Additional Commissioner Of Income Tax, Madhya Pradesh, Bhopal v. Bhartiya Bhandar, Jabalpur

G.P Singh, C.J:— This is a reference under section 256 of the Income Tax Act, 1961, made by the Income Tax Appellate Tribunal, referring for our answer the following questions of law:

(1) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the surrender of the cash credits by the assessee, by including the amount of such credits in its total income while filing the return of income, did not amount to an admission of concealment of income by the assessee?

(2) Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that even in such cases of surrender by an assessee of such cash credits as its income, the department had to prove by independent evidence that such amounts represented the concealed income of the assessee?

(3) Whether on the facts and in the circumstances of the case the Tribunal was right in law in cancelling the penalty imposed on the assessee?

2. The facts are that the assessee is a registered firm dealing in cloth, hosiery and umbrellas. For the assessment year 1958-1959, the assessee filed its return declaring a total income of Rs. 15,182. The assessment was completed on 31st March 1961 on a total income of Rs. 34,475. Subsequent to the completion of the assessment, the Income tax Officer noticed that there were entries of cash credits of the aggregate amount of Rs. 7,500 in the names of different persons in the books of account of the assessee which were not properly explained. In order to bring the aforesaid amount of Rs. 7,500 to tax as the assessee's income from undisclosed sources, the assessment was reopened by the Income-tax Officer under section 147 of the Act and a notice under section 148 was issued to the assessee calling upon it to file a return. On 28th January 1969 the assessee filed a return in response to the notice showing a total income of Rs. 41,972. This figure was made up of the income of Rs. 34,475 as computed in the original assessment and the above cash credits of Rs. 7,500. The assessment was completed on 29th January 1969 on a total income of Rs. 42,031 which included the unexplained cash credits of Rs. 7,500 and an amount of Rs. 56 shown by the assessee as interest payment on the above three cash credits. The Income-tax Officer also initiated penalty proceedings under section 271(1)(c) of the Act and referred them to the Inspecting Assistant Commissioner of Income-tax under section 274(2) as the minimum penalty imposable exceeded Rs. 1,000. The Inspecting Assistant Commissioner continued the proceedings under section 271(1)(e) against the assessee and called upon it to show cause why a penalty should not be imposed for the concealment of particulars of income to the extent of Rs. 7,556 (cash credits of Rs. 7,500 and interest payment thereon of Rs. 56). The assessee submitted before the Inspecting Assistant Commissioner that it had not concealed the particulars of its income; that the cash credits of Rs. 7,500 were surrendered for assessment as constituting the income of the assessee as the assessee was not in a position to produce the creditors and to prove the genuineness of the credits owing to the time lag between the dates of the credits and the date of the assessment and that from this circumstance alone the assessee should not be held to be guilty of concealment of income. The Inspecting Assistant Commissioner held that by including the cash credits of Rs. 7,500 in the return of income filed by the assessee under section 148, there was a clear admission on the part of the assessee that though the amount of Rs. 7,500 was recorded in the books of account as cash credits, it really represented the income of the assessee and as this income was not disclosed in the return of income filed at the time of original assessment, the assessee had clearly concealed the particulars of its income. The Inspecting Assistant Commissioner was also or the view that as the assessee had itself admitted in the revised return filed under section 148 that the amount of Rs. 7,500 constituted its income, no further evidence was required to establish that it was the concealed income of the assessee. The Inspecting Assistant Commissioner on this view imposed the penalty of Rs. 7,600 under section 271(1)(c) of the Act. The assessee appealed to the Tribunal. The Tribunal allowed the appeal of the assessee on the view that no case for imposing penalty under section 271(1)(c) was made out by the Department. In holding so, the Tribunal relied upon the cases of Commr. of Inc. Tax v. Anwar Ali . 1970 76 ITR 696 SC. and Gumani Ram Shri Ram v. C.I.T . 1972 85 ITR 67 Pun. and observed as follows:

“Merely because the assessee itself showed the amount of Rs. 7,500 representing unexplained cash credits in the returns subsequently filed it cannot be said that the assessee either accepted the same as representing its income or accepted the same as concealed income. In absence of any cogent material establishing that the aforesaid amount was assessee's income, we hold that assessee's case fails squarely within the ratio of the Supreme Court's decision given in Anwar Ali's case.”

