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RAJ KUMAR CHAURASIA versus C.I.T.

High Court of Judicature at Allahabad

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Raj Kumar Chaurasia v. C.I.T. - INCOME TAX REFERENCE No. 92 of 1993 [2006] RD-AH 18354 (30 October 2006)

 

This is an UNCERTIFIED copy for information/reference. For authentic copy please refer to certified copy only. In case of any mistake, please bring it to the notice of Joint Registrar(Copying).

HIGH COURT OF JUDICATURE OF ALLAHABAD

Reserved

Income Tax Reference No.92 of 1993

Shri Raj Kumar Chaurasia v. The

Commissioner of Income Tax, Kanpur

Hon'ble R.K.Agrawal, J.

Hon'ble Vikram Nath, J.

(Delivered by R.K.Agrawal, J.)

In respect of the assessment years 1973-74 to 1976-77, the Income Tax Appellate Tribunal, Allahabad has referred the following questions of law under Section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for opinion to this Court:-

Assessment Year 1973-74 :

1. Whether there was any material before the Tribunal to hold that the assessee was guilty of concealment and of furnishing inaccurate particulars of income ?

2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in sustaining the penalty u/s 271(1)(c) of the I.T.Act in relation to the income of Rs.6,500 from cold drink business in the name of Smt. Vijai Laxmi Chaurasia?"

Assessment Years 1974-75 to 1976-77 :

1. Whether on the facts and in the circumstances of the case, the Tribunal was right in sustaining the penalty on the basis of findings arrived by it in the quantum appeal?

2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in sustaining the penalty u/s 271(1)(c) of the I.T.Act, 1961 in relation to the income of Rs.10,500 from cold drink business in the name of Smt. Vijai Laxmi Chaurasia?"

Briefly stated, the facts giving rise to the present reference are as follow:-

The assessee's father late Shri Sripal Chaurasia during his life time was running a beetle shop and had also been selling cigarettes and cold drinks. Since the accounting period corresponding to the assessment year 1970-71 upto the assessment year 1972-73, the applicant was assessed at Rs.5,000/- for 1970-71, Rs.6,000/- for 1971-72 and Rs.7,500/- for 1972-73. No books of account were maintained by the assessee. In February, 1972, he was married to one Smt. Vijay Laxmi. He filed his returns of income for the assessment years 1971-72 to 1974-75 simultaneously declaring the income of Rs.6,200/- for the assessment year 1972-73, Rs.6,282/- for the assessment year 1973-74 and Rs.6,446/- for the assessment year 1974-75. Original assessment in respect of the assessment years in question were completed on 6.2.1975 at Rs.7,500/- for the assessment year 1972-73, Rs.8,500/- for the assessment year 1973-74 and Rs.9,000/- for the assessment year 1974-75. Returns for the assessment years 1975-76 and 1976-77 were filed by the assessee on 31.7.1976 and 22.7.1976 respectively declaring the income of Rs.8,500/- for the assessment year 1975-76 and Rs.9,000/- for the assessment year 1976-77.

More or less simultaneously in July, 1976, the return of income were filed in the name of the assessee's wife, Smt. Vijay Laxmi, also declaring the income from the cold drinks business at Rs.5,500/- for the assessment year 1973-74, Rs.6,000/- for the assessment year 1974-75, Rs.6,500/- for the assessment year 1975-76 and Rs.7,500/- for the assessment year 1976-77. It was also declared that she had bank account wherein the following deposits had been made in the accounting period corresponding to the assessment years 1974-75 to 1976-77 :-

Assessment Year Deposits Made

1974-75 Rs.500/-

1975-76 Rs.1,300/-

1976-77 Rs.4,618/-

A little later, i.e., on or about 15.9.1976, the assessee filed his revised returns for the assessment years 1974-75, 1975-76 and 1976-77 showing income at Rs.21,546/-, Rs.45,690/- and Rs.15,500/- respectively. The aforesaid revised returns included income from unexplained investment in the bank account and F.D.Rs. etc. to the following extent:-

