Case ID: 6487

Judgment:
ivil Appeal No. 1248 of 1978. From the Judgment and Order dated 9.3.1977 of the Madras High Court in T.C. Petition No. 362 of 1975. B.B. Ahuja and Ms. A. Subhashini for the Appellant. A.T.M. Sampath and P.N. Ramalingam for the Respondent. The Judgment of the Court was delivered by SABYASACHI MUKHARJI	 CJ. This is an appeal by special leave from the judgment and order of the Madras High Court dated 9th March	 1977. The appeal involves the assessment of income tax under the Income Tax Act	 1961 (hereinafter referred to as 'the Act ') for the assessment year 1966 67. The assessee is an individual who carried on business in distribution of films for the assessment year 1966 67. The assessee filed a return of income on 12th July	 1968 declar ing "No loss". Subsequently	 the assessee filed a revised return on 4th January	 1969 declaring a net loss of Rs.9	490. The Income Tax Officer called for wealth state ments from the assessee The wealth statements did not reveal that the assessee had invested any amount in the plot of land in T. Nagar. However	 a raid made in the premises of E.V. Saroja and K.R. Sadayappan revealed the information that the assessee along with Smt. P.S.S. Ekammai Achi and A.L.N. Perianna Chettiar had purchased a plot of land in T. Nagar on 13.4.1965 from Smt. K.V. Saroja. The plot was purchased in the name of the assessee 's son Sri Ramakrish nan. In the assessment	 it was stated that the total consid eration was Rs.80	000 out of which Rs.25	000 was the payment in respect of the portion purchased in the name of Sri Ramakrishnan. The examination of all the materials including the document revealed that the total 258 consideration was Rs. 1	40	000. The on money payment made by the assessee on behalf of his son was Rs. 18	750 for which the assessee could not adduce evidence to prove the nature and source of investment. This sum of Rs. 18	750 was treated by the Income Tax Officer as the undisclosed income of the assessee and he initiated penalty proceedings under section 271(1)(c) of the Act for concealment of income and referred the case to the I.A.C. for disposal as the minimum penalty leviable exceeded Rs. 1	000. The I.A.C. imposed a penalty of Rs. 18	750 being equal to the income concealed holding that the assessee had not discharged the burden cast upon him by the Explanation to section 271(1)(c) of the Act in not adducing any evidence that the plot was purchased by the assessee 's son out of his own funds and against the asses see 's own. statement recorded on 9.10.1972 that the on money payment was made by him. The assessee filed an appeal to the Tribunal and contended that in case of rejection of asses see 's explanation for the source	 the addition could not be held to be the concealed income of the assessee	 and relied on certain principles laid down by the courts. The Tribunal allowed the appeal. It is necessary to refer to relevant portions of the Tribunal 's order in respect of which certain contentions were urged before us. The Tribunal in its order observed	 inter alia	 as follows: "We have considered the rival submissions. At first we were impressed by the argument of the Departmental Representative that it is a fit case for the levy of penalty. However	 when we find that the assessee had at no time given any false or different particulars about this property in his return of income or at any time during the assessment proceedings	 there cannot be any question of his having filed any incor rect particulars and more so of the income. The Departmental Representative was unable to point out any occasion when the assessee has stated before the Income Tax Officer during the assessment proceedings that he had purchased the property only for Rs.80	000. On the other hand	 when he was asked to state the consideration of the property during the examina tion	 he accepted that there were two agreements but the real consideration was Rs. 1	40	000. That being so	 we are unable to accept that the assessee had been wilfully negli gent or fraudulent in this regard. Then the question arises as to any concealment in the addition made by the Department as income from undisclosed sources. Here	 the assessee 's case was that he had prepared a sort of cash statements to show that there 259 was some cash available for this purpose. The Department 's case was that this was only a cash statement and this state ment sufferred from certain defects	 viz.	 the absence of drawings for personal expenses and even the so called sur plus followed by utilisation for other expenses. No doubt	 the Income Tax Officer may be justified to say that not only the explanation is not convincing but false	 because there was no cash available to the assessee for payment towards the extra money paid. However	 rejection of explanation even on the ground of falsity will not mean that the addition represented the assessee 's income and more so of the con cealed income of the assessee. In fact	 the assessee has not accepted the addition before the Income Tax Officer though he has not gone on appeal for reasons best known to him. Whatever it is	 there was no acceptance that the addition represented the concealed income. Having regard to all these	 we are of the view that the assessee 's case falls within the ratio of the