3. Penalty under section 271(1)(c) is imposable when the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under the Act, is satisfied that any person “has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income.” We are not concerned with the Explanation which was added with effect from 1st April 1964. The principles applicable to imposition of penalty before the insertion of the Explanation in section 271 are those which were settled by the Supreme Court in Commr. of Inc.-Tax v. Anwar Ali (supra), a case relating to section 28(1)(c) of the Income Tax Act, 1922, which corresponds to section 271(1)(c) of the present Act. In Anwar Ali's case, while making an assessment on the assessee, the Income-tax Officer discovered an undisclosed bank account in which a cash deposit of Rs. 87,000 had been made. The assessee's explanation was that sum represented divers amounts entrusted to him by his relatives who had got panicky during the communal riots in Bihar in 1946. The Income tax Officer rejected the explanation and brought the sum of Rs. 87,000 to tax as income of the assessee from undisclosed sources. Thereafter penalty was imposed on the assessee for concealment of particulars of his income which was set aside on appeal by the Tribunal. In upholding the view of the Tribunal and the High Court, the Supreme Court held that:

(i) The order imposing penalty is penal or quasi criminal in nature.

(ii) The Department must establish in penalty proceedings that the amount in dispute constitutes income of the assessee. If there is no evidence on the record, except the explanation given by the assessee which explanation has been found to be false in the assessment proceedings, it does not follow that the receipt constitutes his taxable income.

(iii) The burden is on the Department to prove that the particular amount is a revenue receipt. The mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount constitutes income. The finding given in the assessment proceedings is not conclusive but it is good evidence. Before penalty can be imposed, the entirety of 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 or had deliberately furnished inaccurate particulars of his income.

As in Anwar Ali's case there was no material or evidence, apart from the falsity of the explanation given by the assessee, to show that the amount in dispute constituted his income, it was held that it could not be inferred that the assessee had concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount was revenue receipt. It need hardly be said that the principles laid down by the Supreme Court in Anwar Ali's case are binding and it is in the light of those principles that the question whether an assessee is liable for penalty under section 271(1)(c) has to be decided. It may, however, be Noticed that in Anwar Ali's case there was no admission made at any stage by the assessee that the disputed amount was his income. The assessee gave an explanation during the assessment proceedings that the disputed amount represented divers sums entrusted to him by his relatives who had got panicky during the communal riots in Bihar. This explanation was not accepted in the assessment proceedings and this was the only material relied on by the Department in the penalty proceedings to prove that the assessee had concealed particulars of his income. The Supreme Court was of the view that this material by itself was not enough to bold that the disputed amount was income or that the assessee was guilty of concealing particulars of his income.

4. In the instant case the position on facts is materially different. In the return filed in answer to the notice under section 148 the assessee showed the amount of Rs. 7,600 as its income without any qualification. This return filed by the assessee constituted an unequivocal admission on its part that the amount in question was its income. It was on this evidence of admission that the department relied in penalty proceedings to prove that the disputed amount was assessee's income. It was not a case where the department relied merely on the finding reached in, assessment proceedings rejecting an explanation offered by the assessee in support of the plea that the disputed item was not the assessee's income. It is true that the burden is on the department to establish in penalty proceedings that the disputed amount was the income of the assessee, the particulars of which were concealed. But the unqualified admission made by the assessee in the instant case in the return filed in pursuance of the notice under section 148 that the disputed amount was its income, was a very important evidence to discharge that burden. In view of the admission on which the department relied, it was for the assessee to explain as to why the unequivocal admission was made by it that the disputed amount was its income. It was open to the assessee to show that the admission was untrue or that it was made in such circumstances that it cannot be acted upon. The assessee, however, merely stated that it surrendered the above amount for the reason that it was not able to prove the genuineness of credit entries after lapse of about ten or twelve years. Apart from this explanation the assessee offered no material in support of its case. It did not even disclose the addresses of the persons in whose name the cash credit items stood. The assessee did not even examine any of its partners in support of this explanation. In these circumstances, in our opinion, it cannot be said that the weight and effect of the admission made by the assessee was rebutted. The Inspecting Assistant Commissioner was, therefore, right in acting upon the admission and in holding that the disputed amount was the assessee's income, and as it was not disclosed in the original return and was shown in the books of account as cash credit items pertaining to different persons, the charge of concealment of particulars of income was fully established. The mistake made by the Tribunal was in overlooking the admission, made by the assessee in the return that it filed in answer to the notice under section 148 that the disputed amount was its income. The Tribunal also failed to notice the distinction between the facts of the instant case and the facts in Anwar Ali's case where there was no admission at all made by the assessee and the department had solely relied on the rejection of the explanation offered by the assessee in the assessment proceedings.