Assessment year Deposit in Bank F.D.Rs. Total

1974-75 Rs.14,200/- - Rs.14,200/-

1975-76 Rs.15,040/- Rs.21,550/- Rs.36,590/-

1976-77 - Rs.6,500/- Rs.6,500/-

The assessee's plea in respect of the aforesaid assessment years was that he had stopped doing cold drinks business and that the said business was being done by his wife Smt. Vijai Laxmi and as such the income from the cold drinks business was not included in his return and that the same was part of the returns filed in the name of his wife. As regards unexplained investments, he pleaded that they represented funds left by his late father but of which he had no evidence and so the same were offered for assessment. The Income Tax Officer examined the various claims of the assessee and found that the contention about the business carried by his wife since 1973-74 was not worthy of credence. The Tribunal after examining the material on record, found that the assessee's contention that the business of cold drinks was done by the assessee's wife from the assessment year 1973-74 was not worthy of credence.  

In paragraph 19 of its order, the Tribunal observed as under:-

"19. After carefully examining the facts on record and the orders of the authorities below and apprising the rival submissions, we feel that so far as the finding of the learned A.A.C. that the business of cold drinks in fact belongs to the assessee is concerned, it is in our opinion correct. Shri Raj Kumar Chaurasia has admittedly been doing the cold drinks business which is now being claimed as belonging to his wife for the assessment years 1970-71 to 1972-73. The story that soon after his marriage with Smt. Vijai Laxmi, she of her own decided to start cold drinks business and that for that business she went to the extent of borrowing funds from a stranger being her neighbour behind the back of her husband does not conform to the hard facts of life as indicated by the social and cultural ethos and norms as of conservative middle class Hindu families. The mere fact that the lady has said so that the husband says so and that Shri O.P.Gupta has also stated similarly would not see that averment is correct. We have to value the credit worthiness of the evidence on the test of probabilities of human conduct and when we do so we find the evidence to be totally not worthy to evidence and even contradictory to each other. The assessee has been doing business of cold drinks and apparently, therefore, his wife could not have taken up his business without his knowledge, where was then the occasion for the wife to approach the neighbour within a month of her marriage with a view to obtain finances without the knowledge of her husband. Moreover, why should she do so? There was hardly any opposition from the husband for permitting her to do the business. In fact, his own business is being turned over to her. Then where was the occasion for the alleged behind the back deal between the newly married lady and the neighbour? The authorities below have rightly discarded such an improbable story. Besides, as the inspection revealed the assessee was looking after the business in question. He has been looking after it earlier and he has been looking after the said business during the accounting period under consideration also. In fact, nothing changed after marriage, except the thought that it occurred to the assessee that he may perhaps get away with the splitting of his business income upto 6th of February, 1975, when he was assessed for the assessment years 1972-73 to 1974-75, the assessee did not take the plea that he was not doing the cold drink business rather the combined assessment order specifically mentions that the assessee was doing cold drinks business. In view of these hard facts, it is not possible for us to believe that the assessee's wife started doing as independent business after February 1974. The quantum of income from cold drinks business was confirmed by the Tribunal to be as below:-

1973-74 Rs.6,500/-

1974-75 Rs.8,000/-

1975-76 Rs.9,000/-

1976-77 Rs.10,500/-

The I.T.O. imposed penalties on the assessee for concealment of income in the setting of the aforesaid findings of the Tribunal. On first appeal against the aforesaid orders of the I.T.O. the First Appellate Authority, the penalties in question were deleted by the learned A.A.C. for assessment year 1973-74 and by the learned Commissioner of Income Tax (Appeals) for the later years. While deleting the penalty the A.A.C. omitted to take note of the order of the Tribunal in quantum appeals though he passed the impugned order subsequently. He referred to the order of the Commissioner of Income Tax (Appeals) and on that basis deleted the addition by observing, inter alia, as below:-

"So far as the investment in cold drink business and the income therefrom is concerned I find that both the issues are inter-related. In assessment years 1974-75 to 1976-77, the I.T.O. had imposed penalty of concealment with reference to the income from cold drink business being run in the benami name of the appellant's wife, but the same was deleted by the Commissioner of Income Tax (Appeals) vide his order dated 10.2.1982 observing that the question of inclusion of income from cold drink shop is highly debatable so far as the penalties are concerned. It was further observed that full facts in this regard were revealed before the department when the wife of the assessee filed return showing income from that source. In view of these findings of the learned Commissioner of Income Tax (Appeals) I hereby cancel the penalty in regard to unexplained deposits in the bank account. Accordingly, the penalty of Rs.20,000/- imposed by I.T.O. u/s 271(1)(c) is hereby cancelled."

