1990-VIL-539-MAD-DT

Equivalent Citation: [1992] 193 ITR 361, 89 CTR 224

MADRAS HIGH COURT

Date: 05.11.1990

COMMISSIONER OF INCOME-TAX

Vs

BALAKRISHNA TEXTILES AND OTHERS

BENCH

Judge(s)  : SOMASUNDARAM., RATNAM 

JUDGMENT

The judgment of the court was delivered by

RATNAM J.-In these tax case references under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), at the instance of the Revenue, the following questions of law have been referred to this court for its opinion in relation to the assessment years 1962-63 to 1964-65:

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in cancelling the penalty imposed under section 271(1)(c) ?

(2) Whether the Appellate Tribunal's finding that there has been no concealment in respect of the additions agreed to by the assessees is based on materials and evidence and is a reasonable view to take ?"

Since all the assessees in these tax case references belonged to the same group and the assessments and the penalty proceedings in respect of all the assessees in the group were common, we propose to deal with the questions referred to above also by a common order. We may now proceed to set out the facts relevant for a consideration of the questions referred to this court. The assessees in all these cases, during the relevant assessment years, carried on a business, including export, in art silk fabrics, handloom cloth, handicrafts, etc. In respect of the assessment years 1962-63 to 1964-65, the assessees had filed returns disclosing in some cases loss and in some others, a marginal income, based on accounts maintained by them. Some time in January, 1965, there was a raid on the business premises of most of the assessees by the Economic Offences Wing. Thereafter, in May, 1965, the assessees came forward with certain disclosures under section 68 of the Finance Act, 1965. Later, the assessees purported to file revised returns and in January, 1969, the assessees accepted and agreed to offer large amounts for assessment. Again, the assessees admitted nondisclosure of substantial amounts running into several lakhs and agreed to offer those amounts also to assessment. The Income-tax Officer who finalised the assessments of the several assessees found that there had been a very large scale suppression of income by the assessees in respect of the assessment years and, on the basis of the particulars furnished by the assessees and the large amounts offered by the assessees themselves for assessment, determined the income of the assessees, as agreed to by the assessees themselves, and assessed the same in the hands of the different assessees for the respective assessment years. In view of the finalisation of the assessments in the manner aforesaid, proceedings under section 271(1)(c) of the Act were also initiated and the cases for levy of penalty were referred to the Inspecting Assistant Commissioner of Income-tax, Madras, under section 274(2) of the Act. After the issue of a show-cause notice and considering the stand taken by the assessees in response thereto, the Inspecting Assistant Commissioner found that the assessees had admitted that the books of account maintained by them were manipulated and that they had not utilised the import licences issued to them, but had sold them suppressing the price for which they had been sold and the profits realised thereby, and that the revised returns had also not reflected the correct income of the assessees. It was also further found that the assessees had agreed for large amounts to be assessed as their income by addressing communications to that effect and, in the context of the assessments so made on an agreed basis, the assessees cannot be heard to contend that they had not concealed their income or furnished inaccurate particulars thereof. In the view so taken, the Inspecting Assistant Commissioner of Income-tax levied penalty of different amounts with reference to each one of the assessees for the assessment years in question, inclusive of the assessment year 1964-65 in respect of which the Explanation inserted by the Finance Act, 1964, with effect from April 1, 1964, stood attracted. Aggrieved by this, the assessees preferred appeals before the Tribunal contending that penalty ought not to have been levied upon the assessees. In the course of its order, the Tribunal found that the assessees had trafficked in the licences obtained by them without actual utilisation and their case that there was no sale of the licences was unacceptable. However, the Tribunal pointed out that, as the assessees did not claim the utilisation of the licences for purposes of their own production and did not sell the licences, there is no factual inaccuracy or concealment on the part of the assessees. Referring to the sale of the import licences by the assessees, the Tribunal found that the Income-tax Officer, by several of his communications, had informed the assessees that the estimate of profit made by them from the sale of licences should be much more than what had been disclosed and ultimately had assessed the profits at a higher rate, and, at best, as against the estimate given by the assessees, a higher estimate had been arrived at by the Department and there could, therefore, be no levy of penalty. Yet another aspect emphasized by the Tribunal was that the revised returns had been filed by the assessees before any detection. Finally, the Tribunal opined that it was impossible to state what income was concealed by any particular assessee for any particular assessment year and, therefore, any charge of concealment cannot be specific, but could only be indefinite and penalty cannot be levied on such a basis. On the aforesaid reasonings as well as conclusions, the Tribunal deleted the penalty levied on the assessees for all the three assessment years in question, viz., 1962-63 to 1964-65. That is how the two questions earlier set out have been referred to this court for its opinion.

