COMMISSIONER OF INCOME-TAX v. HARI RAM SRI RAM — 1986 DIGILAW 789 (ALL)

R. R. MISRA, J. ( 1 ) THE Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following question of law for the opinion of this court: " Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in cancelling the penalty of Rs. 16,500 imposed by the Inspecting Assistant Commissioner under section 271 (1) (c)?" ( 2 ) THE assessee is a Hindu undivided family. For the assessment year 1964-65, it derived income from business in foodgrains, cement and cloth. It had filed a return of income of Rs. 17,122. The income-tax Officer completed the assessment under Section 143 (3) of the Income-tax Act, 1961, hereinafter referred to as "the Act". Subsequently, however, the Income-tax Officer received information that the assessee had received various bank drafts in the names of its employees and one member of the Hindu undivided family, namely, Sri Ram, amounting to Rs. 1,07,733 and did not record the transactions in question in its account books. Consequently, he issued notice under section 148 of the Act for the assessment year 1964-65. In response to this notice, the assessee filed a return showing the same income of Rs. 17,122 as originally returned by it. The contention of the assessee before the Income-tax Officer was that the amount received by the employees of the Hindu undivided family and one of the members, in fact, belonged to Sri Ram, in his individual capacity, and the said amount did not belong to the Hindu undivided family. The income-tax Officer, however, did not believe the explanation furnished by the assessee-Hindu undivided family and by taking an initial investment made outside the books at Rs. 10,000 he calculated the profit on the same at Rs. 7,500 and thereby made an addition of Rs. 17,500 to the total income of the assessee-Hindu undivided family. ( 3 ) SINCE Sri Sriram had admitted before the Income-tax Officer that the amount of Rs. 1,07,733 belonged to him, in his individual capacity, and did not belong to the Hindu undivided family. The Income-tax Officer, acting on the basis of the aforesaid admission, also added the very same amount of Rs. 17,500 in the individual assessment of Sri Sriram. The result was that so far as the income-tax Officer was concerned, he had assessed Sri Sriram on the aforesaid amount of Rs. The Income-tax Officer, acting on the basis of the aforesaid admission, also added the very same amount of Rs. 17,500 in the individual assessment of Sri Sriram. The result was that so far as the income-tax Officer was concerned, he had assessed Sri Sriram on the aforesaid amount of Rs. 17,500 in his individual capacity and had also framed the assessment on the assessee-Hindu undivided family after including the said amount of Rs. 17,500. ( 4 ) THE assessee-Hindu undivided family filed an appeal before the Appellate Assistant commissioner of Income-tax against the inclusion of Rs. 17,500 in its assessment and, during the pendency of the appeal, agreed for the aforesaid addition of Rs. 17,500 being maintained in the appeal of the Hindu undivided family. Accordingly, acting on the same, the addition made in the individual assessment of Sri Sriram was deleted and the penalty proceedings in his individual case were also dropped by the Income-tax Officer. ( 5 ) THE Income-tax Officer had, however, while passing his order dated July 15, 1970, also issued a notice under Section 271 (1) (c) of the Income-tax Act to the assessee-Hindu undivided family for the alleged concealment of Rs. 17,500 and referred the matter to the Inspecting Assistant commissioner of Income-tax who, vide his order dated July 11, 1972, imposed a penalty of Rs. 16,500 on the assessee. ( 6 ) AGGRIEVED against the aforesaid order of imposition of penalty, the assessee preferred an appeal before the Income-tax Tribunal. The Income-tax Tribunal, however, on a consideration of the entire material on record deleted the penalty in question. The Commissioner of Income-tax filed a reference application and ultimately on a direction issued by the High Court, the Tribunal has referred the question stated above for the opinion of this court. ( 7 ) WE have heard Sri Bharatji Agarwal, learned standing counsel, appearing for the commissioner of Income-tax. ( 8 ) THE first contention raised on behalf of the Commissioner of Income-tax is that in the present case the concealment was detected by the Income-tax Officer and as a result thereof he had issued notice under Section 148 of the Act and ultimately it was the assessee himself who had agreed to the inclusion of the aforesaid sum of Rs. 17,500 in its assessment before the Appellate assistant Commissioner. Therefore, the submission was that the concealment stands proved. 17,500 in its assessment before the Appellate assistant Commissioner. Therefore, the submission was that the concealment stands proved. ( 9 ) BEFORE the passing of the order dated July 15, 1970, of reassessment by the Income-tax officer, the assessee had written a letter dated July 14, 1970, addressed to the Income-tax Officer in the following words. " That in connection with previous proceedings in respect of the above-mentioned payments against the erstwhile Hindu undivided family, it was categorically stated by all the disrupted members of the said Hindu undivided family that the erstwhile Hindu undivided family had nothing to do with the same and that the relative transactions had actually been done by Sri Ram in his individual capacity. That Sri Ram having accepted the abovementioned transactions, proceedings against him were started in a regular manner and relevant materials were produced before your honour to prove the source of investment and the manner in which he had managed these transactions. That there is nothing on record to warrant the assumption that these transactions were not of Sri Sriram done by him in his individual capacity but were of the erstwhile Hindu