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Judges
  • Sethuraman
  • Balasubrahmanyan, JJ.
Acts
  • out.4. Section 271(1)(c)
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Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • Sethuraman
  • Balasubrahmanyan, JJ.
Acts
  • out.4. Section 271(1)(c)
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Smart Summary

Summary of the Opinion (Sethuraman, J.)

Factual and Procedural Background

The court referred two questions under section 256(2) concerning whether the Appellate Tribunal was legally correct in cancelling a penalty of Rs. 5,800 levied under section 271(1)(c) of the Income-tax Act, 1961 and whether the Tribunal's conclusion was a reasonable view on the facts.

In the assessee's accounts for the previous year 1965-66 certain cash credits totalling Rs. 45,000 were shown as borrowed from four named parties. A scrutiny revealed discrepancies: although the bankers' addresses were shown as Madras, the corresponding credits and debits appeared in the books at Tuticorin on the same day yet were claimed to have been transacted in Madras.

The Income-tax Officer (ITO) investigated the source of these credits. The assessee produced discharged hundis. The ITO considered the transactions to be "bogus hawala transactions" and proposed to treat the amounts as the assessee's income. The assessee "readily agreed" to the assessment of the peak credit (a sum of Rs. 47,700 was added) and the interest thereon; there was no appeal against that assessment.

For penalty proceedings, the IAC concluded that the assessee had agreed to the assessment because it was unable to prove the amounts belonged to third parties and therefore invoked s.271(1)(c); a penalty of Rs. 5,800 was levied (slightly above the minimum). On appeal the Appellate Tribunal, after referring to decisions including Commissioner of Income Tax, West Bengal v. Anwar Ali and Hindustan Steel Ltd. v. State of Orissa, concluded there was a preponderance of probability in favour of the assessee's explanation and cancelled the penalty. The present opinion arises from questions referred by this court challenging the Tribunal's order.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in cancelling the penalty of Rs. 5,800 levied under section 271(1)(c) of the Income-tax Act, 1961?
  2. Whether the conclusion of the Appellate Tribunal is a reasonable view to take on the facts and in the circumstances of the case?

Arguments of the Parties

Revenue's Position (as reflected in the record)

  • The ITO treated the credited amounts as income of the assessee based on discrepancies and regarded the transactions as fictitious ("bogus hawala transactions").
  • The IAC held that the assessee agreed to the assessment only because it could not prove the sums belonged to third parties; therefore s.271(1)(c) (penalty for concealment or furnishing inaccurate particulars) applied and a penalty was imposed.
  • On reference, this court was asked to determine whether the Tribunal erred in cancelling the penalty and whether the Tribunal's conclusion was a reasonable view.

Assessee's Position (as reflected in the record)

