2005-VIL-373-P&H-DT

Equivalent Citation: [2005] 276 ITR 362, 198 CTR 507, 150 TAXMANN 476

PUNJAB AND HARYANA HIGH COURT

Date: 11.01.2005

COMMISSIONER OF INCOME-TAX

Vs

MANGHA RAM OM PARKASH.

BENCH

Judge(s)  : G. S. SINGHVI., JASBIR SINGH.

JUDGMENT

The judgment of the court was delivered by

G.S. Singhvi J.- The Income-tax Appellate Tribunal, Chandigarh Bench (for short, "the Tribunal"), has, in compliance with the direction given by this court in I.T.C. No. 125 of 1982, referred the following question of law for its opinion:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in confirming the order of the Appellate Assistant Commissioner holding that penalty cannot be levied solely on the basis of reasons given in the original order of assessment?"

The assessee is a partnership firm. It is engaged in the business of purchase and sale of foodgrains. For the assessment year 1973-74, it filed a return showing an income of Rs. 31,390. It also introduced cash credit in the name of Shri Ladha Ram. On being asked by the Income-tax Officer "C" Ward, Karnal (hereinafter described as "the Assessing Officer"), the assessee filed a copy of Shri Ladha Ram's detailed account. The statement of Shri Ladha Ram was recorded on May 28,1974. He gave out that he had advanced loan of Rs. 15,000 out of sale of agricultural produce and by taking loan from the villagers. On going through the copies of accounts filed by the assessee, the Assessing Officer felt that Shri Ladha Ram was not a man of means and it was not understood why he borrowed from villagers to advance money to the assessee. He also noted that Shri Ladha Ram is not doing any business and is having only seven acres of agricultural land and observed that being an old man of 68 years of age with weak eyesight, he could not exert much in farming for earning handsome income which could be given to the assessee. He deputed an Inspector of the Department to make spot enquiries about the financial position of the creditor and to confirm whether Shri Ladha Ram had actually deposited the cash with the assessee. The Inspector contacted Shri Ladha Ram and gave him an opportunity to call anybody from the village who could guide him, but the latter refused to call anyone else. Shri Ladha Ram then made the following statement:

"I do not recollect whether I gave any cash to M/s. Mange Ram Om Parkash. I have not given or taken any amount in cash."

Thereafter, the assessee was given notice to show cause as to why the cash credit introduced in the name of Shri Ladha Ram be not treated as in-genuine. In its reply, the assessee stated as under:

"That Shri Ladha Ram stated before the Inspector on his visit to his shop in his will on October 29, 1975, that he had no balance outstanding that day on October 29, 1975, against cash deposits made earlier, besides agricultural produce with the assessee-firm. The creditor is aged 68 years of weak eyesight. The financial position of the creditor rightly shows that he was capable to advance money of Rs. 15,000 in 1973-74 assessment year and Rs. 3,000 in 1974-75 assessment year besides agricultural produce."

The Assessing Officer did not accept the explanation of the assessee and treated the amount of Rs. 15,000 as its undisclosed income. On that basis, he passed an order dated January 9,1976, vide which he determined the income of the assessee at Rs. 44,452. The appeal filed by the assessee against the assessment order was dismissed by the Appellate Assistant Commissioner. Further appeal filed by the assessee was dismissed by the Tribunal vide its order dated October 10, 1979.

In the meanwhile, the Assessing Officer issued notice dated January 8, 1976, to the assessee proposing to impose penalty under section 271(1)(c) of the Act on the premise that it had furnished incorrect particulars of the income. After two years and more than two months, the assessee filed a reply and prayed that the penalty proceedings be dropped because the credit of Rs. 15,000 shown in the name of Shri Ladha Ram was genuine. It also pleaded that during the pendency of appeal filed against the order of assessment, the penalty proceedings should not be continued. The Assessing Officer did not accept the plea of the assessee and held that it had concealed the particulars of income. Accordingly, he imposed penalty of Rs. 15,000. The Appellate Assistant Commissioner reversed the penalty order by observing that no material or evidence was available on the record from which it could be inferred that the assessee had consciously concealed the particulars of income or had deliberately furnished inaccurate particulars in respect of the same. She further held that the finding recorded in the assessment order cannot be relied upon for the purpose of imposing penalty.

