Commissioner of Income Tax vs Harikishan Dinesh Kumar and Co.

Dharmadhikari, J.—By this application u/s 256(2) of the income tax Act, 1961 (''the Act''), the income tax Department seeks direction for making a reference of the following question of law :

Whether, on the facts and in the circumstances of the case, a case of concealment of particulars of income or furnishing inaccurate particulars of income by the assessee has been made out attracting the applicability of section 271(1) (c) of the income tax Act, 1961

The relevant facts, in brief, are as under : The assessee is an excise contractor. For the assessment year 1976-77, rejecting the books of account of the assessee and the certificate produced by him of the excise authorities showing loss in his business, he was assessed to income tax under proviso to section 145(1) of the Act. His income was estimated by applying the established formula of taking the multiple of 2.5 times of licence fee for determining the turnover and his income. Applying the above formula, his total income was determined at Rs. 9,75,560. The above formula applied in determining the income was upheld in appeal.

The ITO thereafter initiated penalty proceedings u/s 271(1) (c) of the Act and a penalty of Rs. 3,17,356 was imposed. The assessee preferred an appeal and the Commissioner (Appeals) cancelled the penalty. The Tribunal confirmed the order of the Commissioner (Appeals). The department had moved an application u/s 256(1) for making a reference of the question of cancellation of the penalty u/s 271(1) (c). That application u/s 256(1) was rejected by the Tribunal. Hence this application before this Court.

It would be useful for the purpose of deciding the application, to quote the relevant portion of the order of the Tribunal in confirming the cancellation of penalty imposed by the ITO :

Giving due consideration to the facts of cases, the reasoning of the learned lower authorities and the submissions made before us on behalf of the parties, we are of the considered opinion and do hold accordingly, that in the face of application of proviso to section 145(1) of the Act for assessment purposes and further estimate of income by application of a formula upheld by the income tax Appellate Tribunal and the returns of the income filed by the assessee being on the basis of p-5 certificates issued by the State excise authorities, concealment could not be attributed to the assessee either under the main provision or also under Explanation to the main provision and in this view of the matter, the impugned orders of the learned first appellate authority for all the three years stand upheld.

The learned counsel Shri R.D. Jain, appearing for the department contends that while deleting the penalty imposed, the Commissioner (Appeals) and the Tribunal overlooked drastic amendment made to section 271 by the Finance Act, 1964, whereby, in clause (c), the word ''deliberately'' was omitted and an Explanation was inserted at the end of the said section. The Explanation added to section 271 provides for raising of the presumption of concealment against the assessee where the income returned is found to be less than 80 per cent of the assessed income. It is pointed out that in the said Explanation, added to section 271, mens rea has no longer to be read as necessary ingredient of the said section as a result of omission of the word ''deliberately'' from clause (c) of section 271. It is further pointed out that the onus of rebutting the presumption of concealment has been placed on the assessee and in case of any failure to discharge it, the presumption of concealment has to be raised. Strong reliance on behalf of the department has been placed on a decision of the Supreme Court in Addl. CIT v. Jeevan Lal Sah [1994] 205 ITR 244 1 and on a decision of this Court in Commissioner of Income Tax Vs. Bherulal Shrikishan,

Shri N.K. Modi, the learned counsel appearing for the assessee, submitted that this is a case, as has been mentioned in the order of the Tribunal, where all details of excise sales with accounts were placed before the Assessing Officer together with certificate in that Course, issued by the State excise authorities proving loss caused to the assessee in the period in question. Books of account of the assessee were not accepted and his income was assessed under proviso to section 145(1) by applying a method laid down for computing estimated income on the basis of the amount of licence fee. It is submitted that in the above circumstances, the presumption of concealment could not be raised against the assessee and in any case, the onus to rebut it was discharged by the assessee from the facts and circumstances, stated above. On behalf of the assessee, reliance is placed on the Division Bench decisions of this Court in Jayantilal Kishorilal v. CIT [1985] 154 ITR 821 2 and in Shiv Narayan Shivhare v. CIT [1995] 83 Taxman 25.

Having considered the submissions made by the counsel for the parties in the light of the documentary material on record and the decisions cited respectively by the counsel for the parties, we are of the opinion that no question of law can be directed to be referred to this Court as there arises none.

Accepting that as a result of Explanation added below section 271, presumption of concealment can be raised against the assessee with a burden shifted on him to rebut it, in our opinion, it can be so rebutted by the assessee on the basis of any documents or materials produced on record in the assessment or before the tax authorities and also by the existing circumstances on record. In the instant case, the assessee has produced whatever accounts it had maintained before the authorities. It had also produced a certificate issued by the excise authorities which proved the loss that it had suffered in the contract period in question. The assessing authority did not accept his accounts as not duly maintained and resorted to computation of income by recourse to the well-established formula in accordance with proviso to section 145(1). On the above circumstances, it could not have been held by the tax authorities that presumption of concealment, if any, raised against the assessee had not been discharged and that is what, according to us, is the purport of the order of the Tribunal. Whether, on the facts and circumstances on record, the presumption of concealment has been rebutted or not, is essentially a question of fact. In our opinion, therefore, no question of law arises for directing the Tribunal to make reference of question of law as proposed by the department. Consequently, the application has no merit and it is rejected. In the circumstances of the case, however, there shall be no order as to costs.