Commissioner of Income Tax vs V. Ponnuswamy Naidu

Gulab C. Gupta, J.—This is a reference u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as ""the Act""), at the instance of the

Department for answering the following question of law :

Whether, on the facts and in the circumstances of the case, the levy of penalty of Rs. 37,000 u/s 271(1)(c) of the Income Tax Act for the

assessment year 1970-71 was not valid ?

It appears that the year 1970-71 was the first assessment year in relation to the respondent-assessee. It appears that he had not filed the return

but, since he was a dealer in cement and fertilizer and also a moneylender notice u/s 148 of the Act was issued pursuant to which he filed his return

showing an income of Rs. 384 only. During the enquiry, the Income Tax Officer found that the assessee has advanced Rs. 37,000 on two

occasions to one N. Doraisamy Reddiar and interest of Rs. 6,300 was also shown credited in the account of the said Reddiar. When this was put

to the assessee by the Income Tax Officer, he has stated that the money was that of his mother-in-law and he acted only as a name-lender. The

Income Tax Officer after making enquiries into the aforesaid explanation held that the mother-in-law of the assessee had no means to advance the

money. The said amount together with interest was, therefore, included in the income of the assessee and it was subjected to tax. On appeal, the

Appellate Assistant Commissioner confirmed the addition of Rs. 37,000 but deleted the sum of Rs. 6,300 being the interest received. Since there

was no second appeal, the said assessment has become final. Since the returned income of the assessee was less than 80 per cent. of the assessed

income proceedings u/s 271(1)(c) of the Act were initiated against him. In response to the show-cause notice issued by the Inspecting Assistant

Commissioner, the assessee appeared and stated that the money belonged to his mother-in-law and, therefor, there was no justification for

penalising him. He requested that the penalty proceedings be dropped. The Inspecting Assistant Commissioner, however, held that the fact that the

said money belonged to the mother-in-law has not been conclusively proved. Therefore, relying on the Explanation to section 271(1)(c) of the Act,

the Inspecting Assistant Commissioner imposed a penalty of Rs. 37,000 u/s 271(1)(c) of the Act. This order was challenged by the assessee by

filing an Appeal before the Income Tax Appellate Tribunal. The said Tribunal was however of the view that the addition of Rs. 37,000 to the

income of the assessee was because of section 69A of the Act. Relying on the decision in Commissioner of Income Tax, Mysore Vs. Jewels

Paradise, , the Tribunal, therefore, held that penalty could not be imposed in relation to the income so assessed. As regards applicability of the

Explanation to section 271(1)(c) of the Act, the learned Member of the Tribunal accepted the explanation of the assessee and held that the

preponderance of probability clearly established that the failure to return the total assessed income was not because of fraud or gross or wilful

neglect on the part of the assessee. That is how the penalty was set aside. The Department seems to have asked for a reference, which has been

granted. The submission of learned counsel for the Revenue is that the Tribunal has acted illegally and without jurisdiction in accepting the

explanation of the assessee that the amount of Rs. 37,000 was received from the mother-in-law. According to him, the statement could not have

been believed without any supporting material. It was particularly stated that the statement of the assessee alone would not amount to clear, cogent

and sufficient material to base the aforesaid finding and, therefore, the request was made to this court not to accept that finding. Reliance was

placed on the decisions in CIT v. T. K. Manicka Gounder [1989] 178 ITR 274 (Mad). A perusal of the said case would indicate that this court

has noticed the decision of the Supreme Court in Commissioner of Income Tax Vs. Mussadilal Ram Bharose, and held that the ratio of the said

case would not apply to the facts of the case and hence relying on The Commissioner of Income Tax, Bihar and Orissa, Patna Vs. S.P. Jain, , the

court ignored the finding recorded by the Tribunal. The question whether a finding based on the submission of the assessee is the finding of the type

which can be ignored is, therefore, the real question for consideration of this court. The decision of the Supreme Court in The Commissioner of

Income Tax, Bihar and Orissa, Patna Vs. S.P. Jain, only lays down that this court can interfere with the finding of the Appellate Tribunal only if it

appears that the Tribunal has misunderstood the statutory language or it has arrived at a finding based on no evidence or the finding is inconsistent

with the evidence or contradictory to it or the Tribunal has acted on material partly relevant and partly irrelevant or where the Tribunal draws upon

its own imagination and imports facts and circumstances not apparent from the record or bases its conclusion on mere conjectures or surmises or

where no person judicially acting and properly instructed in law would have come to the said finding. Those observations were made in relation to

assessment proceedings and not in relation to penalty proceedings and that by itself would be a good ground for not applying those observations to

a penalty proceeding. Assuming, however, that these observations are relevant in relation to a penalty proceeding and we have the jurisdiction to

interfere with the finding recorded by the Appellate Tribunal we would find no justification for the same in view of the facts and circumstances of

the case. It is a case where the Tribunal has based its finding on the statement of the assessee alone. That, in our opinion, is enough as a statement

of the assessee by itself can be material sufficient for the Tribunal to base its finding. Reference in this connection may be made to the decision in

Gouri Prasad Bagaria and Others Vs. Commissioner of Income Tax, West Bengal, . Under the circumstances, it will be a finding of fact recorded

in accordance with law which this court would not be able to ignore. As long as this finding remains on record, there would be no escape from the

conclusion that the burden of proof imposed upon an assessee remains properly discharged and, therefore, there was no justification for imposition

of any penalty on him.

The submission of learned counsel for the Revenue is that the explanation as it existed at the relevant time gave rise to three presumptions against

the assessee and, therefore, the burden of proving to the contrary is on the assessee. There can really be no quarrel with the aforesaid proposition.

The language of the Explanation is clear and has otherwise been explained by several decisions of the Supreme Court and the High Courts. There

can, therefore, be no doubt that the burden of proving that the concealment was not because of any fraud or wilful neglect of the assessee remains

on him. The question in the instant case is only about the method of discharging that burden. The view of this court is that the burden can

reasonably be discharged by the assessee by giving his own statement. It cannot be accepted as a good proposition of law that the statement of the

assessee should never be accepted as a good explanation. The conclusion would, of course, differ from case to case. There may be cases in which

his statements may not be found sufficient to discharge the burden placed on him. In the instant case, however, his statement had been found

acceptable to the Tribunal which is the final authority of fact and we do not have the appeal power over its conclusion. Under the circumstances, it

is the considered view of this court that no part of the law contained in the Explanation to section 271(1)(c) remains violated in the instant case.

In view of the discussion aforesaid, the question of law referred to this court is answered in the affirmative and against the Revenue. No costs.