The appeal filed by the Revenue against the order of the Appellate Assistant Commissioner was dismissed by the Tribunal vide its order dated January 14, 1982, by recording the following observations:

"After taking into consideration the rival submissions and perusal of the record especially the statement of Ladha Ram dated May 28, 1974, and those dated October 29, 1975 and November 5, 1975, with his affidavit dated June 16, 1974, all that we find is that evidence which was enough for sustaining addition was not enough to sustain the penalty as it is trite law by now, as stated above, that what is enough for sustenance of quantum is not enough for levy of penalty. To our mind, it is nothing more than falsity of explanation. As a consequence of rejection of the same, the addition came to be sustained. The attempt of the learned Departmental Representative at this stage to introduce the Explanation while it was neither invoked by the Income-tax Officer nor agitated by the Revenue in the form of grounds of appeal before us though there was a clear finding of the Appellate Assistant Commissioner to that effect, it is too late in the day to come forward with that argument and the same cannot be of any assistance to the Revenue's case. In the light of the above discussions and for the reasons given by the Appellate Assistant Commissioner in order, her action is confirmed."

We have heard Shri Rajesh Bindal, learned counsel for the Revenue and Shri Akshay Bhan, learned counsel for the assessee. Section 271(1)(c) of the Act together with the Explanation, as it stood in the year 1973-74, reads as under:

"271. Failure to furnish returns, comply with notices, concealment of income, etc.-(1) If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person,- ...

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,- ...

(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than 20 per cent, but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.

Explanation.- Where the total income returned by any person is less than 80 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."

An analysis of the provisions reproduced above shows that the Explanation which was added to section 271(1)(c) by the Finance Act, 1964, creates a legal presumption that where the total income returned by the assessee is less than 80 per cent, of the total assessed income, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of his income, unless he proves that failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. To put it differently, the Explanation shifts the burden on the assessee in a situation covered by it and if he fails to establish that he had not concealed the income or filed incorrect particulars of income without ulterior motive, it is open to the competent authority to levy penalty- CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 (SC).

In CIT v. K.R. Sadayappan [1990] 185 ITR 49, the Supreme Court, while considering whether the High Court was justified in refusing to refer the question of law, held as under:

"The moment it was found that the income returned was less than 80 per cent, of the income assessed, the onus to prove that it was not the failure of the assessee that caused the difference shifted to the assessee. But the onus was rebuttable: the presumption of concealment was rebuttable by cogent, reliable and relevant material. Since, however, no such material was indicated either by the Tribunal or by the High Court, the High Court was in error in not correctly applying the principle laid down by the Supreme Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14."

In CIT (Addl.) v. Jeevan Lal Sah [1994] 205 ITR 244, the Supreme Court 10 declared that the rule regarding burden of proof enunciated in CIT v. Anwar Ali [1970] 76 ITR 696 (SC) is no longer valid. Their Lordships further held: "Whether it is case of undisclosed or unexplained cash deposit or any other concealment the standard is the same. The principle enunciated in Anwar Ali's case that mere rejection of the explanation of the assessee is not sufficient for levying penalty no longer holds good and it is no longer necessary that the Department must go further and establish that there was conscious concealment of particulars of income or a deliberate failure to furnish accurate particulars. The cases to which the Explanation is attracted have to be decided in the light of the law enunciated in the cases of Mussadilal Ram Bharose [1987] 165 ITR 14 (SC) and Sadayappan [1990] 185 ITR 49 (SC)."

Following the law laid down in the aforementioned judgments of the 11 Supreme Court, we hold that the Appellate Assistant Commissioner committed a grave illegality by setting aside the penalty ignoring the Explanation added to section 271(1) (c) vide the Finance Act, 1964, and the fact that the assessee had failed to discharge the onus which lay upon him to explain cash credits in the name of Shri Ladha Ram. The statement made by Shri Ladha Ram before the Inspector that he does not recollect whether he gave any cash to M/s. Mange Ram and that he had not given or taken any cash coupled with the fact that he had no reason to borrow money from the villagers for being given to the assessee and the fact that the assessee had failed to explain the cash credits in the name of Shri Ladha Ram were, in our considered opinion, sufficient for holding that he had furnished inaccurate particulars of income within the meaning of section 271(1)(c) of the Act.

Shri Akshay Bhan, learned counsel for the assessee, relied on the judgments of the Supreme Court in CIT v. Khoday Esivarsa and Sons [1972] 83 ITR 369 and CIT v. Shri Iron Foundry Engineering Works Ltd. [1997] 225 ITR 684 and of the Andhra Pradesh High Court in CIT v. Bharat Umbrella Manufacturing Co. [1987] 167 ITR 683 and submitted that the question referred by the Tribunal cannot be treated as a question of law, but we have not felt impressed. In our considered view, the question of law referred by the Tribunal did arise from the order passed by it in the penalty proceedings because the Appellate Assistant Commissioner and the Tribunal had not considered the Explanation added to section 271(1)(c) by the Finance Act, 1964.

In the result, the question referred to this court is answered in favour of the Revenue and against the assessee.

 

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