We may first proceed to notice certain facts which are beyond controversy and the inferences flowing therefrom. The returns originally filed by the assessees were on the basis of the entries in certain books of account. Those entries had been admitted and accepted by the assessees to have been manipulated. Though it was admitted by the assessees that the entries in the books of account were not real but made-up ones, after the filing of the original returns, it follows that the entries on which the returns were so based were bogus right through, though admitted to be so only later, and therefore, the particulars of income furnished in the returns filed originally cannot be taken as a disclosure of correct particulars. Initially, the assessees did not disclose the sale of the import licences in the open market, but made to appear as if they had been utilised. That was given go-by by the assessees and they later accepted that there was no utilisation of the import licences issued to them, but that they had all been sold. The price for which those import licences had been sold by the assessees had not been disclosed. In other words, the assessees suppressed the sales and the profits realised by the sale of the import licences. Thus, even at the stage of the filing of the original returns by the assessees, they had failed to disclose the correct particulars and had suppressed the sale of the import licences as well as the profits realised from such sale and had also manipulated the accounts. Some time in January, 1965, there was a raid on the premises of the assessees and that, perhaps, was responsible for the assessees coming forward in May, 1965, offering and agreeing to the assessment of an income of nearly Rs. 15.66 lakhs, though the assessees claimed that the original returns were manipulated. It is difficult to accept that if there had not been a failure to disclose the correct particulars of income or suppression of profits on the sale of the import licences, the assessees would have come forward readily offering for assessment nearly Rs. 15.66 lakhs. Subsequently, the assessees filed revised returns disclosing an income of about Rs. 6.57 lakhs. In the revised returns also, the assessees had not disclosed the correct particulars of income and had also suppressed the profits. The assessees, by their letter, offered an additional Rs. 9 lakhs for assessment. By yet another letter, the assessees accepted that nearly Rs. 12.34 lakhs had been held as cash. Thus, it is seen that the assessees had not, even in the revised returns, come forward with correct particulars. Ultimately, the assessees were agreeable for an addition of Rs. 28.62 lakhs, thus bringing the total additions to Rs. 50.85 lakhs. All the additions were agreed to by the assessees and, on that basis, the income was assessed and allocated to the different groups of assessees on a basis agreed to by the assessees themselves. From the foregoing, it is clearly established that the original returns as well as the revised returns did not disclose the correct particulars of income of the assessees and the profits on the sale of the import licences had also been suppressed and in the course of the assessment proceedings, the assessees had agreed to inclusion and assessment of very large amounts which were accordingly assessed and apportioned in the hands of the respective groups of assessees for the relevant assessment years as agreed to by the assessees themselves.

