Appeal No 2560 of 1966
Appeal from the judgment and order dated May 11 1966 of the Calcutta High Court in Income tax Matter No 98 of 1962
section T Desai G C Sharma and R N Sachthey for the appellants
D K De A N Sinha Rathin Das for P K Mukherjee for respondent
The Judgment of the Court was delivered by Grover J
This is an appeal by special leave from a judg ment of the Calcutta High Court answering the following question which was referred to it by the Tribunal in the negative and in favour of the assessee
Whether on the facts and in the circumstances of the case the Income tax authorities were justified in imposing a penalty on the assessee under Section 28 1 c of the Income tax Act  The assessee during the assessment year 1947 48 the corresponding previous year being the financial year ending on March 31 947 was a partner in the firm of Ms Haji Sk
Md Hussain Md Jan of Calcutta
The Income tax Officer while making the assessment discovered an undisclosed bank account of the assessee with the Central Bank of India Ltd Bettiah Bihar
It was found that a cash deposit of Rs 87000 had been made by the assessee on November 21 1946 in that Bank
He was asked to explain the source of the amount of deposit
According to his explanation all his relations got panicky during the communal riots in Bihar in the year 1946 and entrusted him with whatever cash amounts they had with them at that time for safe custody
448 It was stated that a sum of Rs 87000 had been received in the following manner Zahir Hussain alias Md Zahir CousinRs
18500 Mohammad Jan deceased fatherRs
1000 Mohd Haniff cousin Rs1750 Khairunnessa Bibi motherRs23000 Safihan Bibi Sister Rs13000 Fatema Bibi Wife Rs15750 Hasuia Bibi Brother s wifeRs12000 ___________ Rs87000 ____________ These amounts which were received by the assessee from his relations were deposited by him in a fixed deposit account in the joint name of himself and his minor sons in the Bank at Bettiah
The Income tax Officer did not accept the explanation of the assessee and held that the sum of Rs 87000 represented income from undisclosed sources
He added the amount to the total income of the assessee in his personal assessment
This addition was maintained by the Appellate Assistant Commissioner in appeal
The Appellate Tribunal also agreed with the decision of the Income tax Officer and the Appellate Assistant Commissioner
Penalty proceedings were initiated after the assessment and in due course the Income tax Officer imposed a penalty amounting to Rs 66000 on the assessee under section 28 1 c for concealing income and deliberately furnishing inaccurate particulars
The Appellate Assistant Commissioner in appeal held that the case clearly called for a penal action but he reduced the amount of penalty by Rs 22000
Subsequently he rectified his order under section 35 and confirmed the penalty of Rs 66000 imposed by the Income tax Officer
The assessee went up to the Appellate Tribunal in appeal
The Tribunal took the view that penalty proceedings were of a criminal nature
The onus lay on the department to show by adequate evidence that the amount of the cash stated to have been concealed by the assessee was of a revenue nature and was assessable as income and that the assessee had concealed it or deliberately furnished false particulars in regard thereto
This onus in the opinion of the Tribunal was not discharged by the Income tax authorities by showing merely that the explanation given by the assessee in the assessment proceedings was found to be unacceptable
The Income tax Officer according to the Tribunal must find some material apart from he falsity of the assessee s explanation to support his finding that the receipt from undisclosed sources was income
As no satisfactory evidence had been produced by the department to establish 4 49 that the amount in question represented the income of the assessee the Tribunal held that no penalty could be imposed
Now penalty can be imposed under section 28 1 c if the Income tax Officer the Appellate Assistant Commissioner or the Appellate Tribunal in the course of any proceedings under the Income tax Act 1922 is satisfied that any person has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income
In the judgment under appeal reference has been made to the decisions of the various High Courts on the true ambit and scope of this provision and the burden in the matter of establishing concealment of particulars of income or deliberately furnishing inaccurate particulars of such income
The majority of High Courts namely Bombay in Commissioner of Income tax Ahmedabad vs Gokuldas Harivallabhdas1 Gujarat in Commissioner of Income tax Gujarat vs L H Vora 2  and Patna in Commissioner of Income tax Bihar  Orissa vs Mohan Mallah3 had expressed the view that proceedings under section 28  1  c were of a penal nature and it was for the department to establish that the assessee was guilty of concealment of the particulars of income
The mere fact that the assessee had given a false explanation did not prove that the receipt necessarily constituted income of the assessee
