Special Leave Petition Civil No 1863 of 1986
From the Judgment and Order dated 101285 of the Madhya Pradesh High Court in Misc
Civil case No 297 of 1981
Dr NM Ghatate and SV Deshpande for the Petitioners
Kuldip Singh Additional Solicitor General BB Ahuja and Miss A Subhashini for the Respondents
The Judgment of the Court was delivered by SABYASACHI MUKHARJI J
This petition for leave to appeal is directed against the judgment and order dated 10th December 1985 of the High Court of Madhya Pradesh Jabalpur Bench
The High Court upheld the imposition of penalty as well as the addition of alleged concealed income in the income tax assessment of the peti 791 tioner
The relevant assessment year with which we are concerned in this application is 1974 75
It appears that the petitioner had submitted his return of income for the assessment year 1974 75 showing a total income of Rs3113 in response to a notice issued under section 1432 of the Act of the Income tax Act 1961 hereinafter called the Act 
According to the petitioner he had derived his income from 2 stores ie Ms Mohanani Fancy General Stores and Ms Roopkala General Stores Durg
It however appears that on 19th January 1974 on the basis of the order passed by the Superintendent Central Excise Jagpur dated 25th December 1975 there was confiscation of foreign watches from the house of the petitioner and levy of penalty of Rs2 lakhs under the 
Accordingly the Income Tax Officer issued a notice calling upon the assessee to show cause why the value of the watches seized from his residence should not be treated as his income from undisclosed sources
In this connection it may be relevant to note that on 12th May 1973 a search was made of the petitioner s bed room from where a total of 565 wrist watches of foreign make valued at Rs87455 were seized from a suit case and in a secret cavity of a looked steel almirah and also behind the almirah there were watches folded in a bundle of waste papers
A Panchnama was prepared at the same time mentioning these facts
According to the Customs Authorities the petitioner found himself unable to make any statement at that time on account of which recording of statements was deferred
However it is stated the petitioner went out of the station on 14th May 1973
The petitioner s statement was recorded on 13th May 1973 as soon as he was available
In his statement Annexure R III duly signed by him he has admitted these facts and merely denied knowledge of the manner in which those watches came to be in his house
It appears from the records of the Customs case with which we will have to deal later in SLP No 100886 the petitioner was given a show cause notice as to why the period of six months fixed under section 1102 of the should not be extended but no reply was given by the petitioner till 10th November 1973 or even thereafter
Hence by an order dated 10th November 1973 before the expiry of six months time was extended by the Collector of Customs for a further period of 6 months for giving a notice as required under section 124a of the 
Under the proviso to subsection 2 of section 110 of the  a show cause notice specifying the requisite particulars was given to the petitioner on 4th May 1974
In the reply the petitioner made a general denial
The 792 enquiry was fixed on 30th october 1975 for giving a personal hearing to the petitioner when the petitioner s Counsel appeared and sought for an adjournment to 20th November 1975 which was granted
However on 20th November 1975 the Counsel of the petitioner stated that the petitioner did not want to avail of the opportunity of personal hearing or even to cross examine the witnesses in whose presence the Panchayatnama was made at the time of the seizure of the watches
It is necessary to bear these facts in mind because it has repercussions to the notice dated 19th January 1974 as mentioned hereinbefore issued by the Income Tax Officer to show cause why the aforesaid sum of Rs90768 should not be treated as the petitioner s concealed income
The Income Tax Officer further directed issuance of the notice under section 2711c of the Act
Being aggrieved by the said order the petitioner preferred an appeal before the Appellate Assistant Commissioner against the order dated 20th February 1976
The Appellate Assistant Commissioner dismissed the appeal and held that in view of the order passed by the Collector of Customs the Income Tax Officer was justified in including the cost of the watches in the income of the assessee for the assessment year 1974 75
Thereafter on 29th March 1978 the Assistant Commissioner of the Income tax issued notice of penalty under section 2711c of the Act imposing penalty of Rs90000 minimum imposable being Rs87455 and maximum imposable being Rs174910
Being aggrieved thereby the petitioner filed two appeals before the Income Tax Appellate Tribunal
The Tribunal by its order dated 19th August 1980 dismissed these appeals
The petitioner has further stated that in the meanwhile the State of Madhya Pradesh initiated criminal proceedings under section 125 read with 111 of the and the learned Chief Judicial Magistrate Durg by his order convicted the petitioner and awarded one year s rigorous imprisonment
Thereafter on 2nd November 1982 the petitioner filed an appeal in the Court of Additional Judge in the Court of Sessions who by his judgment allowed the appeal and acquitted the petitioner of the said criminal charge
Thereafter there was a reference to the High Court on two questions against the order of the Income tax Tribunal under section 2561 of the Act