We may now proceed to consider the reasoning of the Tribunal bearing in mind the aforesaid background. It is extremely difficult to understand and appreciate the view of the Tribunal that there had been no concealment on the part of the assessees. The only reason given in support of this is that there was no claim by the assessees at any point of time that they had utilised the licences for the purpose of production in their factory and did not sell the licences. The assessees' claim that the licences had been utilised by them or not, or that they did not sell them, would not, in our view, on the facts herein, have any bearing upon the question of concealment of particulars of income or of furnishing of inaccurate particulars of income, falling under section 271(1)(c) of the Act. Even according to the Tribunal, that there was no sale of licences by the assessees does not seem to be fact. If that be so, we fail to see how the claim of the assessees that the licences were utilised and were not sold, would not be furnishing of inaccurate particulars or concealment of particulars of income. We are, therefore, unable, in the undisputed facts and circumstances of this case, to agree with the Tribunal that there was no concealment on the part of the assessees. Another reason given by the Tribunal for deleting the penalty imposed upon the assessees is that, as against the estimate given by the assessees, a higher estimate had been made by the Revenue and that cannot give rise to a levy of penalty on the ground of concealment. We find that the assessees had, by the manipulated entries in their account books, made it appear that the import licences had not been sold, but, later, it was accepted by the assessees that they had sold those import licences which, however, had not been disclosed in the original returns or in the revised returns. With reference to the sale of the import licences by the assessees, we find that the Income-tax Officer had issued several letters to the assessees informing them that the profits on sales would be very substantial and, to those letters, the assessees do not appear to have responded at all and it is only very much later that the assessees appear to have come forward with an offer for subjecting to assessment an additional sum of Rs. 9 lakhs. Even so, taking into account the amounts agreed to be assessed by the assessees, really there was not much scope for any serious estimation as such, as the Tribunal would have it. Even if the Revenue had assessed the income at a higher estimate than that furnished by the assessees, it cannot be stated as an inflexible rule that, in all cases, estimated income is not liable to penalty, as it is always open to draw an inference of deliberate underestimate on the facts and circumstances and if there was such an underestimate, an inference of concealment can also be drawn. We, therefore, are unable to appreciate the reasoning of the Tribunal that the estimate of the Revenue being higher than that of the assessees, there can be no concealment. Yet another reason given by the Tribunal is that even before any detection, the assessees had filed the revised returns and that would exonerate them from the failure to show the correct income in the original returns. We would like to point out that, in this case, neither the original returns nor even the revised ones filed, in any manner, purported to disclose the correct particulars of the income. If there is concealment of income in the original as well as the revised returns, we do not see how there can be any escape from the liability to penalty and the question of detection, in our view, is hardly relevant to section 271(1)(c) of the Act, though it may perhaps be relevant to section 271(1) of the Act with reference to an application under section 271(4A) of the Act. We are, therefore, unable to countenance this reasoning of the Tribunal also as justifying the deletion of penalty.

Lastly, the Tribunal, by a process of reasoning which we fail to comprehend, stated that the charge of concealment is not specific, but indefinite and, therefore, no penalty could be levied. Taking into account the amounts offered by the assessees for the respective assessment years, in relation to each group of assessees, the Income-tax Officer had finalised the assessments and had also allocated to each assessee for each assessment year the income assessed. That was done, as desired by the assessees themselves, and it is, therefore, too late in the day for the assessees to contend that the concealed income is not specific, but indefinite. What is, however, significant is that the assessees had not, in any manner, demurred to the finalisation of the assessments in the manner done by the Income-tax Officer and they had not questioned the income subjected to tax in respect of each assessee for a particular assessment year, as agreed to by themselves. We are, therefore, of the view that the concealment, on the facts and in the circumstances of this case, cannot be stated to be indefinite, as pointed out by the Tribunal.

We may also refer to one other circumstance which appears to have totally escaped the attention of the Tribunal. In respect of the assessment year 1964-65, the Tribunal completely overlooked that the Explanation to section 271(1)(c) of the Act inserted by the Finance Act, 1964, with effect from April 1, 1964, would be applicable and in the absence of proof by the assessees that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on their part, they must be deemed to have concealed the particulars of income or furnished inaccurate particulars of income for purposes of section 271(1)(c) of the Act. We may point out that, in respect of the assessment year 1964-65, there is absolutely no explanation whatever offered by the assessees, as required by the Explanation and, under these circumstances, there is no justification whatever for deletion of the penalty imposed on the assessees in respect of the assessment year 1964-65.

