Smt. Kusum Jaiswal vs Cit

ORDER R.K. Agrawal, J.

The Income Tax Appellate Tribunal, Allahabad has referred the following questions of law under section 256(1) of the Income Tax Act, 1961, hereinafter referred to as the Act, for opinion to this court :

"1. Whether, on the facts and in the circumstances of the case, the order passed by the Income Tax Officer imposing penalty was illegal having been passed with the approval of the Inspecting Assistant Commissioner in terms of the proviso to section 271(1)(c)(iii) of Income Tax Act, 1961?

2. Whether, on the facts and in the circumstances of the case, the ITAT was legally correct in confirming the penalty on the ground of concealment of Rs. 15,000 under section 271(1)(c) of the Income Tax Act, 1961 when the Income Tax Officer and the CIT (A) had applied the provisions of Explanation to section 271(1)(c) of the above Act?"

2. Briefly stated the facts giving rise to the present reference are as follows :-

The applicant is a lady and has been assessed to income tax in the status of an individual. The present reference relates to the assessment year 1973-74 for which the relevant previous year ended on 31-3-1973. Originally the applicant had not filed her return of income prior to 27-2-1974. The Income Tax Department conducted a survey on 2-8-1973 which revealed that she had constructed a property in Block H-2-No. 292 in Kidwai Nagar, Kanpur. The Income Tax Officer on the basis of the report served a notice under sections 139(2) and 133 of the Act for the assessment year 1973-74. The notice was served upon the applicant on 18-1-1974. In response to the said notice she filed a return of income on 27-2-1974 declaring nilincome. However, in part C' of the return she had disclosed the ownership of the aforementioned property and also stated that it was completed by March, 1973 and was occupied by her on 1-4-1973. In part III of the return she also stated that her investment in the property amounted to Rs. 25,000 which was financed out of loans and gifts amounting to Rs. 29,690 consisting of Rs. 5,000 as gift from Sri Masuriadin, Rs. 17,000 being loan from Sri Harish Chandra, Sri Jagdish Chandra and Sri Ram Shariker and Rs. 7,690 being loan taken from M/s. Chandra Scrap Suppliers. The Income Tax Officer required the applicant to furnish the details of investment in the property and the proof relating to its cost of construction. She also filed a valuation report, according to which the investment in the construction of the property amounted to Rs. 50,058 during the year under reference. The applicant claimed that the valuation given by the Valuer, he had estimated the cost of construction of the property at an excessive amount and according to her the investment in the construction was only Rs. 35,000 and filed a revised return on 2-2-1976 declaring an income of Rs. 15,000 from other sources. In part III of the return she had disclosed that she had a sum of Rs. 4,726 out of home chest. The Income Tax Officer completed the assessment treating the investment in the construction at Rs. 50,028. He accepted the source to the extent of Rs. 22,690 and assessed the balance of Rs. 27,370 as her income. He also initiated penalty proceedings under section 271(1)(c) of the Act. The applicant in her reply submitted that she had disclosed an income of Rs. 15,000 in the revised return under advice and by way of co-operation with the assessing officer on the assurance that no penal action would be taken against her. It appears that the Income Tax Officer prepared a draft penalty order, which he had sent to the Inspecting Assistant Commissioner for approval. The draft order was returned with the observation that before submitting the draft order the Income Tax Officer had not afforded opportunity of hearing to the assessec. After giving the opportunity of hearing a fresh draft order was submitted in which it was stated by the Income Tax Officer that the penalty is being imposed treating the concealment at Rs. 20,370 only, whereas the penalty proceeding has been initiated on the basis of the concealed income which originally exceeded Rs. 25,000. The Inspecting Assistant Commissioner had accorded his approval for the levy of penalty of Rs. 20,370 as proposed by the IncomeTax Officer, which was finally imposed by the assessing officer. While levying the penalty the assessing officer had relied upon the Explanation to section 271(1)(c) of the Act, as it stood before its amendment by the Taxation Laws (Amendment) Act, 1975. The penalty has been upheld by the CIT (A). The Tribunal has upheld the order levying penalty but reduced it to Rs. 15,000. The Tribunal while doing so has held that the approval accorded by the Inspecting Assistant Commissioner can only be considered as instructions under section 119(3) of the Act.

3. We have heard Sri Vikram Gulati, learned counsel for the applicant and Sri A.N. Mahajan, learned standing counsel appearing for the revenue.

It may be mentioned here that it is not the case of the applicant that the penalty under section 271(1)(c) of Act has been imposed by the income Tax Officer on the directions/ dictates of the Inspecting Assistant Commissioner and he had not applied his independent mind or discretion in the case. It is not necessary for us to go into the question to whether the penalty order has been passed after getting approval from the Inspecting Assistant Commissioner or not inasmuch as we find that the Income Tax Officer while imposing the penalty had applied his own independent mind and discretion and the penalty order has not come into existence as consequence of any order or to give effect to any direction given by the Inspecting Assistant Commissioner. Thus, the question No. 1 referred to us is merely of academic nature and we do not think it necessary to answer the said question.

