B.M. Lal, J.@mdashThis is a reference made by the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") at the instance of the assessee u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act "), for answering the following questions:
"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was the owner of the watches and thus including the value thereof in the assessment of the assessee ?
(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Department had discharged its burden for establishing concealment of income by the assessee for the year under consideration and thus confirming the penalty of Rs. 90,000 levied by the Inspecting Assistant Commissioner of income tax?"
2. This reference arises out of assessment of income for the assessee for the year 1974-75.
3. The facts leading to this reference are as under : On July 9, 1974, the assessee submitted his return of income for the assessment year 1974-75 showing a total income of Rs. 3,113 in response to a notice under, Section 143(2) of the Act. The assessee, according to the return, derived income from two stores, viz., M/s. Mohannani Fancy General Stores, Durg, and M/s. Roopkala General Stores, Durg. However, a case was registered against the assessee for undisclosed income u/s 271(1)(c) on the following facts. On May 12, 1973, a raiding party of the Central Excise Department first went to M/s. Roopkala General Stores, Durg, and made certain inquiries about the assessee. There, the raiding party found the assessee''s son, Sanjay, who took the party to the house of the assessee, Chuhadmal, who was found present. Thereafter, the assessee himself took the raiding party to his bedroom and handed over the key of the suitcase and almirah. On making a search of the suitcase which was lying under a cot of the assessee, 126 wrist watches of foreign make were found. On making further search, 362 more wrist watches of foreign make were found from a secret compartment of a steel almirah and 77 wrist watches were found by unfolding a waste paper bundle lying behind the almirah. A total of 565 wrist watches of foreign make were found. They were valued at Rs. 87,455, approximately at Rs 154 each. These watches were seized from the residential house of the assessee for which he was charge-sheeted u/s 112(b) of the Sea Customs Act, 1878, and he was sentenced to pay a penalty of Rs, 2 lakhs.
4. It is not disputed that the raiding party after making their search entered into the bedroom of the assessee on May 12, 1973, and after seizing the watches at about 10-30 a.m., a panchnama was prepared.
5. The Department found that the assessee was the owner of the wrist watches and he failed to disclose the value of the watches, i.e., the income thereof in the return. Further, it was found that the Department has discharged the burden of proof by establishing the concealment of income by the assessee for the assessment year 1974-75 and as such a penalty of Rs. 90,000 was imposed. The assessee went in appeal unsuccessfully up to the Tribunal and thereafter the present reference at his instance.
6. Learned counsel appearing for the assessee submitted that the assessee was not the owner of the wrist watches and, therefore, inclusion of the value of the watches in the return did not arise. He also submitted that the Department has not discharged the burden of proof establishing the concealment of income by the assessee and, therefore, he submitted that the imposition of penalty to the tune of Rs. 90,000 by the Inspecting Assistant Commissioner of Income Tax, does not arise.
7. The Department has relied upon the evidence led by the Central Excise Department in the case wherein the assessee was found guilty u/s 112(b) of the Sea Customs Act and a penalty of Rs. 2 lakhs Was imposed on him. In view of the provisions of Section 110 of the Evidence Act, if the assessee is found in possession of the wrist watches and is shown to be the owner, his ownership is presumed until the ownership of some other person is proved. The burden of proving ownership lies on the assessee until the contrary is proved by him. The assessee has not taken any step to disprove the fact that at the relevant time the wrist watches were not seized from his possession. On the other hand, when he himself led the raiding party to his bedroom and gave them the key of the steel almirah and the suitcase and at his instance, the raiding party had seized the wrist watches in question worth Rs. 87,455, then certainly in view of these facts, the onus of proof did He squarely on the assessee to explain the circumstances in which he came to be in possession of the wrist watches. Therefore, the principle that possession follows title comes into play in view of the provisions of Section 110 of the Evidence Act and when there is no definite evidence to the contrary led by the assessee to discharge the onus. This proposition finds place in
8. Further, Section 69A was inserted in the Act by the Finance Act, 1964, and it came into force from April 1, 1964. The assessee in the instant case was found to be in possession of the wrist watches worth Rs. 87,455 in the course of a search of his bedroom in the assessment year 1974-75, when the provisions of Section 69A of the Act were in force. No doubt, the word "income" as used in Section 69A of the Act has a wide meaning and the same is adopted to mean anything which arises or comes in or results in gain. The provisions of Section 69A of the Act deal with what are supposed to be receipts represented by cash credits or investment in property and such an income is taxable under the Act and hence, if the wrist watches were seized from the possession of the assessee and confiscated by the Customs Department and the explanation of the assessee was found untrue, then the legitimate inference would be against the assessee that he had income which he invested in purchasing the said wrist watches and, therefore, it cannot be said that the said investment was not assessable to Income Tax.