It would be interesting to note that the order of the Commissioner of Income Tax (Appeals) to which is being made by the learned A.A.C. as above and on which he places reliance, had in the meanwhile been set aside by the Tribunal vide its order in I.T.A. Nos.823, 824, 825 (Alld) of 1982 dated 23.6.1984 and the Commissioner of Income Tax (Appeals) had not passed fresh order in accordance with the direction of the Tribunal.

In his revised order dated 18th January 1987 for assessment year 1974-75 & 76-77 the Commissioner of Income Tax (Appeals) again cancelled the penalties imposed by the I.T.O. He held that the assessee's case was covered by the explanation to section 271(1)(c) and as such the initial burden was on the assessee to explain that the difference between the returned income and the assessed income did not represent the assessee's concealed income. He, however, held that the assessee had discharged the said burden both with regard to the various deposits which were treated as an unexplained investment in his hands and as regards the income from cold drinks business. Reference was made in this connection to the affidavit of the assessee's mother in support of his contention that his father had left monies. As regards the cold drink business the reason given was that the issue was debatable.

Against the order of the Appellate Assistant Commissioner and the Commissioner of Income Tax (Appeals), the Revenue preferred separate appeals before the Tribunal. The Tribunal upheld the action of the Assessing Authority in imposing penalty under Section 271(1)(c) of the Act. However, on the quantum of penalty, it directed the Income Tax Officer to reduce the penalty proportionately on the basis of final assessment which may have ultimately been made.

In paragraph 23 of the Tribunal's order the following finding has been recorded:-

"23. The first appellate authorities have unfortunately closed their eyes towards the aforesaid eloquent finding of the Tribunal and have merely brushed aside the aforesaid analysis by observing that the matter was debatable. Where is the debate after the evidence has been appraised as above by the final fact finding authority ? With the above appraisal, we still concur in penalty proceedings. For there is nothing by way of penalty proceedings. For there is nothing by way of additional evidence so far as the reappraisal of the same evidence in penalty proceedings is concerned, we again see no justification to record a contrary finding. This being so, we are unable to accept the finding given by the first appellate authorities that the assessee has not concealed income of cold drink business, which was attempted to be passed off in the name of his wife. In fact, we find the facts of the present case more or less akin to the facts of the case in D.M.Manasvi v. C.I.T. (86 I.T.R. 557). There too a business was being done in somebody else's name and the issue was contested all along, and ultimately the Tribunal had given the finding that the business belonged to the assessee, and on this basis penalty was imposed on the assessee, which was upheld by their Lordships of the Supreme Court."

We have heard Sri Krishna Agrawal, learned counsel for the applicant, and Sri R.K.Upadhaya, learned Standing Counsel appearing for the Revenue.

The learned counsel for the applicant submitted that the applicant had stopped doing cold drink business during the assessment years in question and that the said business was being done by his wife, Smt. Vijai Laxmi and as such the income from the cold drink business was not included in his return. However, the said income was disclosed by his wife in her return. There was no gross or wilful neglect on his part to disclose the income which had been added by the Assessing Authority and finally upheld by the Tribunal. In respect of unexplained investment, it was submitted that they represented the funds left by his late father for which he had no evidence and as such the same was offered for assessment. The entire facts establishes that it was a case where the applicant was not guilty of concealment or of furnishing inaccurate particulars of income and, therefore, no penalty under Section 271(1)(c) of the Act was warranted. He further submitted that the Income Tax Officer had not recorded any independent finding in the penalty proceeding, apart from relying upon the findings recorded in the assessment proceeding, which is not sufficient for levy of penalty.  Further, no penalty could be levied on the income of the cold drink business which was done by his wife. He further submitted that the Tribunal was not justified in sustaining the penalty without disturbing the finding of the Commissioner of Income Tax (Appeals) to the effect that the difference between assessed income and returned income did not arise due to fraud or gross or wilful neglect on his part. In support of his aforesaid pleas, he has relied upon the following decisions:-