We may now refer to a few decisions to which our attention was drawn by counsel for the Revenue as well as the assessees, with a view to support the levy of penalty and the deletion thereof, respectively. It would be appropriate to remember in this connection the caution administered by Lord Reid in Regent Oil Co. Ltd. v. Strick (Inspector of Taxes) [1969] 73 ITR 301, 317 (HL) to the effect that general statements made in cases should not be taken too literally and applied to cases of different kinds and that each case would turn upon its own facts and no infallible criterion could emerge and even so, decisions would be useful only as affording indications of relevant considerations to be borne in mind in approaching the problem. Bearing this caution in mind, we may now refer to A. K. Bashu Sahib v. CIT [1977] 108 ITR 736 (Mad), where it had been clearly pointed out that, when the assessee knew that the methods adopted by him did not reflect his real income, he must have been aware of his real income, but if he had still estimated the same in a particular way for the assessment years, the argument that, in all cases where the taxing authority estimated the income at a higher figure than what was estimated by the assessee, no penalty was leviable, is unacceptable, especially when admissions had been made by the assessee having the effect of an awareness on his part that his real income was more. It has also been further pointed out that where the estimated income of the assessee amounts to a deliberate under-estimate, an inference of concealment of income could certainly be drawn. We are of the view that, in the facts and in the circumstances of these cases, the aforesaid principle would be applicable to draw an inference of concealment. In a case where the assessee himself had admitted the estimate as made by the Income-tax Officer and had not shown that his estimate was not bona fide or a proper estimate, as in Addl. CIT v. E. Bhoopathy [1978] 113 ITR 188 (Mad), the court found that there is a clear scope for the finding that the assessee has concealed the particulars of income or filed inaccurate particulars thereof. Again in CIT v. Krishna and Co. [1979] 120 ITR 144 (Mad), considering the question of the propriety of the levy of penalty in a case where the assessee himself had admitted that the amount represented his own income, the court ruled that no further evidence would be necessary to show that it represented the concealed income and the readiness with which the assessee agreed to the inclusion of the amount as his income would clearly justify the levy of penalty, as no one would agree normally to pay tax on amounts not belonging to him. In CIT v. B. A. Balasubramaniam and Bros. [1985] 152 ITR 529 (Mad), which is almost on all fours with the present references, the income of the assessee was estimated by the Income-tax Officer, and it was reduced by the Tribunal. In the consequential penalty proceedings, the penalty levied was deleted by the Tribunal on the ground that, as the income from the sale of the licences was fixed at a figure higher than the income disclosed by the assessee, it did not mean that the difference represented the concealed income of the assessee justifying the imposition of penalty, as his income had been adopted only on an estimated basis. It was held by this court, though with reference to the Explanation to section 271(1)(c) of the Act, that the assessee having furnished the income by way of sale of import licences at far below the market quotations and not having furnished the necessary information sought for by the Department, there was no justification for the cancellation of the penalty. In CIT v. Sri Venkateswara Textiles [1985] 153 ITR 687 (Mad), the assessee, after filing a return of income, filed a petition before the Commissioner under section 271(4A) of the Act, admitting that the entries in the books of account were not real, but reiterating that the income relevant for the assessment year was the same as that returned earlier. The Income-tax Officer found that the assessee had trafficked in the licences granted to it for importing art-silk yarn a premium, but had made entries in its account books as if the art-silk yarn was imported and used in the manufacture of cloth and the cloth so manufactured was sold and, accordingly, estimated the total income. In considering the question whether the estimate so made would justify the levy of penalty, it was pointed out that the entries in the books of account did not reflect the true position as in this case, and the assessee had thus furnished particulars of income in the original return on the basis of entries in accounts, false to its knowledge and that would amount to furnishing of inaccurate particulars attracting the levy of penalty under section 271(1)(c) of the Act. We are of the view that the principles referred to above would be applicable to these cases as well. However, learned counsel for the assessees strongly relied upon the decisions in Addl. CIT v. T. K. Perumalswamy [1984] 150 ITR 600 (Mad), and Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705 (SC). In the first of these cases, the levy of penalty for the assessment years 1963-64 was upheld, differing from the Tribunal, on the ground that, in the disclosure petition, the assessee had admitted that the original return as well as the accounts on which it was based did not disclose the true state of affairs and that would constitute self-confessed concealment on the part of the assessee in its original return. In relation, however, to the levy of penalty for the assessment year 1964-65, it was found that the assessee had furnished one estimate of income referable to the sale of licences of silk yarn and a different estimate had been arrived at by the Income-tax Officer, but, nevertheless, the assessee had disclosed the true nature of the income as well as the true nature of the transactions from out of which the income was derived and that would negative concealment or failure to disclose income, justifying the deletion of the penalty levied. However, in these cases, the assessees had made it appear that there were no sales at all of the import licences, but they had been utilised by them for purposes of their manufacturing activity and they had also not given their estimate of the income realised as a result of the sale of the licences in the open market either in the original returns, or in the revised returns. We may also point out that in CIT v. Sri Venkateswara Textiles [1985] 153 ITR 687 (Mad) (at pages 694 and 695), the observations in Addl. CIT v. T. K. Perumalswamy [1984] 150 ITR 600 (Mad) (at page 605), with reference to the assessment year 1963-64, had been approved and that clearly indicates that if, on the assessee's own showing, the filing of the original return was an act of concealment of income, it did call for penalty. In view of that, the decision in Addl. CIT v. T. K. Perumalswamy [1984] 150 ITR 600 (Mad), cannot be pressed into service by the assessees. In Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705, the Supreme Court pointed out that the acceptance of additions of income by the assessee is not acceptance of concealment of income and that there may be a hundred and one reasons for such admission. These observations have to be understood in the context in which they were made and with reference to additions made as a result of disallowance, in the case of an assessee, relating to a known source of income. We are, therefore, of the view that that decision cannot have any application to the facts of these references. The reliance placed upon the decisions in Anantharam Veerasinghaiah and Co. v. CIT [1980] 123 ITR 457 (SC) and CIT v. Imperial Automobiles [1983] 141 ITR 60 (Mad), by learned counsel for the assessee is of no assistance in advancing the case of the assessees. In Anantharam Veerasinghaiah and Co. v. CIT [1980] 123 ITR 457, the Supreme Court laid down that no doubt the fact that the assessment order contains a finding that the disputed amount represents income constituted good evidence in penalty proceedings, but that finding cannot be regarded as conclusive for purposes of penalty and the mere falsity of the Explanation offered by the assessee is insufficient without other cogent material or evidence to arrive at a conclusion justifying the levy of penalty. We are of the view that this decision also is of no assistance to the assessees. It is not only the finding in the assessment orders that had been made the basis for levy of penalty, but also the whole gamut of the assessment proceedings, starting from the filing of the returns and ending with the finalisation of the assessments. On the available materials, it is clearly established that there had been self-confessed concealment of income and furnishing of inaccurate particulars in the returns filed originally and in the revised returns and also prior to the completion of the assessment proceedings. In CIT v. Imperial Automobiles [1983] 141 ITR 60 (Mad), the only material that was available was the explanation offered by the assessee which was rejected and levy of penalty followed and it was under those circumstances that this court held that there was no material to show that the amount in question was the income of the assessee and, therefore, the Tribunal was right in deleting the penalty. Such is not the case here. We are also of the view that the decision in CIT v. Apsara Talkies [1985] 155 ITR 303 (Mad), relied on by learned counsel for the assessees, does not in any manner, support their case for, all that had been laid down in that case is that no finding of concealment could be arrived at on the basis of the valuer's estimate, which is only an inexact instrument of measurement. In that case, three widely differing estimates were given and it was pointed out that, in the welter of estimates so given, there was no scope for drawing an inference that the cost reflected in the books of account of the assessee is an indefinite estimate and involved concealment of income. That decision also cannot have any application on the facts here. We, therefore, hold that, on the facts and in the circumstances of the case, the Tribunal was not at all justified in deleting the penalty on the ground that the estimate income given by the Department was higher than that furnished by the assessee and that would not constitute concealment of income, justifying the levy of penalty.

