1. In this case the assessee is a Hindu undivided family. The assessment year is 1947-1948 and the accounting year is the Sambat year 2002-2003 Dewali, corresponding to the period from 4-11-1945, to 23-10-1946. In this accounting year there was a credit entry of Rs. 22,940 found in the books of the assessee with regard to the hardware business. When asked to explain the assessee stated that it represented the sale proceeds of gold ornaments of Srimati Purnima Debi, who is the wife of Chagganlal, one of the members of the Hindu undivided family. The explanation was not accepted by the Income-tax Officer, who held that the amount of Rs. 22,940 was the secreted profit of the hardware business. Taking this and other circumstances into account the Income-tax Officer estimated the income to be Rs. 75,000. But on appeal the estimate of profit was reduced to Rs. 50,000 by the Appellate Assistant Commissioner.

2. Both the Income-tax Officer and the Appellate Assistant Commissioner have taken the view that the building constructed at Ranchi and standing in the name of Srimati Purnima Debi really belonged to the Hindu undivided family, and this circumstance should be taken into account in making the estimate of the assessee's income. But the appellate tribunal held that there was nothing to connect the assessee's family with the construction of the building at Ranchi and so that circumstance ought to be ignored in making the estimate of the assessee's income. The appellate tribunal estimated the profits of the assessee from the hardware business to be Rs. 20,000. Thereafter, a proceeding was started by the Income-tax Officer under Section 28(1)(c) of the Income-tax Act for levying penalty upon the assessee for concealment of income. It was held by the Income-tax Officer that the assessee was liable to pay penalty under S. 28(1)(c) of the Act, and the amount of penalty imposed was Rs. 4,800. The order of the Income-tax Officer has been upheld by the Appellate Assistant Commissioner and by the Income-tax Appellate Tribunal in appeal.

3. Under Section 66(2) of the Income-tax Act the appellate tribunal has stated a case and referred it to the High Court on the following question of law:

“Whether in the facts and circumstances the penalty has been validly imposed upon the assessee under Section 28(1)(c) of the Income-tax Act?”

4. Section 28(1)(c) of the Income-tax Act provides as follows:

“28. Penalty for concealment of income or improper distribution of profits—If the Income Tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that any person —

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

he or it may direct that such person shall pay by way of penalty, in the case referred to in clause (a), in addition to the amount of the income-tax and super-tax, if any payable by him, a sum not exceeding one and a half times that amount, and in the cases referred to in clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.”

5. The argument put forward by learned counsel on behalf of the assessee is that there is no material on the record of the proceedings to suggest that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. The argument of learned, counsel was that the proceeding under Section 28 of the Income-tax Act is a penal proceeding and the onus lies on the Income-tax Department to show that the assessee is guilty of concealment of the particulars of his income or deliberate furnishing of inaccurate particulars of such income. In our opinion, the argument is correct, and in a penal proceeding under Section 28 of the Income-tax Act the onus lies on the Income-tax Department to show that the assessee is guilty of the offence mentioned in that section.

6. The principle on this point has been well stated by the House of Lords in Fattorini Ltd. v. Inland Revenue Commissioners, (1942) 11 ITR Sup 50. It was pointed out by Lord Wright at page 65 of the Report that the onus in such a proceeding was not of an ambulatory or shifting character but the onus was finally upon the Crown to prove its right to impose what was a severe penalty. This principle applies to the present case because the proceeding started against the assessee under Section 28 of the Income-tax Act is of a penal character. The correctness of this principle was not disputed by the learned Standing Counsel appearing on behalf of the Income-tax Department, but it was contended that there was material in the present case to show that the assessee was guilty of suppression of particulars of his income.

In our opinion, however, there is no material in this case to support the finding of the Income-tax Appellate Tribunal that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of his income in the quantum proceeding. In the order under Section 28(1)(c) of the Income-tax Act the Appellate Tribunal has stated that the explanation offered by the assessee with regard to the source of the amount of Rs. 22,940 was not found satisfactory. But it is one thing to say that the explanation of the assessee with regard to the source and nature of the amount was not satisfactory; it is another thing to say that the assessed is guilty of wilful suppression of the particulars of his income in the Income-tax proceeding.