  • The assessee "readily agreed" to the addition proposed by the ITO and produced discharged hundis; the Tribunal accepted that there was a preponderance of probability in favour of the assessee's explanation and cancelled the penalty.
  • Learned counsel for the assessee cited authorities (notably Gutnani Ram Siri Ram v. CIT) supporting the view that a mere surrender or "surrendered" entries does not automatically sustain a penalty unless there is material to show the surrendered item was the assessee's income.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Commissioner of Income Tax, West Bengal v. Anwar Ali [1970] 76 ITR 696 (SC) Authority referred to by the Tribunal; not exhaustively quoted in this opinion but treated as a controlling Supreme Court decision considered by the Tribunal. The Tribunal had noticed this decision when cancelling the penalty. The present court discusses its applicability, and through subsequent authorities (e.g., Western Automobiles) treats Anwar Ali as not controlling where the addition was based on the assessee's admission rather than mere rejection of explanation.
Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 Referenced by the Tribunal among authorities; the opinion does not extract a specific rule from this decision. The Tribunal had noted this case when reaching its conclusion; no further application detail is set out in the text.
Western Automobiles (India) v. Commissioner of Income-Tax, Bombay City-I, Bombay [1978] 112 ITR 1048 (Bombay HC) Explained that Anwar Ali is not applicable where the addition is founded on the assessee's admission; held that an assessee's admission that amounts are its income can be used by the department to discharge the onus in penalty proceedings. The present court expressly adopts and agrees with this statement: where the assessee admits that the amount represented his income, further evidence is unnecessary to show concealment for s.271(1)(c) purposes.
Durga Timber Works [1971] 79 ITR 63 (Delhi HC) Example of a case where an addition was made on account of an admission by the assessee (cited in Western Automobiles). Referred to by Western Automobiles as an instance where the addition was based on admission; used in this opinion to support the principle that admissions suffice for penalty proceedings.
Gutnani Ram Siri Ram v. CIT [1972] 85 ITR 67 (Punjab HC) Held that penalty could not be levied merely because cash deposits were "surrendered" by the assessee unless there were materials on record to show that the surrendered item was his income. The present court records this authority was cited by the assessee's counsel but expressly disagrees with that view: where the assessee admits an amount is his income, no further evidence is necessary to show concealment.
Additional Commissioner of Income-Tax, Madras-I v. Smt. V. Kanakammal [1979] 118 ITR 94 Considered the applicability of the Explanation to s.271(1)(c) and issues of fraud or negligence under that Explanation. The present court notes this decision but says the present case is not concerned with a plea under the Explanation; accordingly Kanakammal is not directly applied here.
CIT v. Gordhandas Moolchand [1979] 116 ITR 893 Dealt with voluntary disclosure and the relation of added sums to particular assessment years; observed that where there was no admission that a particular sum was income for a given year, the ITO's addition alone is not evidence of concealment. The court observes this decision but finds it not helpful to the present facts because, in Gordhandas, there was no admission that the specific sum represented income for the year, unlike the present case.
Commissioner of Income-Tax, Madras v. J.K.A. Subramania Chettiar [1977] 110 ITR 602 (Mad) Considered whether filing a revised return removes concealment; held that a revised return filed before detection does not necessarily wipe out concealment where there has been a false statement in the original return. The present court invokes this reasoning by analogy: an oral admission (stopping short of a revised return) can be equated with an admission in a revised return for assessment purposes; thus penalty can follow where there is an admission of previously concealed income.

Court's Reasoning and Analysis

The court analyzed the case by focusing on the legal effect of the assessee's admission. The key analytical steps, relying only on the material in the opinion, are:

  1. Identification of legal threshold: Section 271(1)(c) contemplates penalising an assessee who conceals particulars of income or furnishes inaccurate particulars. The central factual predicate is concealment of income.
  2. Factual finding in the record: the assessee "readily agreed" to the assessment of the disputed credits when questioned by the ITO after discrepancies were detected; the assessee produced discharged hundis but ultimately accepted the addition (Rs. 47,700).
  3. Legal consequence of admission: the court reasons that where the assessee himself admits that the amount represented his own income, "no further evidence would be necessary" to show that the amount was income and that it had been concealed from the return. The admission itself suffices to establish the department's case for concealment under s.271(1)(c).
  4. Precedential support and contrast: the court agrees with the Bombay High Court in Western Automobiles that an admission by the assessee is sufficient for the department to discharge the onus in penalty proceedings; it rejects the contrary view taken in Gutnani Ram Siri Ram (Punjab HC), which required materials beyond a surrender or admission to show the surrendered item was the assessee's income.
  5. Consideration of other authorities: the court distinguishes decisions such as Gordhandas Moolchand (where no admission tied the amount to the relevant year) and Kanakammal (which deals with the Explanation to s.271(1)(c) and is concerned with fraud or negligence), holding that these do not assist the assessee on the facts before the court.
  6. Conclusion from combined analysis: because the assessee admitted the amounts were its income and agreed to their assessment, the Tribunal was incorrect to cancel the penalty on the ground that there was preponderance in favour of the assessee's explanation. The admission establishes concealment for s.271(1)(c) purposes and supports the imposition of penalty.

Holding and Implications

HOLDING: The questions referred are answered in the negative and in favour of the revenue; the Tribunal was wrong in cancelling the penalty.

The direct consequences ordered by the court (as stated in the opinion) are:

  • The Tribunal's order cancelling the penalty is set aside (i.e., the penalty imposed under s.271(1)(c) stands).
  • The revenue is entitled to its costs; counsel's fee of Rs. 500 is awarded.

Implications: The opinion emphasizes that an assessee's admission that amounts represent his income is sufficient evidence for penalty proceedings under s.271(1)(c). The opinion does not articulate broader legal reforms or announce a novel precedent beyond applying and aligning previous authorities to these facts; the decision's practical effect is to sustain the penalty against the assessee in this case.

Show full summary ...

    Commissioner Of Income-Tax. Tamil Nadu-Iv v. Krishna & Co.