(i) Commissioner of Income Tax, Madras v. Khoday Eswarsa and Sons (1972) 83 ITR 369 (SC);

(ii) Anantharam Veerasinghaiah & Co. v. Commissioner of Income Tax, A.P. (1980) 123 ITR 457 (SC)

(iii) Banaras Textorium v. Commissioner of Income Tax (1988) 169 ITR 782 (Alld).

Sri R.K.Upadhaya, learned Standing Counsel, on the other hand, submitted that the Tribunal which is the last fact finding authority in the quantum appeal has held that the cold drink business which was alleged to be carried in the name of the applicant's wife, Smt. Vijai Laxmi, belonged to the applicant and consequently the income of cold drink business carried on in her name was added to the applicant's income. The applicant had not brought any fresh material on record to show that the conclusion arrived at by the Tribunal in the quantum appeal was factually incorrect nor any doubt has been created on the said finding. He, thus, submitted that the Tribunal was justified in sustaining the penalty. He further submitted that in respect of the addition upheld by the Tribunal in the quantum appeal, the applicant had not furnished any other explanation except what was offered by him in the course of assessment/quantum proceeding and, therefore, the finding recorded by the authorities in the assessment/quantum proceeding can be relied upon while levying penalty. He further submitted that the finding of the Commissioner of Income Tax that the difference between the assessed income and returned income did not arise due to fraud or gross or wilful neglect on the part of the assessee, stood set aside when the Tribunal had held that the first appellate authority has closed his eyes towards the findings of the Tribunal by merely brushing aside the analysis done by the Tribunal by observing that the matter was debatable. The findings recorded by the Commissioner of Income Tax (Appeals) had specifically been set aside. He, thus, submitted that the Tribunal was justified in sustaining the penalty. In support of his aforesaid pleas, he has relied upon the following decisions:-

(i) Haji Abdul Rahman Abdul Qayum v. Commissioner of Income Tax, U.P. (1965) 56 ITR 172 (Alld.);

(ii) D.M.Manasvi v. Commissioner of Income Tax, Gujarat II (1972) 86 ITR 557(SC);

(iii) P.M.A.P. Ayyamperumal Nadar  v. Commissioner of Income Tax, Madras (1974) 97 ITR 161(Mad);

(iv) R.Srinivasan & Co. v. Commissioner of Income Tax, Madras (1974) 97 ITR 431(Mad);

(v) New Bijli Foundry v. Commissioner of Income Tax, Amritsar I (1982) 135 ITR 593 (P&H);

(vi) Commissioner of Income Tax v. Mussadilal Ram Bharose (1987) 165 ITR 14(SC).

We have given our anxious consideration to the various pleas raised by the learned counsel for the parties.

We find that it is not in dispute that the cold drink business carried on by the applicant in the name of his wife, Smt. Vijai Laxmi, has been finally held by the Tribunal, which is the last fact finding authority, to be the business carried on by the applicant and the income earned therefrom had been included in his income. The investments introduced by the applicant remained unexplained by the applicant and was offered by the applicant himself to be added in his income. In the penalty proceeding, apart from the explanation which was given by the applicant in the assessment proceeding, neither any fresh material nor any evidence has been placed before the authorities nor any other plausible explanation had been offered by him to show that there was no gross or wilful neglect on his part nor there was any fraud in not disclosing the correct income. In the circumstances, we are of the considered opinion that the findings recorded by the authorities in the assessment/quantum appeal become relevant and if the authorities have relied upon the finding recorded in the assessment proceeding, it cannot be said that the penalty proceeding are vitiated.

