JUDGMENT
1. The Income-tax Appellate Tribunal, Allahabad, has referred the following question of law under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for opinion to this Court:
2. At the instance of the assessee : 2 Whether, on the facts and in the circumstances of the case, the Tribunal was justified in dismissing the appeal filed by the assessee against the order passed under Section 271(l)(c) by the Departmental authorities ?
3. At the instance of the Revenue:
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalty under Section 271(l)(c) of the Income-tax Act, 1961 ?
4. The reference relates to the year 1983-84 in respect of the penalty proceedings initiated under Section 271(1)(a) and 271(1)(c) of the Act.
5. Briefly stated the facts giving rise to the present reference are as follows.
6. The assessee deals in trading of silk yarn. During search and seizure 6 operations under Section 132(1) of the Income-tax Act, 1961, at the residential premises of Shri Jagdamba Prasad Tulsiyan, brother of a lady partner of the firm, two challans Nos. Y/16 and Y/17 both dated August 23, 1982, and both being in the name of the assessee were found and seized. After making inquiries from Bihar Mercantile Union from whom purchases were made through the abovementioned two challans unexplained capital of Rs. 93,000 and undisclosed profit amounting to Rs. 55,000 were added to the total income of the assessee. Penalty proceedings under Section 271(l)(c) were also initiated. In the quantum appeal, the learned first appellate authority upheld the addition of Rs. 93,000 but reduced the addition from Rs. 50,000 to Rs. 33,000 on account of undisclosed profit.
7. The Assessing Officer imposed penalty of Rs. 75,000. Aggrieved with the 7 order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The learned first appellate court upheld the imposition of penalty, but reduced it to Rs. 77,500 in round figure.
8. Aggrieved with the order of the Commissioner of Income-tax (Appeals) 8 the assessee preferred an appeal before the Tribunal, which for the reasons given in the order, cancelled the penalty levied under Section 271(l)(c) of the Act. While cancelling the penalty, the Tribunal relied upon the decision of the hon'ble Allahabad High Court in the case of CIT v. Hari Ram Sri Ram , which was based on the decision of the hon'ble Supreme Court in the case of Anantharam Veerasinghaiah and Co. v. CIT . In the setting of the circumstances mentioned above, the departmental reference under Section 256(1) is accepted and the question reframed as above is hereby referred to the hon'ble High Court of Judicature at Allahabad.
9. So far as the imposition of penalty under Section 271(1)(a) of the Act is concerned the facts are as follows:
10. In R.A. No. 162 (Alld)/1993, briefly the facts are that the income-tax return filed by the assessee showed income less than Rs. 15,000 which according to the assessee, was below the taxable limit for unregistered firm. However, the total income assessed by the Assessing Officer was much above the taxable limit and the same stood at the figure returned by the assessee plus unexplained capital of Rs. 93,000 and undisclosed profit of Rs. 33,000. The assessee's contention before the departmental authorities was that the additions which converted the non-taxable income as taxable cannot bring the assessee's case within the purview of Section 271(l)(a), because there was reasonable cause preventing the assessee from filing the return in time. The Departmental authorities held that this was a search and seizure case where the unexplained capital and extra profit earned by the assessee had not been correctly disclosed and which could be added only after incriminating documents were recovered from the assessee's premises as a result of search and seizure operations. In this view of the matter, the Departmental authorities held that the assessee could not be said to be prevented from reasonable cause from filing the return in time. The assessee's contentions to the contrary were not accepted by the Departmental authorities and the Tribunal for the reasons given concurred with the view of the Departmental authorities. The Tribunal also held that the criteria laid down by the Legislature under Section 271(l)(a) are not the same as for levy of penalty under Section 271(l)(a). The Tribunal has recorded that there was delay in the return having been filed by the assessee, that there was no application for extension for filing of the income-tax return beyond time and the Tribunal also held that the income finally arrived at by the Assessing Officer was definitely taxable and the assessee's own return could not come to the rescue of the assessee at the time of levy of penalty under Section 271(l)(a) of the Income-tax Act, 1961.
11. Even though notice has been served upon the applicant to engage 11 another counsel, nobody has appeared and, therefore, the question referred at the instance of the assessee is returned unanswered.
12. Now coming to the question of law, which has been referred at the 12 instance of the Revenue, we find that in the order passed by the Income-tax Officer under Section 271(l)(c) of the Act, a clear finding has been recorded that the assessee has furnished inaccurate particulars by concealing income as purchases were being made outside the books of account in a well planned manner in which Shri P. K. Saragoi, the husband of the applicant, Smt. Santosh Saragoi, was actively involved and another person, namely, Shri Jagdamba Prasad Tulsiyan, who was also a member of the alleged racket, became the manager of the said firm after its reconstitution for the accounting year 1984-85 and onwards. The Tribunal has deleted the penalty only on the ground that the element of mens rea was not established in this case and relied upon a decision of this Court in the case of CIT v. Hari Ram Sri Ram which was based on the decision of the hon'ble apex court in the case of Anantharam Veerasinghaiah and Co. v. CIT .
13. Shri A. N. Mahajan, learned standing counsel appearing for the 13 Revenue, submitted that after the insertion of Explanation 1 to Section 271(l)(c) vide the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, the element of "mens rea" need not require to be proved at all. It is enough if the explanation offered by the assessee is either found to be false or is unsubstantiated, then the income, which has been added is deemed to have been concealed by such a person. He further submitted that the decision relied upon by the Tribunal are all relatable to the period before April 1, 1976, when the Explanation offered was under Section 271(l)(c) of the Act prior to 1976, and the principles laid down in the case of CIT v. Anwar Ali was attracted. However, the present case relates to the assessment year 1983-84 when the Explanation had been substituted in 1976, which contains the deeming provision and the element of mens rea has been dispensed with.
14. Having given our anxious consideration to the contention raised by 14 Shri Mahajan, we find that after the insertion of Explanation 1 to Section 271(l)(c) of the Act by the Taxation Laws (Amendment) Act, 1975, if the explanation offered by the assessee regarding the additions is either found to be false and remained unsubstantiated, the additions so made are deemed to be the concealed income, and therefore, the penalty provisions are attracted. The decision relied upon by the Tribunal relates to the assessment years prior to April 1, 1976, when the present Explanation was not in the statute book, and, therefore, they are not applicable in the present case. We are therefore, of the considered opinion that the Tribunal has completely misdirected itself in cancelling the penalty.
15. We, accordingly, answer the question referred at the instance of the Revenue in the negative, that is, in favour of the Revenue and against the assessee.
16. There shall be no order as to costs.