1990-VIL-95-ITAT-
Equivalent Citation: ITD 036, 261, TTJ 039, 00
Income Tax Appellate Tribunal BOMBAY
Date: 26.10.1990
SIXTH INCOME-TAX OFFICER.
Vs
KUMAR METAL INDUSTRIES.
BENCH
Member(s) : O. P. JAIN., R. P. GARG.
JUDGMENT
Garg, AM --- These two appeals are by the revenue against the order of the CIT(A) for the assessment years 1980-81 and 1981-82 deleting the penalties levied by the ITO under section 271(1)(c) at Rs. 33,985 and Rs. 12,804 respectively.
2. The facts are that certain additions have been made in assessee's income on account of unexplained cash credits, payment of interest thereon, and unaccounted sales of scrap. The details are as under:
Cash Credits Interest
A.Y. 1979-80. A.Y. 1979-80. 1980-81
Rs. Rs. Rs.
1. M/s D. Atulkumar & Co. 20,000 1,987 2,200
2. Monstar Corpn. 7,500 595 900
3. S.N. Maheshwari 20,000 1,512 3,300
4. Shantilal C. Sanghvi 20,000 1,168 2,200
5. Vijay Ketting Works 7,500 360 900
------------------- ------------------- ----------------
75,000 5,621 9,500
6. Interest on cash credits in earlier years ----- 9,100 9,900
------------------- ------------------- ----------------
75,000 14,721 19,400
------------------- ----------------
7. Scrap 5,500
-------------------
No confirmation for these loans was filed by the assessee during the course of assessment proceedings, except the confirmation of two parties at Sl. Nos. 2 and 4 above. None of them was produced before the ITO for examination. The ITO, therefore, concluded that proof of identity and capacity of the lender and genuineness of the transaction was not proved by the assessee. He, therefore, added the same to the income of the assessee and disallowed the interest thereon. Besides, the disallowance of aforesaid interest, he also disallowed the interest on certain unproved cash credits in earlier years. In assessment year 1980-81, he further added a sum of Rs. 5,500 on account of scrap value not disclosed by the assessee which, according to the assessee itself, was one per cent total consumption of stock of 953.464 tonnes and, sold at Re. 1. The assessments were stated to have been confirmed by the CIT(A). Copies thereof, however, are not filed by the parties.
3. For these additions and disallowances, the ITO levied penalty of Rs. 33,985 and Rs. 12,804, as nothing further was brought on record by the assessee in penalty proceedings and having accepted the assessed position, the assessee was acquiesced of the position. The CIT(A) deleted the penalty by observing in para 4 of his order, as under :
" 4. On consideration, it is to be seen that the ITO, while levying penalty under section 271(1)(c), has relied on the assessment orders wherein it was stated that the identity of the creditors and their capacity to advance the amounts were not proved. However, as submitted in the written arguments, the verifications of the loans were started after a lapse of 3/4 years, the loans taken were returned by cheques and the ITO did not verify the credit worthiness of the parties and the genuineness of the transactions by issuing summons, though the details were given in the confirmation letters. The mere rejection of the appellant's explanations cannot be a ground for coming to the conclusion that the receipts constitutes income of the appellant and accordingly the assessee is liable to penalty. The case laws relied on are also in favour of the appellant. In CIT v. Anwar Ali [1970] 76 ITR 696, the Supreme Court has held that the finding given in the assessment proceedings is not conclusive, though it is good evidence, and that before penalty can be imposed the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income. In CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369, the Supreme Court has further observed that penalty cannot be levied solely on the basis of the reasons given in the original order of assessment. In the appellant's case the nature of the enquiry conducted is not such which can establish that the appellant had consciously concealed particulars of its income or had furnished incorrect particulars of such income. In not accepting the appellant's explanations with regard to the cash credits and the scrap value, there has been a difference of opinion between the appellant and the assessing ITO. The debatable additions cannot by themselves justify the levy of penalty. Under the circumstances, considering the facts of the case, the arguments taken and the case laws relied on, I am of the opinion that the conditions precedent for levy of penalty for concealment of income are not satisfied in this case and hence the ITO was not justified in levying the penalties in both the assessment years under appeal. The penalties imposed under section 271(1)(c) of Rs. 33,985 and Rs. 12,804 for the assessment years 1980-81 and 1981-82, respectively, are, therefore, cancelled. "
4. The learned Departmental Representative submitted that the cases of Anwar Ali and Khoday Eswarsa & Sons relied upon by the CIT(A) were rendered under the 1922 Act and that they ceased to have application to the cases of penalties under section 271(1)(c) of the present Act in view of various Explanations inserted to section 271(1)(c) from time to time. He contended that the onus is no more on the Revenue to prove the concealment of the income. He further submitted that the Explanation inserted by the Taxation Laws (Amendment) Act, 1975, with effect from 1st April, 1976 was applicable to this case and since the assessee had offered no explanation at all and the explanation, if made, was neither substantiated nor bona fide, the amount disallowed or added to the total income is to be deemed to represent the income in respect of which the particulars have been concealed by the assessee. He, therefore, prayed for the reversal of the order of the CIT(A) and restoration of that of the ITO.