    Sethuraman, J.:— In pursuance of the directions of this court under s. 256(2), the following questions have been referred:

    “1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in cancelling the penalty of Rs. 5,800 levied under section 271(1)(c) of the Income-tax, Act, 1961? and

    2. Whether the conclusion of the Appellate Tribunal is a reasonable view to take on the facts and in the circumstances of the case?”

    2. In the accounts of the assessee in the previous assessment year 1965-66 there were certain amounts shown as borrowed from four parties:

    Rs. Seth Pahlarai Govindarai, Madras 15,000 Seth Kanyalal Pahlarai, Madras 10,000 Seth Hargovindsing Nihalsing, Madras 10,000 Seth Dwarkadas Lakshmichand, Madras 10,000 45,000

    3. A scrutiny of the entries regarding the borrowings and repayments showed certain discrepancies. Though the addresses of all those bankers were shown to be in Madras, the credits as well as the debits appeared in the books in Tuticorin on the same day. They were claimed to have been borrowed or repaid in Madras on the same day. The ITO went into the source of these credits. The assessee produced the discharged hundis. The ITO considered that the bankers had merely lent their names in what was known as “bogus hawala transactions”. The assessee was informed of the proposal to treat the amount as income, and the assessee “readily agreed” to the assessment of the peak credit and the interest thereon. A sum of Rs. 47,700 was accordingly added in the assessment. There was no appeal against this order. The IAC, who had to deal with the penalty proceedings, after considering the assessee's explanation, came to the conclusion that the assessee had agreed to the assessment only because it was no| in a position to prove that the amounts belonged to certain others and that, therefore, the provisions of s. 271(1)(c) were attracted. He levied a sum of Rs. 5,800 as penalty and the said sum was slightly in excess of the minimum leviable under that provision. There was an appeal to the Appellate Tribunal and the Tribunal, after noticing the decisions of the Supreme Court in Commissioner Of Income Tax, West Bengal v. Anwar Ali , [1970] 76 ITR 696 and of Hindustan Steel Ltd. v. State Of Orissa†., [1972] 83 ITR 26, came to the conclusion that there was preponderance of probability in favour of the assessee's explanation and that penalty could not, therefore, be levied and cancelled the penalty. The order of the Tribunal has given rise to the reference of the questions already set out.

    4. Section 271(1)(c) provides for the levy of penalty in a case where the assessee conceals the particulars of his income or furnishes inaccurate particulars thereof. In the present case, as seen already, as soon as the ITO noticed certain features about the entries as well as about the persons, the assessee agreed to the assessment of the peak credit. The agreement could only be on the basis that the amounts belonged to the assessee and that the amounts earned by it were brought in the form of cash credits in the names of strangers.

    5. In the face of the assessee's own admission that the amount represented its income, there is absolutely no other evidence required to show that the amount represented its income and that it had been concealed from the return. The Tribunal, as mentioned already, has referred to the case decided by the Supreme Court in Commissioner Of Income Tax, West Bengal v. Anwar Ali , [1970] 76 ITR 696. The applicability of the principles laid down in that decision has been considered by the Bombay High Court in Western Automobiles (India) v. Commissioner Of Income-Tax, Bombay City-I, Bombay, [1978] 112 ITR 1048, to a case like this. That was also a case where the ITO discovered in the books of accounts of the assessee certain hundi loans to the tune of Rs. 90,000. The assessee agreed to the addition of the said sum. The legality of the penalty proceedings taken in respect of the concealment of the said sum came up for consideration by the Bombay High Court. The decision in Commissioner Of Income Tax, West Bengal v. Anwar Ali , [1970] 76 ITR 696 (SC) was cited and at page 1053 the Bombay High Court observed as follows:

    “It was held that the decision of the Supreme Court in Anwar Ali's case, [1970] 76 ITR 696 was not applicable to a case where the addition was not by a mere rejection of the explanation of the assessee but on account of an admission of the assessee that the amounts may be added as its income as was the case before the Delhi High Court in Durga Timber Works, [1971] 79 ITR 63.”

    6. Again at page 1056, the principle applicable was set out as follows:

    “In our view, whether a revised return is filed or an admission is made before the Income-tax Officer in the course of original assessment proceedings would seem to make little difference. The basis in both cases is the same, viz., that the assessee agreed to accept the amounts as his income from business for the year in question. Once this true position is established, it would appear that it would be sufficient for the department to seek to discharge the onus in the penalty proceedings by relying upon this admission……”

    7. We agree with this statement of the legal position. In a case where the assessee himself has admitted that the amount represented his own income, no further evidence would be necessary to show that it was the amount which represented his income and that it had been concealed in the return.

