and the onus of proof thus at page 837 : " It is well settled that the penalty proceeding is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the content and concept of penalty and the onus of proof thereof. The Explanation reads thus : " Explanation.--Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 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 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." From a close reading of the provisions of this Explanation, we have no hesitation to hold that the Explanation creates a legal fiction whereunder the assesee is straightaway brought within the ambit of s. 271(1)(c), provided the conditions specified therein are satisfied. The mere fact that the total returned income is less than eighty per cent. of the total inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial available on record and substantiate his stand in this regard. Where there is no material other than the falsity of the explanation relating to the addition of income in the assessement proceeding, it cannot be said that the revenue had discharged its onus to establish that the assessee has concealed particulars of his income or furnished inaccurate particulars of such income, so as to attract the penal provisions of s. 271(1)(c). The nature of proof required to be established by the assessee under from that of the the Explanation being of a negative character is different revenue to prove the positive fact relating to income. As pointed out earlier, the findings in the assessment proceedings, though prima facie good evidence, are not conclusive to prove that the addition of the items to the returned income is really concealed income or amounts to furnishing of inaccurate particulars of income within the meaning of s. 271(1)(c). Nor the Explanation can be said to make the findings in the assessment order conclusive evidence or proof that the amount assessed was in fact the real income of the assessee. Where the facts and circumstances are consistent with the theory that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not make him liable for the penalty under s. 271(1)(c), although he filed the revised return when the ITO doubted the true nature of the cash credits. The mere admission or confession of an assessee by itself does not give any right to the I.T. authorities to levy penalty under s. 271 (1)(c), nor does it confer jurisdiction on them to initiate penal proceedings under the aforesaid section. It is a statutory power provided under s. 271(1)(c). That apart, it is a penal provision. It must be strictly construed. Unless and until the provisions of s. 271(1)(c) are attracted in a given case the ITO or the IAC has no jurisdiction, much less power, to levy penalty on any assessee under any circumstances. The stand taken by the revenue that the assessee himself has agreed to the addition of the income relating to the unexplained cash credits cannot be a valid ground to initiate penal proceedings. That apart, what has been agreed to by the assessee is only to have the items of the unexplained cash credits added for the purpose of determining his income in the assessment proceedings. It is not the case of the assessee that those items are his concealed income, nor has he admitted that h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which thereafter has to place further materials to show that over and above the materials in the assessment order, there are facts and circumstances on which the failure of the assessee to return the correct income could be attributed to the act of fraud or gross or wilful neglect. To the same effect is the decision of the Allahabad High Court in Addl. CIT v. Kishan Singh Chand [1977] 106 ITR 534. In CIT v. Mohamed Haneef [1972] 83 ITR 215 (SC), a sum of Rs. 31,858.78, which was the difference between the amount shown in the assessee's balance-sheet as due to a bank on key-loans and overdrafts and the information supplied by the bank, was added by the I.T. authorities as income from undisclosed sources. There was no other material to conclude that the assessee deliberately furnished wrong particulars. The Supreme Court held, agreeing with the High Court of Kerala, that there was no basis for coming to a firm conclusion that the assessee had deliberately submitted a wrong return and, therefore, the levy of penalty was not justified. It admits of no doubt that the levy of penalty, which is penal in character, must be justified on the facts and circumstances of each case. The me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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