1. In these cases the assessee is Shankar Lal Kejriwal, proprietor of Selected Jogta Colliery of Jharia. The assessment years are 1945-46 and 1946-47 and the corresponding accounting years are the calendar years 1944 and 1945. The business was started by the assessee for the first time in the accounting year 1944. When the accounts were made up for that year the assessee did not bring into account the value of the closing stock of the coal extracted. The same method was repeated in the accounting year 1945. The Income-tax Officer estimated the closing stock for the first accounting year at Rs. 5,655 and for the second accounting year at Rs. 10,645. After estimating the closing stock the assessment was completed for these two accounting years. Thereafter, penalty proceedings under section 28(1)(c) of the Income-tax Act were commenced by the Income-tax Officer. It was contended on behalf of the assessee that there was no deliberate concealment or mis-statement of facts, but the Income-tax Officer rejected this contention and held that there was deliberate omission on the part of the assessee to disclose the value of the closing stock. He accordingly imposed a penalty upon the assessee for both the accounting years. The assessee took the matter in appeal before the Appellate Assistant Commissioner, but the appeal was dismissed. The assessee took the matter in further appeal before the Income-tax Appellate Tribunal which dismissed the appeal holding that it was a fit case for the levy of penalty under section 28(1)(c) of the Income-tax Act. Under section 66(2) of the Indian Income-tax Act, the Income-tax Appellate Tribunal has stated a case on the following questions of law for the opinion of the High Court.
For the assessment year 1945-46: “Whether, in the facts and circumstance of the case, the failure of the assessee to disclose the value of the closing stock to the extent of Rs. 5,655 is tantamount to concealment or deliberate furnishing of inaccurate particulars within the meaning of section 28(1)(c) of the Income-tax Act, and consequently, whether the penalty imposed upon the assessee is legally valid within the meaning of that section?
For the assessment year 1946-47: Whether, in the facts and circumstances of the case, the failure of the assessee to disclose the value of the closing stock to the extent of Rs. 10,645 is tantamount to concealment or deliberate furnishing of inaccurate particulars within the meaning of section 28(1)(c) of the Income-tax Act, and consequently, whether the penalty imposed upon the assessee is legally valid within the meaning of that section.
When the reference came to us for hearing in the first instance we considered that the Income-tax Appellate Tribunal should come to a definite finding as to the method of accounting followed by the assessee for the two accounting years after taking necessary evidence on the point. The case was accordingly referred back to the Income-tax Appellate Tribunal under section 66(4) of the Indian Income-tax Act. The Income-tax Appellate Tribunal has now submitted a supplementary statement of the case and the finding of the Tribunal is that the assessee's system of accounting was neither cash nor mercantile but a hybrid system of both, from which the assessee's true profits could not have been ascertained.”
2. On behalf of the assessee, learned counsel put forward the argument that there was no wilful failure on the part of the assessee to furnish the value of the closing stock within the meaning of section 28(1)(c) of the Income-tax Act and the assessee was not liable to a penalty under that section. It was submitted that there was a bona fide confusion on the part of the assessee in maintaining a proper system of accounting and this is evident from the fact that the Appellate Tribunal has stated in the supplementary statement of the case that, if the assessee's system of accounting had been strictly mercantile, the assessee would have claimed the liabilities referred to in items (i), (iii), and (iv) of paragraph 8 as expenditure “incurred” and debited them to the accounts of the relevant years. It was also pointed out by learned counsel that in the appellate order the Appellate Tribunal has also remarked that the two accounting years happened to be the first two years of the independent business of the assessee and he was following the practice followed in other firms wherein he had been a partner and thus no mistake or concealment was intended by the assessee. It was also argued that the Appellate Tribunal had noted that this was a palliative circumstance in favour of the assessee. In our opinion, the argument put forward on behalf of the assessee is well founded and must be accepted as correct. It is now well established that a proceeding under section 28(1) of the Indian Income-tax Act is a penal proceeding and the onus lies upon the income-tax department in such a proceeding to show that the assessee is guilty of concealment of the particulars of his income or deliberate furnishing of inaccurate particulars of such income. This view has been expressed by the House of Lords in Fattorini (Thomas) (Lancashire) Ltd. v. Inland Revenue Commissioners [1943] 11 I.T.R Suppl. 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. The same view has been expressed in a recent decision of this High Court in Khemraj Chagganlal v. Commissioner of Income-tax [1960] 38 I.T.R 523. and a subsequent decision of this High Court in Lakshmi Narain Shambhuram v. Commissioner of Income-tax [1963] 49 I.T.R 350. and another unreported decision of this High Court in Commissioner Of Income-Tax, Bihar & Orissa v. Mohan Mallah. Case No. 630 of 1960, decided on the 12th September, 1963 4). In our opinion the present case falls within the principle laid down by these authorities and the income-tax department has not in this case discharged the onus of showing that the assessee was guilty of concealment of the particulars of his income or deliberate furnishing of inaccurate particulars of such income. We, accordingly, hold that, in the facts and circumstances of this case, the failure of the assessee to disclose the value of the closing stock to the extent of Rs. 5,655 for the assessment year 1945-46, and a similar failure on the part of the assessee in disclosing the value of the closing stock to the extent of Rs. 10,645 for the assessment year 1946-47, are not tantamount to concealment or deliberate furnishing of inaccurate particulars within the meaning of section 28(1)(c) of the Income-tax Act, and, therefore, the penalty imposed upon the assessee is not legally valid so far as the order of penalty is based upon these two items. We accordingly answer the questions of law referred to the High Court in favour of the assessee and against the income-tax department. In the circumstances of the case we do not propose to order any costs of this reference.
3. Question answered in favour of the assessee.