5. The learned counsel for the assessee, on the other hand, submitted that whatever was possible was furnished before the ITO and if due to some lapse of time certain creditors were not traceable or not co-operative, the assessee should not be saddled with an onerous liability of penalty. According to him, the loans were genuinely taken and were utilised for the purposes of business. There is no material, according to him, before the ITO to treat these amounts as income of the assessee, except the assessment order which by itself is not conclusive proof of concealment. The penalty proceedings being quasi-criminal in nature, it was submitted, that it was for the ITO to bring home the charge. Referring to Explanation I to section 271(1)(c), he submitted that the assessee's case falls in clause (B) of the Explanation and since the assessee has disclosed all the material facts before the ITO and there have been nothing to doubt the explanation given by the assessee, the ITO was not justified in levying the penalty. He has referred to in this connection to the decision of the Supreme Court in Anwar Ali's case and Khoday Eswarsa & Sons' case and the following decisions of the Tribunal, to support his case :
(i) ITO v. Moti Ram Subhash Chand Jain [1988] 27 ITD 44 (Delhi),
(ii) Patel Engg. Co. v. ITO [1988] 39 Taxman 236 (Ahd.-Trib.),
(iii) Raj Engg. Co. v. ITO [1986] 17 ITD 171 (All.),
(iv) Rajdhani Trading Co. v. ITO [1988] 40 Taxman 201 (Delhi -Trib.).
6. We have heard the parties and considered their rival submissions. The provisions relating to the burden to prove the concealment have undergone a sea change. Under the provisions of 1922 Act, dealing with concealment, the Supreme Court held in the cases of Anwar Ali, Khoday Eswarsa & Sons and Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR 457, that it was for the Revenue to prove that amount did represent the assessee's income, it being not enough for the purposes of penalty that the amount was assessed as income, and that there was animus, i.e., conscious concealment or furnishing of inaccurate particulars on the part of the assessee. The provisions under the 1961 Act were also in pari materia till they were amended in 1964 by adding Explanation to the provisions of section 271(1)(c) whereby the concealment was presumed in cases where the total income returned was less than 80 per cent of the total income assessed (reduced by the revenue or capital expenditure incurred bona fide but disallowed as a deduction). The concept of "deliberately furnishing of the particulars" was also dispensed with by deleting the word 'deliberately' after the word 'or' and before the words 'furnished inaccurate particulars of such income' in section 271(1)(c). The effect of 1964 amendment was that the burden which was hitherto on the Revenue was thrown upon the assessee to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. This presumption was held to be rebuttable by the Supreme Court in the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14. In other words, for 'deliberate act' of the assessee, the penalty was shifted to the 'gross or wilful neglect' of the assessee. The absence of gross or wilful neglect was to be proved by the assessee by bringing the material fact on record. It was held by the Supreme Court in the case of CIT v. K.R. Sadayappan [1990] 185 ITR 49 that the onus was rebuttable : the presumption of concealment was rebuttable by cogent, reliable and relevant material.
7. In 1976, the Legislature substituted the present Explanation I in place of earlier Explanation introduced in 1964. The provisions as they stand for the time being are as under :
" 271.(1) If the Income-tax Officer or the Appellate Assistant Commissioner (or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person----
(a) .............
(b) .............
(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,----........................."
" Explanation I : 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 or the Commissioner (Appeals) 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 of which particulars have been concealed :
Provided that nothing contained in this Explanation shall apply to a case referred to in clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him. "
8. The entire emphasis in the Explanation is on disclosure of certain facts. If all the facts were disclosed by an assessee before the income-tax authorities, no penalty can be levied, merely because its claim was not acceptable to the Revenue. A mere rejection of assessee's legal contention does not entail penalty. The fact must be material to the computation of income of an assessee. Failure to offer an explanation or giving false explanation or an explanation which could not be substantiated as genuine would have no relevance unless it was material to the computation of assessee's total income and no penalty can be levied for such explanation or absence thereof. What is material for the purpose of addition of cash credits is that is contained under section 68, viz., satisfactory explanation as to the nature and source of amount found credited in assessee's books. Nature denotes character of receipt, viz. a loan, deposit, gift etc. The assessee has to further explain the source of such deposit. Courts have held in this connection that three things have to be proved by the assessee, viz., identity of the payer, his capacity to pay, and the genuineness of the transaction. If any of the three is unproved, the credit could be deemed as income of the assessee under section 68. Any such explanation given even in penalty proceedings is sufficient and the finding in the assessment order might not necessarily be the conclusive. The finding given in the assessment order would be relevant and admissible material in penalty proceedings, if it remains uncontroverted in penalty proceedings. See in this connection the decisions in the cases of CIT v. Goswami Smt. Chandralata Bahuji [1980] 125 ITR 700 (Raj.) and Banaras Textorium v. CIT [1988] 169 ITR 782 (All.).