5. In Mahavir Metal Works v. C.I.T . 1973 93 ITR 513 P & H. the assessee filed a revised return during the assessment proceedings showing the disputed amount as its income. It was held that the moment the said admission was proved by the department during the penalty proceedings, the onus on the department was discharged and it was then for the assessee to prove that the admission made by him during the course or the assessment proceedings was wrongly or illegally made or was incorrect. The learned Judges of the Punjab High Court in holding so, made the following observations:

“But in a case where the assessee himself, during the course of the assessment proceedings, files a revised return and owns the amount in question as his income and he also having earlier filed a return concealing the said income by deliberately furnishing inaccurate particulars of that income, the moment the said admission of the assessee is proved by the department during the course of the penalty proceedings the onus on the department is discharged. In that situation, the assessee is put to proof and it is open to the assessee to prove in the penalty proceedings that the admission made by him during the course of the assessment proceedings, was wrongly or illegally made or was incorrect. He can by leading evidence in the penalty proceedings, prove that the explanation put forth by him that the amount in question was a loan taken by the assessee was correct and if he is able to show during the course of the penalty proceedings that the explanation furnished was correct, no penalty can be levied. The learned counsel for the petitioner-firm relied on Anwar Ali's case decided by their Lordships of the Supreme Court. In my opinion, the said decision is of no help to the petitioner, keeping in view the fact that the petitioner himself owned the amount in question as his income by filing a revised return and having failed to prove during the course of the penalty proceedings that the explanation furnished by him earlier that the said amount was a loan was correct.”

We respectfully agree with these observations. We will, however, like to add by way of explanation that the burden of proof in the primary sense of proving its case is always on the department. But the moment the department proves an unequivocal admission of the assessee, the onus of proof or the burden of proof in the secondary sense i.e in the sense of adducing evidence shifts and it is then for the assessee to show by preponderance of probabilities that the admission was wrong or was made in such circumstances that it should not be acted upon or that the disputed amount did not constitute his income. If the assessee fails in doing so, it would be held that the burden on the department is discharged and the assessee is liable to penalty. But if the assessee succeeds in discharging the above onus, the department cannot be held to have succeeded in discharging the burden in the primary sense of proving its case that the assessee is liable to penalty.

6. A number of other cases were also referred to us during the course of arguments. In some of the cases the surrender of the disputed items by the assessee during the assessment proceedings was held to be an admission and in others not. A case of surrender arises when after initial dispute the assessee agrees that the disputed items be included as his income. The circumstances under which the assessee agrees that the disputed items be included in his income may differ from case to case, and this is the reason why in some of the cases the surrender of the items has been taken to be an admission and in others cot. In Durga Timber Works v. C.I.T . 1971 79 ITR 63 Delhi and Western Automobiles v. C.I.F . 1978 112 ITR 1048 Bom. the surrender of the disputed items was held to be an admission which, when relied upon in penalty proceedings, shifted the onus to the assessee. In contrast, in Gumani Ram Shri Ram v. C.I.T . 1972 85 ITR 67 Pun., M. Ramaswami Asari v. C.I.T . 1974 6 ITR 546 Mad. and C.I.T Assam, Nagaland etc. v. Gajananda Shyamlal . 1976 CTR 365 Gau. the surrender of the disputed items during assessment was not held to be an admission. It is not necessary for us to go into the facts and circumstances of each of these cases All that we need say is that it cannot be held as an inflexible rule that when, after an initial dispute the assessee agrees to have certain items included in his total income, he makes an admission that the items constitutes his income. The question whether the surrender of the items constitutes an admission will depend upon the facts and circumstances of each case. If the assessee, confronted with the entries, offers no explanation and admits that it was his concealed income and agrees to surrender the particular items for inclusion in his income, the surrender will be held to amount to admission. But when a surrender is made to purchase peace, as was the case in M. Ramaswami's case, or for other similar reason, the surrender cannot amount to an admission. The cases of surrender stand as a different footing as against those cases where the assessee himself files a return or revised return showing the disputed items as his income without any qualification, as is the position in the instant case. In the latter class of cases the return, in our opinion, constitutes a clear admission and in penalty proceedings shifts the onus of proof to the assessee.

7. Learned counsel for the assessee referred to us the case of C.I.T v. Ashoka Marketing Ltd. . 1976 103 ITR SC 543.. In that case the explanation offered by the assessee in penalty proceedings before the Tribunal was not disputed by the counsel for the Department. It was, therefore, held that the Tribunal was justified in accepting the explanation. The facts being different, the case is of no help to us here. Similarly, the case of Joyanarayan Kedornath v. I.T Commr., Orissa . 1978 Tax. LR 121. on which also the learned counsel for the assessee relied, has no relevance on the facts of the present case.

8. In view of the above discussion, we answer the question referred to us as follows:

(1) The inclusion by the assessee of the cash credit items in the return filed by it in answer to the notice under section 148 as its income, amounted to an admission that the said items constituted its income. As these items were shown in the account books and in the original return as cash credits of third-parties, the admission constituted evidence of concealment. The Tribunal was wrong in holding otherwise.

(2) The Tribunal was not right in holding that even in the presence of the aforesaid admission the Department should prove by independent evidence that the amount represented concealed income of the assessee.

(3) The Tribunal was not right in cancelling the penalty imposed on the assessee.

There shall be no order as to costs of this reference.