    8. Learned counsel for the assessee cited a decision, Gutnani Ram Siri Ram v. CIT, [1972] 85 ITR 67 (Punj). In that case, the ITO noticed certain cash deposits in the name of one Ramesh Trading Company, and asked him to prove the genuineness of these entries in the books. The assessee stated that he was not in a position to prove the genuineness of those entries and made a statement admitting the amount as his income. The assessee was then assessed on the said income, apart from the other income returned by him. Penalty proceedings were taken with reference to the concealment of Rs. 12,000 and the Punjab High Court held that on the facts and in the circumstances of the case the penalty could not be levied merely because the cash deposits were “surrendered” by the assessee, unless there were materials on record to show that the “surrendered item” was his income. With great respect, we are unable to agree with the view that commended itself to the learned judges. Where the assessee had himself admitted that certain amount represented his income, it is unnecessary to look for any other evidence. The “surrender” is only an admission that that amount is income. In fact, the conduct of the assessee in such cases in offering the amount for assessment itself cancels the earlier stand taken by him, viz., that the amount represented receipts from certain third parties. No one, at any rate in these days, agrees to pay tax on an amount unless it was his income.

    9. Learned counsel referred us to two other decisions of this court, both unreported. The first decision was rendered in T.C No. 350 of 1974 in the case of Additional Commissioner Of Income-Tax, Madras-I v. Smt. V. Kanakammal. (since reported in [1979] 118 ITR 94). In that case, the question which arose for consideration was whether the Expln. to s. 271(1)(c) was applicable. It is in the context of the Expln that the court went into the question whether there was any fraud or negligence. We are not concerned in the present case with any such plea based on the Expln, which in some circumstances threw the onus on the assessee.

    10. The other decision in T.C No. 222 of 1975 in the case of CIT v. Gordhandas Moolchand (since reported in [1979] 116 ITR 893) was a case where there was a voluntary disclosure by the assessee to the extent of Rs. 3,85,000. The ITO found another sum of Rs. 2,15,000 to be income. These totalled Rs. 6,00,000. In making the assessment for the assessment years 1962-63 and 1963-64, the ITO had added a total sum of Rs. 5,27,780 and the balance of Rs. 72,220 was treated as income assessable in the assessment for 1964-65. The question was whether penalty could be levied with reference to the said sum of Rs. 72,220. It was pointed out by this court that there was no evidence to show that this sum of Rs. 72,220 added by the ITO could in fact be related to the assessment year 1964-65. As far as the sum of Rs. 72,220 was concerned there was no admission on the part of the assessee that it was income. Merely because the ITO added that amount, that by itself would not constitute evidence of concealment. We do not consider that there is anything in this decision which is of assistance to the points now before us. In Commissioner Of Income-Tax, Madras v. J.K.A Subramania Chettiar., [1977] 110 ITR 602 (Mad), this court had to deal with a case where the assessee had disclosed certain income in a revised return. In the revised return, certain amounts not disclosed in the original return were shown. The question was whether penalty could be levied with reference to the omission to include in the original return the amount added in the revised return. It was pointed out by this court that the mere fact that the assessee furnished the particulars before any detection was made by the department would not be relevant, and that s. 139(5) envisaged the assessee submitting a revised return in cases where in the original return there was some omission or wrong statement. In cases where there was concealment or false statement in the original return, the submission of a revised return would not have the effect of wiping out the concealment. Cases of bona fide mistake rectified by the submission of a revised return would stand on a different footing. The present case would stand on a par with the case where the assessee came forward with the revised return showing income which was concealed earlier. If penalty could be levied on a charge of concealment of income from the original return after a revised return was filed, there is no reason why penalty should not be levied when a person made an oral admission and stopped short of submitting a revised return. That is also the view of the Bombay High Court in Western Automobiles (India) v. Commissioner Of Income-Tax, Bombay City-I, Bombay, [1978] 112 ITR 1048 as already seen from the passage already extracted from page 1056.

    11. In these circumstances, we consider that the Tribunal was wrong in cancelling the penalty. The questions referred are accordingly answered in the negative and in favour of the revenue. The revenue will be entitled to its costs. Counsel's fee Rs. 500.

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    Comments

    Commissioner Of Income-Tax. Tamil Nadu-Iv v. Krishna & Co.
    (Feb 8, 1979)