9. To penalise for concealment the first deeming is that there must be a failure of assessee to offer an explanation in respect of such a fact. The failure contemplated is that was in the course of assessment proceedings and while making the assessment. The addition or disallowance which is deemed as income for which particulars are concealed must be as a result of assessee's failure to offer an explanation. The penalty proceedings being quasi-criminal in nature an assessee as aforesaid would be entitled to urge or point out the circumstances of his failure to explain at the assessment stage and could be exonerated from penalty on his satisfactory explanation thereof. If even in penalty proceedings he offers no further explanation, the amount added or disallowed has to be deemed as concealed income.
10. The second deeming is when an explanation was given by an assessee but the same was to be found false by the income-tax authority who is levying penalty and not by an appellate authority. It must be a charge by levying authority and if he had not made out such a case, the appellate authority cannot implant that. "False" means a positive proof of concealment and involves an element 'deliberateness'. The fact must not remain only 'unproved' but 'disproved' by the income-tax authorities for levying penalty.
11. The last limb of deemed concealment is where an assessee offers an explanation but he has not been able to substantiate the same. This part of deeming, however, is subject to two riders: (i) explanation was bona fide and (ii) all the facts material to the computation have been furnished by the assessee. In that case, the concealment would not be presumed.
12. In the present case, we find that insofar as the addition on account of cash credits is concerned, the assessee stated before the ITO vide letter dated 20th April, 1983 that the details of loans and confirmations have already been filed. When and what was filed is not known to the assessee. The ITO, however, stated in his order that confirmations were filed only in respect of parties at Sl. Nos. 1 and 4. In reply to the penalty notice also, the assessee reiterated, vide its letter dated 15th March, 1986, that he had filed confirmatory letters at the time of proceedings of the case and did not even allege that what was stated by the ITO in the assessment order was wrong. Here also, the assessee was silent as to when and what details or confirmations were filed. Copies of accounts of lenders in assessee's books are filed before us giving address of only one person, i.e., B.D. Gandhi, 13/16, Rani Sati Nagar, S.V. Road, Malad (W), Bombay, in whose name cash credits appeared in earlier year and in this only interest payment was claimed. The letter is silent about the disallowance of interest payment to all the parties. The assessee, however, filed a statement of interest payments alleged to have been made by account payee cheques on various dates drawn on State Bank of India, Byculla Branch, and in some cases deduction of tax also at source. As regards the scrap, the assessee stated in its letter dated 20th April, 1983, to the ITO that there was no sale of scrap during the year 1978-79 as there was not much of scrap of any value because during these years the scrap was only burada of mild-steel and CI castings (mostly dust). On these facts, in our opinion, no penalty should have been levied on cash credits at SI. Nos. 1 and 4, payment of interest and additions on account of the scrap sale. The assessee has furnished to the ITO all the facts relating to these items which were material for computation of total income of the assessee. The explanation given, though could not be substantiated, was bona fide.
13. As regards cash credits from other parties at Sl. Nos. 2, 3 and 5 and the interest paid thereon, the assessee had offered no explanation. Its statement that confirmations were filed, on the contrary, was found to be incorrect. That statement, if one could equate it with offering an explanation, could not also be said to be bona fide. For these additions of cash credits and disallowances of interest thereon, the provisions of Explanation I were clearly attracted and, therefore, the CIT(A) was not justified in deleting the penalty. We, therefore, restore the order of the ITO for levying penalty in respect of SI. Nos. 2, 3 and 5 and the interest pertaining thereto.
14. In the case of Moti Ram Subhash Chand Jain, the Tribunal held that the burden to prove that cash credits were concealed income of the assessee was not on the department but on the assessee. As, in this case, all the material facts, information and explanation were furnished, the Tribunal deleted the penalty in spite of the fact that no confirmations were filed. This was the case where material facts, information and explanations were furnished. The case of Patel Engg. Co. was a case where debit side of the assessee's cash book exceeded the credit side of the cash book and such difference was added to the income of the assessee. On account of such excess payment in cash book, the penalty was, however, levied on assessee's failure to explain the excess expenditure which it was observed, might be representing either revenue expenditure or capital payment as well as payment of personal accounts. Raj Engg. Co.'s case was a case of agreed additions and therefore, it was held to be a case of no concealment. The question of explanation did not arise. In Rajdhani Trading Co.'s case, the penalty was levied for assessment of income for not charging interest and the explanation was found to be bona fide by the Tribunal. Therefore, these cases are not of much help to the assessee for deleting the entire penalty.
15. In the result, the appeals are partly allowed
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