In the case of Khoday Eswarsa and Sons (supra) the Apex Court following its earlier decision in the case of Commissioner of Income Tax v. Anwar Ali, (1970) 76 ITR 696, has held that penalty proceedings being penal in character, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. Apart from the falsity of the explanation given by the assessee, the department must have before it, before levying penalty, cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is a revenue receipt. No doubt the original assessment proceedings, for computing the tax may be a good item of evidence in the penalty proceedings but the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment. The aforesaid case related to the assessment year 1955-56. It may be mentioned here that the provisions relating to imposition of penalty under Section 271(1)(c) of the Act has undergone a sea change after the decision of the Apex Court in the case of Anwar Ali  (supra) and Explanations have been added whereunder the onus to prove that the difference between the assessed income and the returned income has not been concealed, has been placed upon the assessee in certain circumstances. The present reference relates to the assessment years 1973-74 to 1976-77 when the Explanation was in force.

In the case of Anantharam Veerasinghaiah & Co. (supra) the Apex Court following its earlier decision in the case of Anwar Ali and Khoday Eswarsa and sons (supra) has held as follows:-

"It is now settled law that an order imposing a penalty is the result of quasi-criminal proceedings and that the burden lies on the revenue to establish that the disputed amount represents income and that the assessee has consciously concealed the particulars of his income or has deliberately furnished inaccurate particulars : CIT v. Anwar Ali [1970] 76 ITR 696 (SC). It is for the revenue to prove those ingredients before a penalty can be imposed. Since the burden of proof in a penalty proceeding varies from that involved in an assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted as a finding to that effect in the penalty proceeding. In the penalty proceeding the taxing authority is bound to consider the matter afresh on the material before it and, in the light of the burden to prove resting on the revenue, to ascertain whether a particular amount is a revenue receipt. No doubt, the fact that the assessment order contains a finding that the disputed amount represents income constitutes good evidence in the penalty proceeding but the finding in the assessment proceeding cannot be regarded as conclusive for the purposes of the penalty proceeding. That is how the law has been understood by this court in Anwar Ali's case [1970] 76 ITR 696 (SC), and we believe that to be the law still. It was also laid down that before a penalty can be imposed the entirety of the circumstances must be taken into account and must point to the conclusion that the disputed amount represents income and that the assessee has consciously concealed particulars of his income or deliberately furnished inaccurate particulars. The mere falsity of the explanation given by the assessee, it was observed, was insufficient without there being in addition cogent material or evidence from which the necessary conclusion attracting a penalty could be drawn. These principles were reiterated by this court in CIT v. Khoday Eswarsa and Sons [1972] 83 ITR 369."

It may be mentioned here that by Section 40 of the Finance Act, 1964 the word ''deliberately' occurring in clause (c) of Section 271(1) of the Act has been omitted and the following explanation was inserted at the end of sub-section (1):-

"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 under section 143 or section 144 or section 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 the 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 his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section."

           Prior to the aforesaid amendment made by the Finance Act, 1964 the Apex Court in the cases of Anwar Ali and Khoday Eswarsa & Sons (supra) has held that the burden is on the Department to prove that a particular amount is a revenue receipt.  It would be perfectly 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 and it cannot be said that the finding in the assessment proceedings for determining or computing the tax is conclusive. It is only a good evidence.  Before the penalty can be imposed the entirety of circumstances must reasonable point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.

However, with the incorporation of Explanation to Section 271(1) of the Act, the Apex Court has held in the cases of Mussadilal Ram Bharose (supra), Commissioner of Income Tax v. K.R. Sadayappan,  (1990) 185 ITR 49, Addl. Commissioner of Income Tax v. Jeevan Lal Shah, (1994) 205 ITR 244 and B.A.Balasubramaniam & Bros. Co. v. Commissioner of Income Tax, (1999) 236 ITR 977 that the view which had been taken earlier in Anwar Ali (supra) no longer holds the field and it is for the assessee to discharge the onus as contemplated in the said Explanation.

In the case of K.P.Madhusudhanan v. Commissioner of Income Tax, (2001) 251 ITR 99, the Apex Court has held that the Explanation to Section 271(1)(c) is a part of Section 271.  When the Assessing Officer or the Appellate Assistant Commissioner issues a notice under Section 271, he makes the assessee aware that the provisions thereof are to be used against him.  These provisions include the Explanation.  By virtue of the notice under Section 271 the assessee is put to notice that, if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, and, consequently be liable to the penalty under the section.  No express invocation of the Explanation to Section 271 in the notice under Section 271 is necessary before the provisions of the Explanation are applied.