undivided family. " ( 10 ) IT is worthwhile to notice that even in response to the notice under Section 148 of the income-tax Act, the assessee had filed a return showing the same income of Rs. 17,122 as originally returned by it. The clear-cut stand of the assessee before the Income-tax Officer was that the amount of Rs. 17,500 is not the income of the Hindu undivided family. On the other hand, the said income belonged to Sri Sriram in his individual capacity. That during the pendency of the appeal, the assessee again wrote a letter on October 22, 1971, to the Appellate assistant Commissioner reiterating the very same stand as was taken by it before the Income-tax officer. However, in order to avoid hardship and litigation, the assessee agreed at that stage for the aforesaid addition of Rs. 17,500 being maintained in the appeal of the Hindu undivided family. The Income-tax Officer also acted on the aforesaid agreement and he deleted the income from the individual assessment of Sri Sriram and dropped the penalty proceedings in the case of sri Sriram. 17,500 being maintained in the appeal of the Hindu undivided family. The Income-tax Officer also acted on the aforesaid agreement and he deleted the income from the individual assessment of Sri Sriram and dropped the penalty proceedings in the case of sri Sriram. ( 11 ) THE Inspecting Assistant Commissioner of Income-tax while imposing the penalty under section 271 (1) (c) of the Act also observed in his order as follows: " It is worth noting that the Income-tax Officer had also made a protective assessment in the case of Sri Sriram who had admitted that these transactions really belong to him in his individual capacity. " ( 12 ) THE Income-tax Appellate Tribunal in its appellate order took note of the aforesaid facts as well as of the contents of the aforesaid letter dated July 14, 1970, written by the assessee during the course of assessment proceedings to the Income-tax Officer, and the letter dated October 22, 1971, addressed by the assessee to the Appellate Assistant Commissioner of Income-tax. If we scrutinise the order of the Income-tax Tribunal, it is apparent that it had recorded the following findings : " (i) We do not find any positive evidence to show that the Hindu undivided family concealed the amount and thereby filed inaccurate particulars of its income. (ii) The assessee had in the present case all along protested that it was the income of the individual and not of the Hindu undivided family. (iii) There was no mens rea present in the case. " ( 13 ) THESE findings recorded by the Income-tax Tribunal are, in our opinion, findings of fact and are binding on the parties. The Commissioner of Income-tax has not raised any specific question to challenge the aforesaid findings of fact. It is settled law that in the absence of any specific question raised by the Commissioner of Income-tax challenging the aforesaid findings of fact, we have to proceed on the basis of the findings recorded by the Tribunal. In that event, it cannot be held that the assessee had concealed its income so as to render itself liable for penalty. As held by the Supreme Court in CIT v. Ashoka Marketing Ltd. [1976] 103 ITR 543, a finding recorded by the Tribunal regarding concealment of income is a finding of fact and is binding on the High Court. In that event, it cannot be held that the assessee had concealed its income so as to render itself liable for penalty. As held by the Supreme Court in CIT v. Ashoka Marketing Ltd. [1976] 103 ITR 543, a finding recorded by the Tribunal regarding concealment of income is a finding of fact and is binding on the High Court. Thus, the argument advanced on behalf of the Commissioner of Income-tax that the amount in question was the concealed income of the assessee has no substance and is liable to be rejected. ( 14 ) THE next argument raised on behalf of the applicant is that in view of the Explanation to section 271 (1) (c) of the Income-tax Act, there is a presumption in law that the assessee had concealed the income and, therefore, the Tribunal was not right in law in deleting the penalty in question. ( 15 ) THE Explanation to Section 271 (1) (c) in so far as it is relevant for our purpose and as it stood at the relevant time in the year 1972, namely, at the time when the penalty was imposed by the inspecting Assistant Commissioner, stood as under : "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 purposes 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 subsection. " ( 16 ) A perusal of the aforesaid provision shows that if the conditions laid down in the explanation are satisfied, there is a presumption of concealment raised against the assessee that he had concealed the particulars of income unless he can prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect in question on his part. The presumption is, therefore, prima facie rebuttable. The presumption is, therefore, prima facie rebuttable. ( 17 ) THE above-noted second submission, in our opinion, has also got no force. Firstly, the inspecting Assistant Commissioner has nowhere in his order relied upon the aforesaid explanation. As held by this court in the case of Addl. CIT v. Kishan Singh Chand [1977] 106 itr 534, if the Inspecting Assistant Commissioner did not rely on the Explanation, the explanation is out of the way and the case would be governed by the law laid down by the supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696, wherein it has been held that the penalty proceedings being penal in nature, the burden is on the Department to establish that the assessee is guilty of concealment, etc. Such a finding has to be recorded on positive material. No material has been placed in the case on behalf of the Department which will positively show that the amount in question was the concealed income of the assessee. In the present case, the income-tax Tribunal has given a categorical finding that