Commissioner of Income Tax Vs Tezpur Roller and Flour Mills

Pathak, C.J.@mdashThis is an application u/s 256(2) of the Income Tax Act, 1961, hereinafter referred to as "the Act".

2. The Commissioner of Income Tax has filed this application, which arises out of the judgment and order of the Income Tax Appellate Tribunal, Gauhati Bench, dated December 7, 1972, in I.T.A. No. 163 of 1970-71.

3. The assessee is a registered firm running a flour mill. The Income Tax Officer on examination of the books of account of the assessee found a sum of Rs. 25,000, credited on September 13, 1962, to the account of Khubrarn Mansing of 36, Ezra Street, Calcutta. The assessee was asked to prove that the credit in favour of M/s. Khubram Mansing was genuine. No evidence was produced except an undated receipt from the party which purported to state that the sum in question was advanced by the creditor and received back by it. The Income Tax Officer rejected that explanation and stated that he had evidence that the loan standing in the creditor''s name was not genuine. Accordingly, the Income Tax Officer included the sum of Rs. 25,000 as income of the assessee under the head "Other sources" and made the assessment. The assessee preferred an appeal before the Appellate Assistant Commissioner who upheld the addition.

4. The Income Tax Officer during the assessment proceeding initiated penalty proceeding u/s 271(1)(c) of the Act and the matter was referred to the Inspecting Assistant Commissioner. After hearing the parties the Inspecting Assistant Commissioner came to the conclusion that the assessee had concealed its income in the shape of Rs. 25,000 and had shown it as a bogus credit. He, therefore, levied a penalty of Rs. 20,000, by his order dated February 24, 1970.

5. The assessee filed appeals before the Income Tax Appellate Tribunal both against the order of the Appellate Assistant Commissioner confirming the addition of Rs. 25,000, as well as the order of the Inspecting Assistant Commissioner levying a penalty of Rs. 20,000. Both the appeals were heard together and by a common order the Tribunal held that the assessee had failed to prove that the credit was genuine. That it was the duty of the assessee to establish that the credit was genuine and the assessee having failed therein, the Tribunal was of the opinion that the onus of proving the genuineness of the credit was not discharged by the assessee and, therefore, the assessment by adding a sum of Rs. 25,000 was upheld. Regarding the penalty, the Tribunal found that the department has not been able to establish that the assessee had concealed the income. The Tribunal further observed that merely because the explanation given by the assessee was not acceptable and the evidence given by it was not enough to prove the genuineness of the credit, it could not be held that a case of concealment was made out. The Tribunal also found that there was no evidence led by the department to prove that the assessee had concealed its income.

6. On an application u/s 256(1) of the Act, the Tribunal observed that since the order was passed on the facts that there was no material to prove the concealment from the side of the department, the matter was clearly decided as a question of fact and no question of law arose. Thus, the Tribunal declined to refer the proposed question of law. Hence, the present petition.

7. The question of law on which the Commissioner of Income Tax prays for calling for a statement of case from the Tribunal is as under :

"Whether, on the facts and circumstances of the case, the Tribunal is right in cancelling the order of the Inspecting Assistant Commissioner levying penalty of Rs. 20,000 only levied u/s 271(1)(c) of the Income Tax Act, 1961 ?"

8. In the instant case, the assessee credited a sum of Rs. 25,000 in its books of account in the name of M/s. Khubram Mansing. During the assessment proceeding the assessee was asked to prove the genuineness of this credit in the name of M/s. Khubram Mansing. The assessee produced a receipt which was disbelieved by the Income Tax Officer and, therefore, a sum of Rs. 25,000 was added as income of the assessee. There is no additional evidence except the rejection of the explanation given by the assessee in the instant case to make out a case for penalty u/s 271(1)(c) of the Act. The Tribunal has clearly found that except the rejection of the explanation given by the assessee, there is no further material on the side of the department to establish a case against the assessee in respect of the sum of Rs. 25,000 and relying on that finding of fact arrived at by itself, the Tribunal has refused to refer the question of law.

9. In this connection, it would be apposite to refer to the decision of the Supreme Court in Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, wherein the following passages occur at pages 700-01 :

"The first point which falls for determination is whether the imposition of penalty is in the nature of a penal provision. The determination of the question of burden of proof will depend largely on the penalty proceedings being penal in nature or being merely meant for imposition of an additional tax, the liability to pay such tax having been designated as penalty u/s 28. One line of argument which has prevailed particularly with the Allahabad High Court in LAL CHAND GOPAL DAS Vs. COMMISSIONER OF Income Tax, U.P. AND V.P., is that there was no essential difference between tax and penalty because the liability for the payment of both was imposed as a part of the machinery of assessment and the penalty was merely an additional tax imposed in certain circumstances on account of the assessee''s conduct. The justification of this view was founded on certain observations in C.A. Abraham, Uppoottil, Kottayam Vs. The Income Tax Officer, Kottayam and Another, . It is true that penalty proceedings u/s 28 are included in the expression ''assessment'' and the true nature of penalty has been held to be additional tax. Bat one of the principal objects in enacting Section 28 is to provide a deterrent against recurrence of default on the part of the assessee. The Section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest. It is significant that in C. A. Abraham''s case this court was not called upon to determine whether penalty proceedings were penal or of quasi-penal nature and the observations made with regard to penalty being an additional tax were made in a different context and for a different purpose. It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings Hindustan Steel Ltd. Vs. State of Orissa, In England also it has never been doubted that such proceedings are penal in character : Fattorini (Thomas) (Lancashire) Ltd. v. Inland Revenue Commissioners, [1943] 11 ITR 50 .

The next question is that when proceedings u/s 28 are penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable to payment of penalty. As has been rightly observed by Chagla C.J. in Commissioner of Income Tax, Ahmedabad Vs. Gokuldas Harivallabhdas, the gist of the offence u/s 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and, therefore, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income.

Another point is whether a finding given in the assessment proceedings that a particular receipt is income after rejecting the explanation given by the assessee as false would, prima facie, be sufficient for establishing, in proceedings u/s 28, that the disputed''amount was the assessee''s income. It must be remembered that the proceedings u/s 28 are of a penal nature and the burden is on the department to prove that a particular amount is 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. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably 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."

10. It may be observed here that Section 28(1)(c) of the Indian Income Tax Act, 1922, corresponds to Section 271(1)(c) of the Income Tax Act, 1961.

11. In The Commissioner of Income Tax Madras Vs. Khoday Eswarsa and Sons, the Supreme Court after quoting from Anwar Ali''s case, as quoted herein-above, has observed as follows :

"From the above it is clear 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."

12. In the instant case, it is found and the Tribunal also has found that, except that the explanation regarding the entry of a sum of Rs. 25,000 in the books of account in the name of M/s. Khubram Mansing was rejected by the Income Tax Officer, there is no additional evidence to establish that the amount in question was a revenue receipt and that there was conscious concealment of the particulars of the income or deliberate furnishing of inaccurate particulars in respect of the sum of Rs. 25,000. It is correct, as observed by the Supreme Court, that this may be a good item of evidence in the penalty proceedings but the penalty cannot be levied solely on the basis of the reason that the assessee failed to explain the entry in question. In the instant case, the Tribunal has observed that there was no further evidence to sustain the penalty except the rejection of the explanation given by the assessee. That being so, and in view of the clear observations of the Supreme Court, as quoted hereinabove, the proposed question of law is concluded by finding of facts. We, therefore, find that no question of law as proposed arises out of the order of the Tribunal.

13. In the result, the petition is dismissed. There will be no order as to costs.

B.N. Sarma, J.

14. I agree.