THAKUR VEERPAL SINGH vs COMMISSIONER OF INCOME TAX.

B. C. Varma, J. - The following question has been referred by the Income Tax Appellate Tribunal for decision of this Court :

"Whether on the facts and in the circumstances of the case the Tribunal was right in law in setting aside the order of the AAC on the question of penalty ?"

The reference has been made under these circumstances :

The applicant/assessee Thakur Veerpal Singh filed return of his income for the asst. yr. 1970-71. Income was shown as Rs. 5,420. The assessee did not appear before the ITO and, therefore, he was assessed ex parte. The income assessed was Rs. 10,452. Thus, a sum of Rs. 5,000 was added as income from undisclosed sources. The assessee appealed. The AAC held that this addition could not be made and thus allowed, the appeal. On further appeal by the Department before the Tribunal, the ITOs order was restored. This assessment order has now become final. Thereafter, proceedings for imposition of penalty were commenced under s. 271 of the IT Act by the ITO. The assessee appeared and offered his explanation. It was submitted by him that as he was doing business of plying of trucks on hire, he was entitled to statutory deduction on account of depreciation and it is thus that the amount was available with him to be invested in construction of a house. It was, therefore, submitted that no income was concealed and in any case alleged concealment was neither fraudulent nor wilful. This explanation offered by the assessee was not accepted by the ITO who imposed penalty of Rs. 5,000 upon the assessee in terms of s. 271(1)(c) read with the Explanation appended thereto. The assessee again appealed against this order imposing penalty and the AAC set it aside holding that the assessee has discharged the burden of penalty proceedings, that the investment in the house property was out of the income from truck plying business and is duly explainable from the national allowance of depreciation. The Department again appealed and the Tribunal by its order dt. 31-12-1977 expressed an opinion that the assessee has not discharged the necessary burden cast upon him and has not proved that there was no gross or wilful negligence on his part in returning his income. In this view of the matter, the Tribunal restored the order of the ITO imposing the penalty. The assessee applied to the Tribunal for a reference before this Court but his prayer was turned down. Thereupon the assessee came to this Court under s. 256 of the Act. This Court allowed the prayer and directed the Tribunal to state the case and to refer the aforesaid question to this Court for decision.

Shri B. L. Nema, ld. counsel for the applicant argued that it is open to the assessee during the course of penalty proceedings to show that the income was rightly returned and that there had been no fraudulent or wilful concealment of income. The ld. counsel submitted that before the ITO during the course of the penalty proceedings, the assessee had offered a reasonable and plausible explanation regarding non-inclusion of the income in the return. Even if the explanation offered is held as not proved, added the learned counsel, then too the Department has not placed any further material to show that the assessee wilfully or fraudulently concealed the income and, therefore the imposition of penalty is not justified under the law.

Sec. 271(1)(c) of the IT Act, as it stood at the relevant time, is as follows :

"271. (1) If the Income Tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person -

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(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, -

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(iii) in the case referred to in clause (c) in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished."

We also then have an Explanation inserted by the Finance Act, 1964 with effect from 1-4-1964 in the following terms :

"Explanation. - Where the total income returned by any person is less than eighty per cent of the total income (hereinafter in this Explanation referred to as the correct income) as assessed u/s 143 or section 144 or 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction) such person, shall unless he proves that failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of such income for the purpose of clause (c) of this sub-section."

This explanation to s. 271(1)(c) is attracted in cases where the income is assessed under s. 143, or s. 144 or s. 147. If the finding is that the income returned by the assessee falls short of eighty per cent of the income so assessed he will be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purpose of sub-s. (c) of s. 271(1) unless the assessee proves that the failure to return the correct income did not arise from any fraud or wilful neglect on his part. Thus, to a case to which Explanation to s. 271(1)(c) is attracted, a presumption has to be raised against the assessee that he has concealed the particulars of his income or furnished inaccurate particulars of such income. The burden then lies upon him to show that such a failure to return the aggregate income correctly or to furnish inaccurate particulars of such income did not arise from any fraud or any gross or wilful neglect on his part. See : Hansraj Aggarwal Vs. Addl. Commissioner of Income Tax, and Miscellaneous Civil Case No. 194 of 1979 (The Addl. CIT, M.P. Bhopal v. M/s. Meghraj Arjundas Rewa, decided on 20-4-1982).