there is no positive evidence to show that the Hindu undivided family had concealed the amount in question. ( 18 ) SECONDLY, at any rate, even if it be held that the Explanation in question was applicable to the facts of the case, this Explanation is merely a Rule of evidence as held by this court in the case of Saeed Ahmad v. IAC [1971] 79 ITR 28. That being so, after the entire material had been placed before the Tribunal by both the parties, the question of burden of proof under the explanation lost its importance and ultimately everything depended upon the findings recorded by the Tribunal in that behalf. Moreover, the burden to be discharged under the Explanation was a negative one. Therefore, in our opinion, it was open under the law to the Tribunal to consider the totality of the facts and circumstances of the case and arrive at a finding as to whether the assessee had been able to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. The findings of the Tribunal, summarised above, clearly show that the Tribunal had held that there was no evidence to show that the assessee had concealed the amount in question. The findings of the Tribunal, summarised above, clearly show that the Tribunal had held that there was no evidence to show that the assessee had concealed the amount in question. On the other hand, it had all along protested that it was the income of Sri Sriram, an individual and not the income of the assessee-Hindu undivided family, and that there was no mens rea in the present case. In this view of the matter, the second submission advanced on behalf of the Commissioner of Income-tax is also not sustainable in law and is liable to be rejected. ( 19 ) BESIDES the above, a perusal of the order passed by the Income-tax Officer under Section 143 (3)/148 of the Act as well as the penalty order passed by the Inspecting Assistant commissioner will disclose that these authorities have nowhere recorded any positive finding that the assessee was guilty of any fraud or gross or wilful neglect on his part. In the absence of such a finding, the penalty cannot be sustained, as held by this court in Addl. CIT v. Horilal Kunj behari Lal [1977] 106 ITR 720. Further, in cases of penalty for concealment of income, in the case of Anantharam Veerasinghaiah and Co. v. CIT [1980] 123 ITR 457 (SC), their Lordships of the Supreme Court have taken the view that for the purpose of imposition of penalty, the assessee must be conscious of having concealed the particulars of his income. In the present case, we find that the Tribunal has recorded a finding of fact that there was no mens rea in the present case. In our opinion, upon the findings arrived at by the Tribunal, the provisions of the explanation to Section 271 (1) (c), even if applicable, will make no difference at all in this case. The ratio of the aforesaid decision of the Supreme Court still holds good even after the explanation. The reason is that if the Explanation is only a Rule of evidence, then it is the tribunal which has ultimately, on a consideration of the entire facts and circumstances of the case, to record a finding as to whether the assessee was conscious of the concealment or not. The tribunal has, on this aspect of the matter, recorded a categorical finding of fact that there was no mens rea present in the case. The tribunal has, on this aspect of the matter, recorded a categorical finding of fact that there was no mens rea present in the case. ( 20 ) THE cases cited on behalf of the Revenue may now be noticed. In CIT v. Net Ram Ram swamp [1973] 88 ITR 213 (All), the Income-tax Officer had found that the assessee had received certain cheques for which information was not available and there were certain suspicious cash credits. The assessee had surrendered the amounts in question. The Income-tax tribunal, had considered the facts of the case and had come to the conclusion that penalty could not be imposed as it had not been proved that the concealment of income was deliberate. We do not see how on the findings recorded by the Tribunal in the present case the above decision is of any help to the Department. ( 21 ) IN CIT v. C. V. C. Mining Company [1976] 102 ITR 830 (AP), the assessee, while denying the allegation as to suppression of income, pleaded his inability to adduce evidence in support of its explanation and agreed to the addition in order to purchase peace, with the Department. The appellate Assistant Commissioner of Income-tax set aside the penalty and on an appeal filed by the Revenue, the Tribunal held that the probabilities of the case speak both for and against the assessee and that it is not as if the entirety of the circumstances relied upon by the Revenue reasonably point to the conclusion that the amount added in the assessment represented the income of the assessee and that the assessee had consciously concealed the same. This case also, in our opinion, is of no avail to the Department in the present case. In CIT v. Ashoka Marketing ltd. [1976] 103 ITR 543, the Supreme Court has held that on the facts, whether or not the assessee had concealed his income was a question to be decided on the facts of the case, and that since in that case the Tribunal had, after accepting the agreement as true, deleted the penalty, no question of law really arose from the order of the Tribunal. This case also, in our opinion, does not advance the case of the Department and is of no assistance to the Commissioner of income-tax. This case also, in our opinion, does not advance the case of the Department and is of no assistance to the Commissioner of income-tax. ( 22 ) THUS, the contentions raised on behalf of the Revenue have no force and are rejected. ( 23 ) IN the result, the question referred to this court is answered in the affirmative, in favour of theassessee and against the Department. Since nobody has appeared on behalf of the assessee, the parties shall bear their own costs. .