4. So far as the second question is concerned we find that the applicant had filed her initial return of income in response to the notice issued on 18-1-1974 under section 139(2) of the Act and she had filed it on 27-2-1974 declaring nil income.The construction of the property in question had already come to the knowledge of the department which necessitated the issuance of notice under section 139(2) of the Act. The applicant had revised her return only after she was confronted to explain the source of investment in the property. Thus, it is case where the applicant had filed the return of income deliberately giving inaccurate particulars of the property and had concealed her income. 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)

4. So far as the second question is concerned we find that the applicant had filed her initial return of income in response to the notice issued on 18-1-1974 under section 139(2) of the Act and she had filed it on 27-2-1974 declaring nil income.The construction of the property in question had already come to the knowledge of the department which necessitated the issuance of notice under section 139(2) of the Act. The applicant had revised her return only after she was confronted to explain the source of investment in the property. Thus, it is case where the applicant had filed the return of income deliberately giving inaccurate particulars of the property and had concealed her income. 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 CIT v. Anwar Ali (1970) 76 ITR 696 (SC) and CIT v. Khoday Eswarsa & Sons (1972) 83 ITR 369 (SC) 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 furnished inaccurate particulars.

5. However, with the incorporation of Explanation to section 271(1) of the Act, the Apex Court has held in the cases of CIT v. Mussadilal Ram Bharose (1987) 165 ITR 14; CIT v. KR. Sadayappan (1990) 185 ITR 49, Addl. CIT v. Jeevan Lal Sah (1994) 205 ITR 244; and B.A. Balasubramaniam Bros. & Co. v. CIT (1999) 236 ITR 977 that the view which had been taken earlier in Anwar Alis case (supra) no longer holds the field and it is for the assessee to discharge the onus as contemplated in the said Explanation.

6. In the case of K.P. Madhusudhanan v. CIT (2001) 251 ITR 994 (SC), 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.

7. Reliance placed by the learned counsel for the applicant on the following decisions :-

1. CIT v. S. Devendra Singh (1977) 108 ITR 314 (All.)

2. Addl. CIT v. Chatur Singh Taragi (1978) 111 ITR 849 (All.) is also misplaced.

8. In the case of S. Devendra Singh (supra), this court has held that the fact that the Explanation was applicable made no difference. it only raises a presumption which is rebuttable and shifts burden of proof from the department to the assessee. But when the question of concealment is decided on the evidence on record, the question of the burden of proof becomes immaterial. The presumption can be rebutted not only by direct evidence, but also by circumstantial evidence and where the Tribunal having come to the conclusion that the omission to include Rs. 2,400 in the return was accidental and was not due to any deliberate design, it could be safely presumed that the presumption raised by the Explanation stood rebutted.

9. In the case of Chatur Singh Taragi (supra), this court has held that merely because the explanation of the assessee is inaccurate or false is by itself no ground for holding that the charge of concealment had been proved. The additions made by the Income Tax Officer to the assessable income have been found by the Tribunal to be all by estimate based upon the fact that the books of account were not properly maintained and were not open to verification and there was no particular item of income which the assessee could be said to have omitted to include in its return and in view of the shortcomings in the accounts the additions were called for. The Tribunal had held that the charge of concealment could not be said to have been established where the Tribunal had found, having regard to the facts and circumstances of the case, the difference between the assessed and the returned income was not due to gross or wilful neglect on the part of the assessee as there was ample material for the finding of the Tribunal that the assessee was not guilty of gross or wilful oversight and the penalty was not exigible.

It may be mentioned here that the applicant cannot get any advantage or benefit of revised return filed by her inasmuch as the original return, which was filed, was neither under section 139(2) nor under section 139(1) but was a return filed under section 139(4) of the Act which could not have been revised as held by the Apex Court in the case of Kumar Jagdish Chandra Sinhav. CIT (1996) 220 ITR 67. Moreover, the concealment had already been detected by the Income Tax Officer at the time when the return declaring nil income was filed. Even otherwise, no benefit can be derived from the mere fact that the applicant had filed a revised return declaring her income at Rs. 15,000. Since Explanation to section 271(1) of the Act as inserted by the Finance Act, 1964 was clearly attracted, the onus was on the applicant to prove that there was no fraud or any gross or wilful neglect on her part and it was not deliberate. The applicant having failed to do so, the penalty had rightly been imposed.

10. In view of the foregoing discussion, we answer the question No. 2 referred to us in the affirmative, i.e., in favour of the revenue and against the assessee. However, the question No. 1 is returned unanswered. In the facts and circumstances of the case, there shall be no order as to costs.