Earlier, it had been seen how the Tribunal had proceeded to delete the penalty levied on the assessees on the ground that, before detection, the revised returns had been filed. The approach so made by the Tribunal was not only erroneous, but even perverse. That revised returns had been filed prior to detection again with incorrect and inaccurate particulars of income cannot be a justification at all for deleting the levy of penalty. We may, in this connection, refer to the decision in CIT v. J. K. A. Subramania Chettiar [1977] 110 ITR 602 (Mad), relied on by learned counsel for the Revenue. In that case, the levy of penalty was cancelled by the Tribunal on the view that the assessee had filed the revised return before the Officer started investigation into the bogus nature of the hundi transactions. This court held that the fact that the assessee furnished particulars before any detection was made by the Department will be relevant only when the Commissioner considered the question whether the minimum penalty imposable under section 271(1) of the Act should be waived or reduced, on an application made by the assessee under section 271(4A), but they are foreign to the scope of section 271(1)(c) of the Act and, therefore, the Tribunal was in error in deleting the penalty. We may also observe that in Kandasami Mudaliar and Sons (K. P.) v. CIT [1985] 156 ITR 638 (Mad) (at page 643), it had been pointed out that proceedings under section 271(1)(c) and under section 271(4A) of the Act Are different. To similar effect is the decision in CIT v. K. Mahim [1984] 149 ITR 737 (Ker), where it had been held that the filing of revised return voluntarily by the assessee when he knew that the Department was conducting investigations against him would not exonerate the assessee from the liability to penalty under section 271 (1) (c) of the Act. It was also further laid down that the correct income of the assessee, after the assessment had become final, cannot be a matter of conjecture. In view of the principles laid down in the aforesaid decisions, we are unable to agree with the Tribunal that the filing of the revised returns by the assessees containing inaccurate particulars regarding income before detection justified the cancellation of the penalty.