Whether in a given case such burden is or is not discharged will depend upon the facts and circumstances of each case. It is for the assessee to place such material on record as may be sufficient to discharge such a burden. See : Hansraj Aggarwal Vs. Addl. Commissioner of Income Tax, . Nevertheless, before the assessee is held liable for concealing the particulars of his income or for furnishing inaccurate particulars of such income, it has to be independently found in the penalty proceedings that the disputed amount represents income. It is this initial finding which under Explanation to s. 271(1)(c) shifts the burden on the assessee. Any order imposing penalty inspite of that Explanation must fail in absence of any material to indicate that the disputed amount represents assessees income that was concealed by the assessee. This was the view taken by the Supreme Court in Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, . Interpreting s. 28(1) (c) of the 1922 Act, it was observed, in that case that the nature of the proceedings was penal and the gist of the offence is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and the burden is on the department to establish that the receipt of the amount in dispute constitutes the income of the assessee. The Supreme Court further laid down that it will be legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. The finding given in assessment proceedings for determining or computing the tax is not conclusive although it is a good evidence. This decision has been followed while interpreting s. 271(1)(c) of 1961 Act even after introduction of the Explanation. See : Bapulal Ramchandra Vs. Commissioner of Income Tax, and Additional Commissioner of Income Tax Vs. Karnail Singh V. Kaleran, . It has, therefore, to be seen before the imposition of penalty if the amount not returned by the assessee represents the income of the assessee. The finding of the Tribunal in the case in hand in this regard is in the affirmative. It appears that at no stage either during the assessment proceedings or during proceedings for imposition of penalty did the assessee produce the account books. This certainly is a factor, though by itself not conclusive, to be taken into account. Even the assessee did not in fact contend that the amount was not acquired but the contention throughout has been that because of the depreciation in the value of the truck employed in the business, he was not required to return that amount equivalent to that depreciated value. We are, therefore, of opinion that the amount not returned was the income of the assessee during the relevant year and thus the department has sufficiently discharged the initial onus which lay on it during the penalty proceedings.

With the aforesaid finding, in view of Explanation to s. 271(1)(c), the burden was on the assessee to show that the failure to return the income correctly did not arise out of his fraud or gross or wilful neglect. The Tribunal has not accepted the explanation offered by the assessee. Once this explanation is excluded from consideration as untenable, there is no escape from the finding that the assessee is guilty of wilfully not returning his correct income for such is a presumption that has to be drawn in view of the Explanation to s. 271(1)(c). In the present case, the Tribunal has in its order dt. 31-12-1977, found as a fact that the assessee has not discharged his burden which lay on him in view of that Explanation and that this finding by him is based upon appreciation of facts. Authorities say that when the Tribunal concludes on the appreciation of evidence that the assessee has not been able to discharge the burden which lies on him in view of the Explanation to s. 271(1)(c), the question is not of law but is one of fact. See : Hansraj Aggarwal Vs. Addl. Commissioner of Income Tax, ; RAMLAL AGARWAL Vs. COMMISSIONER OF Income Tax, M.P., ; Commissioner of Income Tax Vs. Pradeep Shantaram Padgaonkar, and Mohammad Shabbir Vs. Commissioner of Income Tax, . In Hansrajs case (supra), it was found that the assessee placed no material to show that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part and that the burden on him was not discharged by the material on record. The further observation there is that the material on record would lead to no other inference than the one drawn by the Tribunal, i.e., that the charge of gross or wilful neglect on the part of the assessee stood clearly proved. Such a finding by the Tribunal was held to be a finding of fact and no question of law was said to have arisen out of the order of the Tribunal. Gauhati and Rajasthan High Courts also share this view : Commissioner of Income Tax Vs. Basanta Kumar Agarwalla and Another, and Commissioner of Income Tax Vs. Goswami Smt. Chandralata Bahuji, .

Learned counsel for the assessee, however, submitted that all that the assessee during the penalty proceedings has to offer is a reasonable explanation for the non-inclusion of the income in his return. Whether or not, added the ld. counsel, the explanation offered is reasonable, is not a question of fact but is one of law. In the instant case, submitted the ld. counsel, the explanation offered was reasonable and the non-inclusion of the income cannot be said to be either wilful or negligent or fraudulant. Learned counsel relied upon the decision of Punjab and Haryana High Court in Additional Commissioner of Income Tax Vs. Karnail Singh V. Kaleran, . In that case, the finding of the Tribunal was that there was no proof that the cash belonged to the assessee and, therefore, it was held that the amount did not represent the income of the assessee. The assessee was consequently held not liable to imposition of any penalty. The decision is clearly distinguishable.

For what we have said above, we are of opinion that there can be no interference with the finding of the Tribunal that the assessee was guilty of not returning his correct assessable income. With this finding, the imposition of penalty was perfectly justified. We would, therefore, answer the question referred thus :

"On the facts and in the circumstances of the case, the Tribunal was right in setting aside the order of the AAC on the question of penalty."

There shall be no order as to costs.