JUDGMENT Balakrishna Eradi, J.
1. This is a reference made by the Income-tax Appellate Tribunal, Madras Bench "A", under Section 256(2) of the Income-tax Act, 1961 (which will hereinafter be referred to as "the Act"). The question referred is :
"Whether there is any evidence or material on record to support a finding that the sum of Rs. 20,000 represents concealed income of the assessee of the previous year 1954-55 within the meaning of Section 271(1)(c)?"
2. The assessee is carrying on business in foodgrains with his head office at Changanacherry and a branch at Kottayam. In the course of the proceedings taken for determining the taxable income of the assessee for the assessment year 1956-57 the Income-tax Officer found that there was a cash credit dated 5-2-1130 (M.E.) for Rs. 20,000 in the accounts maintained by the assessee in his head office, the source of which was not properly explained. This credit entry was sought to be explained by the assessee by stating that it represented cash received from his branch at Kottayam but the Income-tax Officer did not accept this, since it was found on verification of the accounts of the Kottayam branch that the cash balance available thereon on 5-2-1130 was only Rs. 6,866 and a debit entry had been made in the branch-accounts relating to the amount of Rs. 20,000 only on 6-2-1130. Hence the Income-tax Officer completed the assessment for 1956-57 treating the amount of Rs. 20,000 as income derived by the assessee from "other sources" during the accounting period. The assessee appealed to the Appellate Assistant Commissioner. One of the contentions raised by him in the appeal was that the amount in question could not, in any event, be treated as assessable income from other sources for the year 1956-57, since the date of the cash credit entry was 5-2-1130 (22-9-1954), which was outside the relevant accounting period, namely, the year ending March 31, 1956. The Appellate Assistant Commissioner accepted this contention and held that the sum could be assessed only is the assessment year 1955-56.
3. The Income-tax Officer thereupon initiated reassessment proceedings for the assessment year 1955-56. The assessee to whom due notice of those proceedings was given contended that there was no justification for treating the sum of Rs. 20,000 as an unexplained cash credit and he put forward a two-fold explanation regarding its source. Firstly, he reiterated the stand already taken by him in the assessment proceedings for 1955-56, namely, that the amount had been received by the head office by transfer from the Kottayam branch. Alternatively, it was contended that the firm of Messrs.
Hajee K. Assainar of which the assessee was a partner had been assessed on a sum of Rs. 45,000 as income from undisclosed sources for the assessment year 1956-57 and that a 10/16 share of that fund should be considered as having been available with the assessee during the relevant accounting period and it constitutes sufficient explanation for the credit entry of Rs. 20,000. Both these contentions were rejected by the Income-tax Officer and he held that the explanation offered by the assessee regarding the nature and source of the amount was not satisfactory. Accordingly by an order dated March 13, 1963, the assessment for 1955-56 was redetermined by including the sum of Rs. 20,000 also as the income of the assessee from "other sources".
4. Penalty proceedings were initiated against the assessee under Section 271(1)(c) of the Act. In response to the show-cause notice issued to him by the Inspecting Assistant Commissioner under Section 274(2) of the Act, the assessee submitted that he had neither concealed the particulars of his income nor deliberately furnished inaccurate particulars of such income and was not, therefore, liable to be subjected to penalty. He again put forward the explanation which he had given during the assessment proceedings regarding the source of the amount of Rs. 20,000 covered by the cash credit entry dated 5-2-1130 and contended that there was absolutely no material to show that he had actually derived any such income from "other sources" during the relevant accounting period and had deliberately suppressed it.
5. The Inspecting Assistant Commissioner in his order dated February 20, 1955 (annexure "A"), observed that the explanation put forward by the assessee had already been rejected by the assessing authority and the Appellate Assistant Commissioner in the course of the assessment proceedings and, relying solely on that fact, he held that there had been a deliberate concealment of income by the assessee in respect of the sum of Rs. 20,000 and levied a penalty of Rs. 13,437.
6. The assessee took up the matter in appeal before the Income-tax Appellate Tribunal and contended that the facts and circumstances of the case did not warrant the imposition of a penalty. One of the points which the assessee had specifically raised before the Tribunal was that the circumstances that the explanation given by the assessee had not been accepted in assessment proceedings will not by itself justify the conclusion that there was concealment or furnishing of inaccurate particulars of income by the assessee. The Tribunal by its order annexure "C" dated September 13, 1966, confirmed the levy of penalty and dismissed the appeal.