Another reason given by the Tribunal in support of the cancellation of the penalty imposed was that even if it should be taken that the assessee had concealed his income, it is impossible to say what income was concealed, by which assessee and for which assessment year. We are unable to appreciate this reasoning of the Tribunal. We have earlier referred to the filing of the original returns, the disclosures made by the assessee, the filing of the revised returns containing inaccurate particulars and the ultimate assessment of the income of the assessees on their agreement to offer substantial amounts for assessment and the completion of the assessments on that footing allocating the amounts to the several assessees belonging to the different groups in respect of each of the assessment years. The assessments so done have not been challenged at all by the assessees. It is not the case of the assessees that, in respect of any one of them, for any particular assessment year, there is no definite or specific income that had been assessed. In its absence, the orders of assessment, as passed, have to prevail and those assessment orders, it was not disputed before us, contain the income assessed with reference to each one of the assessees in the group for each one of the assessment years in question. The Tribunal was, therefore, not in order in holding that the income assessed was not specific but was indefinite and that justified the cancellation of the penalty. We may, in this connection, refer to CIT v. Gordhandas Moolchand [1979] 116 ITR 893 (Mad), relied on by learned counsel for the assessees. In that case, it was categorically found that the amount added by the Income-tax Officer could not be related to the assessment year 1964-65 and, therefore, no penalty was leviable. We are unable to find any support in that decision in favour of the assessees in these cases, as, by agreement of the assessees, the amounts disclosed had been assessed in the hands of the different assessees in the different groups and for each relevant assessment year and the amounts so assessed had been clearly and definitely indicated as well.

We may now very briefly refer to an argument raised by learned counsel for the assessees based on the decision in Addl. CIT v. Kanhaiyalal Jessaram [1977] 106 ITR 168 (MP) to the effect that the Revenue cannot be permitted to dissect the disclosures made in an application under section 271(4A) of the Act and use its contents against the assessee. We are unable to appreciate the relevance of the submission so made. It is not the case of the assessees that any application under section 271 (4A) of the Act had been filed by them and that was sought to be used against them in the course of the penalty proceedings. On the other hand, it is after the completion of the assessment proceedings, as agreed to by the assessees, that the penalty proceedings had been initiated and, under those circumstances, the decision referred to above cannot have any application at all.