Allahabad High Court however in Moman Rain Rant Kumar1 vs Commissioner of Income tax UP observed that where the explanation offered by the assessee in respect of an item of income shown as capital receipt was deliberately false it was open to the Income tax authorities to impose a penalty under section 2 8 1 c
In the earlier judgment in Lal Chand Gopal Das vs Commissioner of Income tax UP5 the Allahabad court had said that if a receipt was income but was disguised in the account or in the return as a non assessable receipt it was clearly a case of concealment of the particulars or of furnishing inaccurate particulars of income and a penalty under section 2 8 1 c should be imposed on the assessee
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 under section 28
One line of argument which has prevailed particularly with the Allahabad High Court in Lal Chand Gopal Das5 cage is that there was no essential difference between tax and penalty because the liability for payment of both was imposed as a part of the 1 2 56 ITR 126
3 4 59 T
P 135
5  450 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 vs Income tax Officer Kottayam  Anr1
It is true that penalty proceedings under section 28 are included in the expression assessment and the true nature of penalty has been held to be additional tax
But 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 s1 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 a quasi criminal proceedings Hindustan Steel Ltd vs The State of Orissa1
In England also it has never been doubted that such proceedings are penal Fattorini Thomas Lanchashire Ltd vs Inland Revenue Commissioner 3
The next question is that when proceedings under section 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 CJ in Commissioner of Income tax Ahmedabad v Gokuldas Harivallabhdas 4 the gist of the offence under section 2 8  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 under section 28 that the disputed amount was the assessee s income
It must be remembered that the proceedings under section 28 are of a penal nature and the burden is on the department to prove that a particular amount 1 41 3 1943 11 ITR Supp50
2 CAS 883 39266 dt
4 8 1969
4 451 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
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
In the present case it was neither suggested before the High Court nor has it been contended before us that apart from the falsity of the explanation given by the assessee there was cogent material or evidence from which it could be inferred that the assessee had concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount was a revenue receipt
The question was therefore rightly answered by the High Court
The appeal fails and it is dismissed with costs
VPS Appeal dismissed


Summary:
The Income tax Officer while assessing the respondent to tax discovered an undisclosed bank account of the respondent for a large sum
He did not accept the explanation of the respondent as to the source of the amount and held that it represented income from an undisclosed source
Thereafter he initiated penalty proceedings under section 28 and imposed a penalty which was confirmed by the Appellate Assistant Commissioner
In appeal the Tribunal held that penalty proceedings were of a criminal nature and that the burden lay on the department to show that the amount concealed was of a revenue nature and was assessable as income and that the onus was not discharged in the present case by merely showing that the assessee s explanation was not accepted in the assessment proceedings
The High Court agreed with the Tribunal
In appeal to this Court HELD
1 Penalty proceedings are included in the expression assessment and the true nature of a penalty is the imposition of an additional tax
But one of the principal objects of section 28 is to provide a deterrent against recurrence of default on the part of the assessee
There fore the section is a penal provision and the proceedings were of a penal nature
450 B C C A Abraham vs Income tax officer  explained
Commissioner of Income tax Ahmedabad vs Gokuldas Harivallabhdas  Commissioner of Income tax Gujarat vs L H Vora and Commissioner of Income Tax Bihar and Orissa vs Mohan Mallah  approved
Moman Rain Ram Kumar vs Commissioner of Income tax UP and Lal Chand Gopal Das vs Commissioner of Income tax UP  not approved
Hindustan Steel Ltd vs State of Orissa CAs
883 89266 dt 4 8 1969 and Fattorini Thomas Lanchashire Ltd vs Inland Revenue Commissioner 1943 11 ITR Supp 50 referred to
2The gist of the offence under section 281c 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 has been found to be false if does not follow that the receipt constitutes his taxable income
450 E G 447 Commissioner of Income tax Ahmedabad vs
Gokuldas Harivallabhdas  approved
3 Since the proceedings under section 28 are of a penal nature and the burden is on the department to prove that a particular amount is a revenue receipt the finding given in the assessment proceedings that the assessee s explanation is false and that the disputed amount represents income is evidence but is not conclusive
Before penalty could be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assesses  had consciously
concealed the particulars of his income or had deliberately furnished inaccurate particulars
450 451 A C