8. An application filed by the assessee before the Tribunal under Section 256(1) of the Act requiring the Tribunal to draw up a statement of the case and refer the question of law to the High Court having been dismissed by it, the assessee moved this court by filing O. P. No. 2222 of 1967 under Section 256(2) of the Act. By judgment dated the 6th September, 1967, that petition was allowed by this court and in compliance with the direction given therein the Tribunal has made this reference.
9. The contention taken on behalf of the assessee is that the finding recorded by the Tribunal and the Inspecting Assistant Commissioner that there was concealment of income by the assessee to the extent of Rs. 20,000 so as to attract the penal provision in Section 271(1)(c) of the Act is unsustainable in law since it is not supported by any evidence regarding the actual receipt of such income by the assessee but is on the other hand based solely on the ground that the explanation which the assessee had given regarding the source of the credit had been found by the assessing authority to be unacceptable.
10. Counsel for the revenue endeavoured to sustain the finding of the Tribunal by contending that the penalty proceedings in the present case are governed by the provisions of Section 271(1)(c) of the Act as they stand after the amendments effected therein by the Finance Act, 1964. By the said amendment the word "deliberately", which originally occurred in Clause (c) of Sub-section (1), was omitted and the following Explanation was added to the said sub-section :
"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."
11. Relying on the provisions of the Explanation counsel for the department argued that in the present case the burden was on the assessee to prove that his failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part and that since he had not satisfactorily discharged this burden the assessee is to be deemed to have concealed the particulars of his income for the purposes of Section 271(1)(c) of the Act.
12. Neither the Inspecting Assistant Commissioner nor the Tribunal has relied on the provisions of the Explanation for finding the assessee guilty of concealment and the case has been dealt with by them on the basis that it is governed by the terms of the section as they stood prior to the amendments introduced by the Finance Act, 1964. In view of the contention now put forward by the counsel for the revenue, it is necessary to examine whether the Explanation introduced in Section 271(1) of the Act by the Finance Act, 1964, will govern the present case.
13. As has been already noticed the Explanation in question was introduced in Section 271(1) of the Act by virtue of an amendment of that section effected by Section 40 of the Finance Act, 1964. It is expressly stated in Section 1(2) of the Finance Act, 1964, that sections 3 to 55 thereof shall be deemed to have come into force only on the 1st day of April, 1964. It is, therefore, clear that the intention of Parliament was that the amendments in question introduced by Section 40 of the Finance Act were to be effective only from April 1, 1964. The learned counsel for the revenue, however, contends that since the provisions of the Explanation relate only to matters of procedure they will govern the penalty proceedings taken against the assessee in the present case which culminated in the order passed by the Inspecting Assistant Commissioner of Income-tax on February 20, 1965. It is no doubt true that if a statute deals merely with matters of procedure and does not affect the rights of parties the new procedure will, prima facie, apply to alt pending as well as future actions. But, where rights and procedure are dealt with together, the intention of the legislature may well be that the old rights are to be determined by the old procedure and that only the new rights under the substituted section are to be dealt with by the new procedure. If the procedural alteration is closely and inextricably linked with the changes simultaneously introduced in another part of the statute dealing with substantive rights and liabilities, it is not possible to give retrospective operation to the amendment regarding procedure unless the legislature has indicated such an intention either by express words or by necessary implication. It appears to us to be clear that the two changes introduced in Section 271(1) of the Act by the Finance Act, 1964, consisting of the deletion of the word "deliberately" which occurred in Clause (c) and the insertion of the Explanation at the end of the said sub-section are very closely interconnected and they form integral parts of one scheme. This is manifest from the fact that the deeming provision contained in the Explanation obviously proceeds on the basis that for the purposes of the latter part of Clause (c) of Section 271(1)(c) the mere furnishing of inaccurate particulars of income by an assessee is sufficient and that it is not necessary to establish for the purposes of Section 271(1)(c) that the assessee has "deliberately" furnished inaccurate particulars of his income. It is, therefore, reasonable to infer that the intention of Parliament is that the Explanation should apply only to cases governed by Clause (c) of Section 271(1) as it stands after its amendment by the Finance Act, 1964.