9. Thus, in our opinion, the Tribunal was justified in holding that the assessee was the owner of the wrist watches and thus including the value thereof in the assessment of the income of the assessee as the value of the wrist watches was deemed to be the income of the assessee because of the fiction created by Section 69A of the Act coupled with the other surrounding circumstances and the evidence appearing against him specially when the explanation of the assessee disowning the ownership of the wrist watches was found unsatisfactory. Therefore, we are of the view that the Department was justified in including the investment of the money in purchasing the said wrist watches, i.e., Rs. 87,455, in the assessment of the income of the assessee for the assessment year in question.
10. Now, as far as the second question relating to the discharging of burden of proof by the Department relating to the concealment of income by the assessee in the return in question and confirmation of the penalty of Rs. 90,000 imposed on the assessee is concerned, the Explanation to Section 271(1)(c) of the Act inserted by the Finance Act, 1964, with effect from April 1, 1964, which runs thus :
"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 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. "
is very emphatic and the facts found by the Department that for the assessment year 1974-75, the assessee had shown a total income of Rs. 3,113 in his return in response to the notice u/s 143(2) of the Act and, subsequently, the raiding party seized wrist watches from his possession worth Rs. 87,455 attract the Explanation as the assessee was assessed on the income of Rs. 3,113 (as shown by him in the return filed by him) plus Rs. 87,455 (cost of the wrist watches which were seized from his possession). Thus, the total assessable income of the assessee came to Rs. 90,568 whereas the return furnished by the assessee was for Rs. 3,113 only which is less than 80% of the total income assessed and, therefore, according to the Explanation, the Department has discharged the burden of proof shifting the same upon the assessee to disprove the concealment of income. In
11. The aforesaid Explanation to Section 271(1)(c) was substituted by four Explanations by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976. This amendment has got prospective effect. The present case relates to the assessment year 1974-75 in which year the said Explanation, inserted by the Finance Act, 1964, was in force.
12. No doubt, the proceedings u/s 271 of the Act in their very nature are penal proceedings and the elementary principle of criminal jurisprudence that the burden of proving the guilt lies on the prosecution must also apply to these proceedings as well and, therefore, the initial burden of proving lies on the Department to prove that the return submitted by the assessee is false but as discussed above, the Explanation implicitly exonerates the Department from the burden to prove.
13. We have already reached the conclusion that the assessee had not explained the ownership of the wrist watches and hence applying the proposition of Section 110 of the Evidence Act, holding the assessee as the owner of the wrist watches, the value thereof has to be treated as the income of the assessee and hence the provisions of Section 271(1)(c) of the Act are attracted that the assessee concealed the particulars of his income pertaining to the year 1974-75, as the return furnished by him did not show the value of the wrist watches except the total income of Rs. 3,113.
14. As far as the penalty part is concerned, as we have reached the conclusion that the penalty proceedings are penal in character and are quasi-criminal in nature, the burden of proof in view of the Explanation clause referred to above, was on the assessee which he failed to discharge. Despite several opportunities being afforded to him, he failed to avail of the same. On the other hand, by proving the copies of panchanama dated May 12, 1973, and by the statement of Amalchandradutt Chaudhary, Superintendent, Central Excise (annexure-B), Meghraj Makhij (annexure-E), and that of Shitaldas Permanand (annexure-F), it has been established that the assessee concealed income for the assessment year 1974-75 deliberately and as such has made himself liable to pay the penalty.
15. The quantum of penalty, as has been imposed on the assessee by the Department, cannot be said to be excessive as Rs. 90,000 as penalty is the minimum as against concealment of income of Rs. 87,455. The maximum penalty could be Rs. 1,74,910.
16. From the aforesaid discussion, we answer both the questions referred to us in the affirmative, in favour of the Department and against the assessee, as under:
The Tribunal was justified in holding that the assessee was the owner of the wrist watches and thus including the value thereof in the assessment of the assessee.
17. The Tribunal was justified in holding that the Department has discharged its burden in view of the Explanation clause to Section 271(1)(c) of the Act for establishing the concealment of income by the assessee in the assessment year under consideration and thus confirming the penalty of Rs. 90,000 levied by the Inspecting Assistant Commissioner of Income Tax.
18. Under the circumstances of the case, the parties are directed to bear their own costs as incurred.