7. Having perused the orders of the Appellate Tribunal aid of the Assistant Commissioner and of the Income-tax Officer in this case we are satisfied that the assessee has furnished a plausible explanation of the source and nature of the credit of Rs. 22,940 shown in the books in the name of Srimati Purnima Debi. It may be that the assessee was not able to establish his case on this point satisfactorily by proper evidence. But that does not mean that the explanation of the assessee is false or that he has been guilty of deliberate suppression of the particulars of his income within the meaning of Section 28(1)(c) of the Income-tax Act. The case has been dealt with in paragraph 7 of the order of the appellate tribunal as follows:

“7. There is however a credit of Rs. 22,940/- in the assessee's hardware books on 30-11-1945. It is assessde's case that this credit represents the sale proceeds, of ornaments belonging to Purnima Devi. We consider that there is no proper evidence to establish that the amount credited in this account represents the sale proceeds of ornaments belonging to this lady. The purja for the sale of gold is in the name of Chhaganlal Sarogi the Karta of the assessee family. The purja indicates that gold was sold and not gold ornaments. The purja does not indicate what ornaments have been sold.

If it is a fact that the ornaments of the lady had been previously melted and sold, there should be some evidence of melting. No evidence has been produced to establish it. We cannot, therefore, accept assessee's explanation that the sale proceeds credited in the accounts on 30-11-1945 represent the sale proceeds of ornaments belonging to the lady. The nature and source of the gold which was sold has not thus been established by the assessee. There is thus an unexplained increase in the assessee's wealth during the previous year by Rs. 22,940/-. The only inference that can be drawn is that it represents the assessee's secreted profits from business.”

8. It does not, however, appear to us that the appellate tribunal is right in saying that there is no proper evidence to establish that the sale proceeds credited in the accounts represented the sale proceeds of the ornaments belonging to Srimati Purnima Debi.

9. The reason is that the Appellate Assistant Commissioner has stated in his order that the books of Jokhiram Baijnath of Calcutta for the Sambat year 2002-2003 were produced before him on a previous occasion and the sale of gold which was then made by melting Srimati Purnima Debi's ornaments was found recorded in the books of that Firm. The Assistant Appellate Commissioner has also observed that the list of ornaments received by Srimati Purnima Debi from her father was verified from the entries in the books of the Firm of Jokhiram Baijnath for the years 1963-1964, 1964-1965, 1968-1969, and 1969-1970. The relevant portion of the Appellate Assistant Commissioner's order reads as follows:

“The ornaments of Surajmal Kimaji i.e Purnima Devi, were sold through Navakishore Dey and others of Calcutta. In this connection the books of Jokhiram Baijnath hardware merchants of Calcutta, for 2002-2003 were produced before me on an earlier occasion and the sale of gold which was then made by melting Purnima Devi's ornaments were found recorded in their books. Similarly the books of Jokhiram Baijnath for 1963-1964, 1964-1965, 1968-60 and 1969-1970 were produced on an earlier occasion. The list of ornaments received by Purnima Devi from her father were verified from the respective entries.”

If the explanation offered by the assessee in the assessment proceeding was deliberately false it is possible to argue that there was some material before the Income-tax Appellate Tribunal which justified the imposition of penalty upon the assessee under S. 28(1)(c) of the Act. In the present case in our opinion there was no material before the Income-tax authorities for holding that the assessee has been guilty of suppression of particulars of his income within the meaning of Section 28(1)(c) of the Income-tax Act. It follows, therefore, that in the facts and circumstances of the case the penalty has not been validly imposed upon the assessee under Section 28(1)(c) of the Income-tax Act and the question referred to the High Court by the Income-tax Appellate Tribunal must be answered in favour of the assessee and against the Income-tax Department. The assessee is entitled to the costs of the reference. Hearing fee, Rs. 250.

BD/D.R.R

10. Reference answered accordingly.