In the case of Banaras Textorium (supra) this Court after referring to the earlier decisions of the Apex Court in the case of Anwar Ali, Khoday Eswarsa and Sons and Anantharam Veerasinghaiah & Co. (supra) has held that after the amendment made in Section 271(1)(c) of the Act by the Act No.V of 1964 wherein the word "deliberately" was omitted and an explanation was inserted at the end of sub-section (1) and two radical changes were brought about. This Court has held as follows :-

"With the omission of the word "deliberately", it was no longer necessary to establish that the act of concealment or furnishing of inaccurate particulars of such income was deliberate on the part of the assessee. The effect of the newly added Explanation is that for the purposes of levying penalty, two clear-cut divisions have been made, based on variation between the assessed income and returned income. The dividing line is the objective test whether the returned income is less than 80% of the assessed income or not, reduced by the expenditure incurred bona fide for the purposes of making or earning any income included in the total income, but which had been disallowed as a deduction. Cases where the returned income is more than 80 per cent. of the assessed income have been left out of the purview of the Explanation and they continue to be governed by the law as it existed prior to amendment in 1964. However, cases where the returned income is less than 80 per cent. of the assessed income would fall in the second category and are caught within the mischief of the Explanation. The burden of proof, in such cases, under the amended law, is shifted from the Revenue to the taxpayer. In such cases, as a result of fiction, the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income within the meaning of section 271(1)(c) unless he proves that the failure to return the correct income was not on account of fraud or any gross or wilful neglect on his part. Once the Explanation is held to be applicable, as pointed out by a Full Bench decision of the Punjab and Haryana High Court in Vishwakarma Industries v. CIT [1985] 135 ITR 652, three legal presumptions immediately arise, viz., (i) the amount of the assessed income is the correct income and it is, in fact, the income of the assessee himself, (ii) that the failure of the assessee to return the correct income was due to fraud, and (iii) or that the failure of the assessee to return the correct income assessed was due to gross or wilful neglect on his part. The presumptions raised by the Explanation are not conclusive presumptions. These are only rebuttable presumptions. If an assessee comes within the mischief of the Explanation, in order to get out of it, he must prove that the failure to return the correct income was not due to any of the factors, namely, fraud or gross or wilful neglect on his part. Once that initial burden is discharged, the assessee would be out of the mischief of the Explanation until and unless the Revenue is able to establish afresh that the assessee, in fact, had concealed his income or particulars thereof. In other words, if an assessee, on whom the initial burden is placed, fails to discharge the same, his case would fail and he would straightaway come within the mischief of the Explanation. If, however, the assessee discharges the initial burden the presumption stands rebutted and the burden shifts to the Revenue to establish that the assessee had concealed his income."

In the case of Haji Abdul Rahman Abdul Qayum (supra) this Court has held that a finding arrived at in assessment proceedings that a certain income was not disclosed in the return and that it was therefore undisclosed income is material sufficient to support a finding to be reached in penalty proceedings that income had been concealed, though such material is not conclusive and can be rebutted.

In the case of D.M.Manasvi (supra) the Apex Court has held that the plea that there was no relevant material and evidence before the Tribunal to hold that the assessee had deliberately concealed the particular of his income or deliberately furnished inaccurate particular of such income is equally bereft of force where the Tribunal has relied upon findings recorded in the order in appeal refusing registration to the firm.

In the case of P.M.A.P. Ayyamperumal Nadar  (supra) the Madras High Court after referring to the decision of the Apex Court in the case of Anwar Ali and Khoday Eswarsa and Sons (supra), has held as follows:-

"We are not able to construe the said decisions as lying down that there should be fresh materials at the stage of the penalty proceedings to establish that there has been a deliberate concealment of income and that the materials gathered at the stage of assessment have to be altogether eschewed. It will be clear from the passage above extracted, that the original assessment proceeding is a good item of evidence in the penalty proceedings as well, but that the penalty cannot be levied solely on the basis of the finding given in the order of assessment. Therefore, the materials gathered at the stage of the assessment proceedings cannot altogether be overlooked in the penalty proceedings. As a matter of fact it has been held, in a series of decisions, that the evidence gathered at the stage of the assessment proceedings are prima facie material in the penalty proceedings and that so long as the assessee has not adduced any evidence to disprove or rebut the said prima facie material at the stage of the penalty proceedings, those can be acted upon and a finding of concealment of income could be based thereon, if the materials are such as to warrant an inference of wilful non-disclosure."