The questions are as follows i Whether on the facts and in the circumstances of the case was the Tribunal justified in holding that the assessee was the owner of the watches and thus including the value 793 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 the concealment of income by the assessee for the year under consideration and thus confirming the penalty of Rs90000 levied by the Inspecting Assistant Commissioner of Income Tax The High Court in its order noted that the raiding party by virtue of the search entered into the bed room of the assessee on 12th May 1973 and seized the watches
A Panchnama was prepared
The Department found that the assessee was the owner
Section 110 of the Evidence Act is material in this respect and the High Court relied on the same which stipulates that when the question is whether any person is owner of anything of which he is shown to be in possession the onus of proving that he is not the owner is on the person who affirms that he is not the owner
In other words it follows from wellsettled principle of law that normally unless contrary is established title always follows possession
In the facts of this case indubitably possession of the wrist watches was found with the petitioner
The petitioner did not adduce any evidence far less discharged the onus of proving that the wrist watches in question did not belong to the petitioner
Hence the High Court held and in our opinion rightly that the value of the wrist watches is the income of the assessee
In this connection reference may be made to the views expressed by Justice Tulzapurkar as his Lordship then was of the Bombay High Court in the case of JS Parkar vs VB Palekar where on difference of opinion between Justice Deshpande and Justice Mukhi Justice Tulzapurkar agreed with Justice Deshpande and held the question whether on the evidence established the petitioner was the owner of the gold seized though there was no direct evidence placed before the taxing authorities to prove that the petitioner had actually invested moneys for purchasing the gold in question the inference of the ownership of the gold in the petitioner in that case rested upon circumstantial evidence
There also gold was seized from a motor launch belonging to the petitioner in that case
There a contention was raised that the provision in section 110 of the Evidence Act where a person was found in possession of anything the onus of proving that he was not the owner was on the person who affirmed that he was not the owner was incorrect and inapplicable to taxation proceedings
This contention was rejected
The High Court of Bombay held that what was 794 meant by saying that the Evidence Act did not apply to the proceedings under the Act was that the rigour of the rules of evidence contained in the Evidence Act was not applicable but that did not mean that the taxing authorities were desirous in invoking the principles of the Act in proceedings before them they were prevented from doing so
Secondly all that section 110 of the Evidence Act does is that it embodies a salutary principle of common law jurisprudence which could be attracted to a set of circumstances that satisfy its condition
We are of the opinion that this is a correct approach and following this principle the High Court in the instant case was right in holding that the value of the wrist watches represented the concealed income of the assessee
Section 69A of the Act was inserted in the Finance Act 1964 and it came into force wef
1st January 1964
The High Court has rightly held that the expression income  as used in section 69A of the Act has wide meaning which meant anything which came in or resulted in gain
Hence in the facts of this case a legitimate inference could be drawn that the assessee had income which he had invested in purchasing the wrist watches and as such that income was subject to tax
In the view the High Court was justified in justifying the Tribunal s holding that the assessee was the owner of the wrist watches and thus including the value in the assessment of the income of the assessee as his wealth and so deemed to be the income of the assessee by virtue of section 69A of the Act coupled with surrounding circumstances
Therefore inclusion of the money in purchasing the wrist watches that is to say Rs87455 was correct and proper for the assessment year under reference
In this connection section 69A of the Act may usefully be set out as follows Where in any financial year the assessee is found to be the owner of any money bullion jewellery or other valuable article and such money bullion jewellery or valuable article is not recorded in the books of account if any maintained by him for any source of income and the assessee offers no explanation about the nature and source of acquisition of the money bullion jewellery or other valuable article or the explanation offered by him is not in the opinion of the Assessing Officer satisfactory the money and the value of the bullion jewellery or other valuable article may be deemed to be the income of the assessee for such financial year
 795 So far as the first question is concerned the High Court answered accordingly and in our opinion rightly
As regards the second question section 2711c of the Act was inserted in the Finance Act 1974 which reads as follows Explanation Where the total income returned by any person is less than eighty per cent of the total income hereinafter in the 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
 From the facts found by the revenue the assessee had shown only a total income of Rs3113 and subsequently the raiding party seized wrist watches worth Rs87455