We have earlier referred to the circumstances that the Tribunal had lost sight of the fact that, in respect of the assessment year 1964-65, in respect of all the assessees in all the groups, the Explanation to section 271(1)(c) would stand attracted. Under the Explanation inserted by the Finance Act, 1964, with effect from April 1, 1964, in section 271 (1) (c) of the Act, 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. Considering the income returned by the assessees and that determined by the Income-tax Officer in the course of the assessment proceedings, it is at once obvious that the total income returned by the assessees is far less than eighty per cent. of the total income, as assessed, and that had not been disputed. The requirement of the first part of the Explanation is, therefore, fully satisfied. That would suffice to attract the latter part of the Explanation in order to deem that the assessees had concealed the particulars of income or furnished inaccurate particulars of such income, unless the assessees prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on their part. On the application of the Explanation to the assessees, what emerges is that the income of the assessees, as assessed, is the correct income and in fact is that of the assessees and the failure on the part of the assessees to return the correct income arose from any fraud or gross or wilful neglect on their part. Of course, this could be rebutted by the assessees in the course of the penalty proceedings. But the assessees in these cases did not, in any manner, attempt to establish that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on their part. Prima facie, therefore, the assessees had not dislodged the presumption arising as a result of the application of the Explanation on the facts. In other words, the presumption raised by the application of the Explanation had remained wholly unrebutted and, in such an event, there was no justification whatever for the deletion of the penalty by the Tribunal for the assessment year 1964-65. We may now refer to the decision of the Supreme Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 regarding the scope of the Explanation to section 271(1)(c) of the Act. The Supreme Court had laid down that when once the Explanation is held to be applicable to the case of an assessee, three legal presumptions are raised (1) that the amount of the assessed income is the correct income and it is in fact the income of the assessee himself ; (2) that the failure of the assessee to return the correct assessed income was due to fraud ; or (3) that the failure of the assessee to return the correct assessed income was due to gross or wilful neglect on his part. But these are rebuttable presumptions. In the absence of any material to rebut the presumptions so raised by the application of the Explanation, it follows that the presumption had not been rebutted at all and the Tribunal totally misdirected itself in deleting the penalty without reference to the Explanation to section 271(1) (c) of the Act. We have also taken note of the observations of the Supreme Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, to the effect that, if a fact-finding body, bearing in mind the relevancy and sufficiency of the materials and the relevant principles of law, comes to the conclusion that the assessee had discharged the onus, then it becomes conclusion of fact not meriting interference. Such is not the case here. We may, in this connection, also make a reference to the decision in Chuharmal v. CIT [1988] 172 ITR 250 (SC). The Supreme Court, in that case, held that where the assessee had shown a total income of Rs. 3,113 and the value of the wrist watches seized by the raiding party in a sum of Rs. 87,455 was added to the assessed income of the assessee, the Explanation applied and the Revenue discharged the onus, proving the concealment of income. Recently, in CIT v. T. K. Manicka Gounder [1989] 178 ITR 274, another Division Bench of this court (to which I was a party) had occasion to consider the scope of the Explanation to section 271 (1)(c) of the Act and it was laid down that the Explanation had brought about a material change in the law relating to the imposition of penalty for concealment of income and the presumption arising on the application of the Explanation would continue to govern the cases of levy of penalty, unless materials were placed by the assessee in the course of the penalty proceedings to show that there was no fraud or wilful neglect on his part. It was also further laid down that, in the absence of any explanation offered by the assessees, rebutting the presumption, the penalty levied cannot be cancelled at all. Similar would be the situation in these cases in respect of the assessment year 1964-65, in relation to which the Explanation stood attracted and for which the assessees did not come forward with any explanation at all. We, therefore, hold that the Tribunal was in error in cancelling the levy of penalty on the assessees in respect of the assessment year 1964-65.

On a due consideration of the facts and circumstances of this case, we hold that the Tribunal was not at all justified in cancelling the penalty imposed on the assessees under section 271(1) (c) of the Act. We are also of the view that the conclusion arrived at by the Tribunal that there has been no concealment of income is not based on materials or evidence and is also not a reasonable view to take. We, therefore, answer the questions referred to us in the negative and in favour of the Revenue. The Revenue will be entitled to its costs of these references. Counsel's fee Rs. 1,000 (one set).

 

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