In the case of R.Srinivasan & Co. (supra) the Madras High Court after referring to the decision of the Apex Court in the case of Anwar Ali and Khoday Eswarsa and Sons (supra), has held as follows:-

"It is true, the observations in the above decisions are to the effect that from the mere fact that the explanation of the assessee was found to be false in the assessment proceedings, it would not follow that the ingredients necessary for levying a penalty are established and that for the levy of penalty there should be material to establish that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars of the same."

It has further held as follows:-

"It is not as if the materials adduced at the assessment stage ceased to be any the less evidence at the stage of the penalty proceedings. It is true, a penalty order cannot be solely based on the reasons given in the original order of assessment. The authorities are expected to consider afresh all the materials available, either produced at the assessment stage or later in the penalty proceedings, without merely proceeding on the basis of the findings given earlier at the stage of assessment and if those materials reasonably point to the conclusion that the disputed amount represented income and that the assessee had deliberately concealed particulars of the same, the levy of penalty can be justified."

It was a case relating to the assessment year 1961-62 when the Explanation was not on the statute book.

In the case of New Bijli Foundry (supra) the Punjab & Haryana High Court has held that the findings recorded in the assessment proceedings are certainly relevant in the penalty proceedings.

In the case of Mussadilal Ram Bharose (supra) the Apex Court has held as follows:-

"Under the law as it stood prior to the amendment of 1964, the onus was on the Revenue to prove that the assessee had furnished inaccurate particulars or had concealed the income. Difficulties were found in proving the positive element required for concealment under the law prior to the amendment and this had to be established by the Revenue. To obviate that difficulty, the Explanation was added. The effect of the Explanation was that where the total income returned by any person was less than 80% of the total income assessed, the onus was on such person to prove that the failure to file the correct income did not arise from any fraud or any gross or wilful neglect on his part and unless be did so, he should be deemed to have concealed the particulars of his income or furnished inaccurate particulars, for the purpose of section 271(1). The position is that the moment the stipulated difference was there, the onus to prove that it was not the failure of the assessee or fraud of the assessee or neglect of the assessee that caused the difference shifted to the assessee but it has to be borne in mind that though the onus shifted, the onus that was shifted was rebuttable. If in an appropriate case, the Tribunal or the fact-finding body was satisfied by the evidence on the record and inference drawn from the record that the assessee was not guilty of fraud or any gross or wilful neglect and if the Revenue bad not adduced any further evidence, then, in such a case, the assessee cannot come within the mischief of the section and suffer the imposition of penalty. That is the effect of the provision."

From the aforesaid decisions, now it is well established that after the amendment made in Section 271 of the Act in the year 1964 in certain circumstances, the onus lays upon the assessee to prove that the difference between the assessed income and the returned income has not been concealed by him nor there has been any fraud or gross or wilful neglect on his part to give incorrect particulars of his income. It is not in dispute that in the present case the Explanation as inserted at the end of sub-section (1) of Section 271 of the Act is applicable. The applicant has not given any fresh explanation except what has been stated by him in the quantum/assessment proceeding. The Tribunal has relied upon its order in the quantum appeal and had come to the conclusion that the findings recorded by the Commissioner of Income Tax (Appeals) was not correct and had been set aside. The explanation given by the applicant have been proved to be false.  The findings of the Tribunal cannot be said to be based on irrelevant material or no material. The penalty has, therefore, been rightly upheld.

In view of the foregoing discussions, all the questions referred to us are answered in the affirmative, i.e., in favour of the Revenue and against the assessee. There shall be no order as to costs.

30.10.2006

vkp


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