Thus the value of that income was included in the assessable income of the assessee
Therefore the total assessable income of the assessee came to Rs90568 whereas the returned income was Rs3113 which was certainly less than 80 of the total income and as such Explanation applied
Accordingly the revenue has discharged the onus of proving concealment of income
This view was expressed by a Full Bench of Punjab  Haryana High Court in Vishwakarma Industries vs Commissioner of Income tax where all the relevant authorities have been discussed
In that view of the matter and in view of the principles behind the purpose of Explanation the assessee in the instant case has failed to discharge his onus of proof
The aforesaid Explanation was amended by Finance Act 1964 with effect from 1st April 1964
The amendment was prospective in effect and in the year under reference the amendment was in force
Though the penalty proceedings are penal in nature but in the facts of this case the onus on revenue has been duly discharged
This was also the view of the Bench decision of the Madhya Pradesh High Court in Commissioner of Income Tax vs Bherulal Shrikishan 796 The second question referred to hereinbefore was therefore answered in favour of the revenue by the High Court and in our opinion the High Court was justified in so doing
In the aforesaid view of the matter there is no merit in this application for leave to appeal and it is accordingly dismissed
NVK Petition dismissed


Summary:
On or about 12th May 1973 the Superintendent of Central Excise issued search warrant under section 105 of the authorising an Inspector of Central Excise to search the residential premises of the petitioner
A search was made and 565 foreign wrist watches were recovered from the premises
The petitioner was given a notice to showcause why the period of six months fixed by section 1102 should not be extended
On December 26 1975 the Collector of Central Excise passed an order directing confiscation of 565 wrist watches seized from the petitioner s possession on May 12 1973 under Section 111 and the imposition of penalty of Rs2 lacs under section 112 of the Act
The petitioner s appeal to the Central Board of Excise and Customs and revision to the Government of India having been dismissed the petitioner challenged the order of the Collector in a writ petition to the High Court
The High Court dismissed the writ petition on the ground that the Collector was justified in passing the order of confiscation of the watches and imposing a penalty of Rs2 lacs as the petitioner had not refuted the facts alleged in the show cause notice by availing of the opportunity given to him at the enquiry
In the Special Leave Petition to this Court it was contended that 1 the notice dated May 4 1974 issued under section 124 of the Act was issued beyond the period of six months of the seizure of the goods and as such the entire proceedings were invalid for this reason and that the 798 extension of the period of six months by another period of six months in accordance with the proviso to section 1102 could not be made ex parte without notice to the petitioner 2 there was no evidence to determine the value of watches so the quantum of penalty could not be determined for want of such evidence and 3 the quantification of the penalty was very high
Dismissing the Special Leave Petition this Court  HELD 1i Extension of time takes away a valuable right of a party whose goods are proposed to be seized
Such deprivation of the valuable right must be upon notice otherwise it violates the principles of natural justice802D E ii An ex parte determination by the Collector would expose his decision to be one sided and perhaps one based on an incorrect statement of facts
802F iii Whether a notice was given or not within a stipulated time for extension as contemplated under section 1102 is a question of fact
The onus that the order was passed without notice is on the person who asserts it to be so and this is a question of fact
802H803A In the instant case a notice has been given
There was an assertion to this effect in the Collector s order
The assertion remained uncontroverted by any specific evidence and also by failure to urge this point
In that view of the matter the inference drawn by the High Court that such notice was given as contemplated under section 1102 was not unwarranted
803A B 2
The value of the watches was mentioned as one of the particulars in the show cause notice given to the petitioner and this value was not refuted by the petitioner in his reply
The petitioner did not avail himself of the opportunity at any stage to oppose the extension of time or to refute the allegations made in the show cause notice given thereafter
The petitioner thus failed to discharge the burden of proof cast on him by section 123 of the Act
803C D 3
The quantum of penalty should not be arbitrary or excessive
804E In the instant case the value of the smuggled goods was Rs87455
The penalty permissible is upto five times the value of the goods
The Collector imposed the penalty of Rs2 lacs by his order in 799 1975
Admittedly for about ten years the amount of penalty had not been paid by the petitioner
The High Court noted that the benefit derived by the petitioner by non payment of the penalty for ten years indicates that the penalty could not be treated as arbitrary
That by itself is not always a safe guide
In the facts and circumstances of this case the penalty was not heavy
804C E Asstt
Collector of Customs vs Charan Das Malhotra   referred to