14. By the deletion of the word "deliberately" which originally occurred in Clause (c) of Section 271(1) a substantial alteration has been effected in the structure and content of the offence. This amendment certainly does affect rights of parties and, in view of the express mention in Section 1(2) of the Finance Act, 1964, that it will come into effect only on April 1, 1964, it cannot apply to concealments, etc., which took place prior to that date. The penalty proceedings in the present case relate to the assessment year 1956-57, and, hence, they are governed only by the provisions of Section 271(1)(c) as they stood at the relevant time. Since we have held that the Explanation will apply only to cases governed by the amended provisions of Clause (c) it must follow that the new rule of evidence introduced by the Explanation has no application to the present case.
15. We are, therefore, left with the question whether the finding entered by the Tribunal can be sustained without the aid of the Explanation relied on by the counsel for the revenue. A perusal of the order of the Inspecting Assistant Commissioner annexure "A" shows that the only ground stated by him for holding that the assessee has been guilty of concealment of income with respect to the amount of Rs. 20,000 covered by the cash credit entry dated 5-2-1130 is that the explanation given by the assessee regarding its nature and source had been already rejected by the Appellate Assistant Commissioner. It is clear that there has not been any independent consideration of the relevant facts and materials by the Inspecting Assistant Commissioner nor a proper finding arrived at by himself.
16. When the matter came before the Tribunal the assessee had specifically taken the point that in proceedings under Section 271(1)(c) of the Act he cannot be held to be guilty of concealment unless there is evidence to show that during the relevant accounting period he had derived the income which he is alleged to have concealed. It is also seen that the decisions reported in Commissioner of Income-tax v. Gokuldas Harivallabhdas, [1958] 34 I.T.R. 98 (Bom.) and Maney & Co. v. Commissioner of Income-tax, [1963] 47 I.T.R. 434 (Ker.) were cited and relied on before the Tribunal. The relevant portion of the Tribunal's order containing the discussion on this point runs as follows:
"The present explanation that it was money taken from the Travancore Forward Bank on 5th after office time does not appear to have been put forward at any earlier time. In any case, it was not the explanation before the Inspecting Assistant Commissioner. There is no evidence to support this. The assessee could have produced the counterfoil of the cheque to support this version. He has not done so. Even if it is assumed that a public institution had acted improperly, it could have done only on the receipt of some document like a cheque, etc. The assessee is not in the know of things. He has no consistent or acceptable explanation for the credit appearing in his books."
17. On going through the order of the Tribunal the impression created in our minds is that the Tribunal has proceeded to decide the case on the basis that the sole question to be considered by it was whether or not the assessee's explanation regarding the credit entry could be accepted, virtually casting on the assessee the burden of proving that he is not guilty of concealment by establishing the truth of the case put forward by him. It may quite conceivably be that the assessee has put forward a version that is not true, but from that fact alone it cannot be concluded that the amount covered by the credit entry really constituted income derived by the assessee during the accounting period. It is only by virtue of the special provisions enacted in Section 68 of the Act that the Income-tax Officer while making assessment proceedings in respect of any assessment year is empowered to charge to income-tax any sum found credited in the books of an assessee maintained for the previous year about whose nature and source the assessee does not offer a satisfactory explanation. Section 68 has, however, no application to proceedings for the imposition of a penalty. Such proceedings being penal in character, the burden is on the department to establish that the assessee has committed the offence charged against him. Where action is initiated against an assessee under Section 271(1)(c) of the Act (as it stood prior to the amendments introduced by the Finance Act, 1964), he can be found guilty only if there is evidence which can reasonably lead to the conclusion that he has consciously concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. The department has, therefore, to establish that the amount in dispute constituted income derived by the assessee during the accounting period. If there is no evidence on the record except the explanation given by the assessee which has been found to be unacceptable it does not follow that the amount covered by the credit entry represents his taxable income. There must be some evidence on record from which it can be reasonably inferred that the amount in question constituted the income of the assessee and that he had consciously concealed such income or had deliberately furnished inaccurate particulars in respect of the same : see Commissioner of Income-tax v. Anwar Ali.
18. In the present case counsel appearing for the department has not been able to make out that, apart from the falsity of the explanation given by the assessee, there was any cogent material from which it could be inferred that the disputed amount represented income derived by the assessee during the relevant year of account and that the assessee had concealed particulars of such income or had deliberately furnished inaccurate particulars in respect of it. In the circumstances, it has to be held that the finding entered by the Tribunal that the sum of Rs. 20,000 represented concealed income of the assessee for the previous year 1955-56 within the meaning of Section 271(1)(c) of the Act is not sustainable in law and that the imposition of penalty against the assessee on the basis of that finding was illegal.
19. We, therefore, answer the question referred in the negative, that is, in favour of the assessee and against the department.