decisions in C.I.T. vs Anwar Ali	 and C.I.T. vs Khoday Ramarao & Sons	 In view of what we have expressed above	 we find no reasons to sustain the penalty. Accordingly	 we cancel the penalty. " The penalty was set aside. Aggrieved by the said order the revenue moved the Tribunal under section 256(1) of the Act to refer the following questions of law to the High Court: "(i) Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in canceling the penalty levied u/s 271(i)(c) in the assessee 's case? (ii) Whether having regard to the provisions of Explanation to Section 27 1(1)(c) the Appellate Tribunal 's cancellation of penalty is sustainable in law and on the materials on record? (iii) Whether the Appellate Tribunal 's view that the addi tion of Rs. 18	750 did not represent the concealed income of the assessee is based on valid and relevant consideration and is reasonable view to take on the facts of this case?" The Tribunal refused to refer the questions stated hereinbefore. The respondent moved the High Court u/s 256(2) of the Act. The High 260 Court was of the opinion that no question of law arose and ob served	 inter alia	 as follows: "It appears that the consideration mentioned in the said deed was Rs.80	000. Finally	 as a result of a search con ducted in the premises of R.V. Saroja as well as the asses see himself certain documents were seized	 which showed that the actual consideration was Rs.1	40	000 and not Rs.80	000. In this regard	 it was explained that even if it was consid ered that the purchase consideration admitted by the asses see was not adequate	 surplus cash balance and the addition al payment	 if any	 should be deemed to have been come out of such surplus fund and not out of any undisclosed fund. The Income Tax Officer found himself unable to accept the said explanation for the reason that the statements of receipts and payment filed by the assessee only enabled him to reasonably connect some of the payments	 but the said statement could not serve the purpose of a regular cash book disclosing such cash balance	 under the assessee 's personal expenses were not shown in the statement. If these were taken note of	 the surplus	 if any	 would be wiped off. In the end	 he came to the conclusion that the assessee had not accounted for the full consideration for the plot purchased by him in the name of his son and that the balance of the consideration should have been met out of income from undis closed sources." According to the High Court	 no question of law arose. Aggrieved thereby	 the revenue moved this Court and obtained leave under Article 136 of the Constitution. The short point is: In the facts and circumstances of this case and in the light of law as it stood at the relevant time	 has the assessee been able to discharge his onus to prove the question which arose in view of the Explanation intro duced by the Finance Act	 1964	 section 271 of the Act. The said Explanation provides as follows: "Explanation where the total income returned by any person is less than 80% of the total income (hereinafter in this Explanation referred to as the correct income) as assessed u/s 143 or 144 or section 147 '(reduced by the expenditure in curred bona fide by him for the purpose of making or 261 earning any income included in the total income but which has been disallowed as a deduction)	 such person shaH	 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 partic ulars of his income or furnished inaccurate particulars of such income for the purposes of cl. (c) of this subsection . " It was explained by this Court in CIT vs Mussadilal Ram Bharose	 that under the law as it stood prior to the amendment of 1964	 the onus was on the revenue to prove that the assessee had furnished inaccurate particulars or had concealed the income. Mr. Ahuja	 appearing for the revenue	 urged before us that difficulties were found in proving the positive element required for concealment under the law prior to the amendment and this had to be estab lished by the revenue. He drew our attention to the observa tion of this Court at p. 20 of the report where this Court reiterated that the effect of the Explanation was that where the total income returned by any person was less than 30% of the total income assessed	 the onus was on such person to prove that the failure to file the correct income did not arise from any fraud or any gross or wilful neglect on his part and unless he did so he should be deemed to have con cealed the particulars of his income or furnished inaccurate particulars for the purpose of section 271(1) of the Act. The position	 therefore	 is that the moment the stipulated difference was there	 the onus to prove that it was not the failure of the assessee or fraud of the assessee or neglect of the assessee that caused the difference shifted to the assessee	 but it has to be borne in mind that though the onus shifted	 the onus that was shifted was rebuttable. This Court has explained the position at page 22 of the report as follows: "The position	 therefore	 in law is clear. If the returned income is less than 80% of the assessed income	 the presump tion is raised against the assessee that the assessee is guilty of fraud or gross or wilful neglect as a result of which he has concealed the income but this presumption can be rebutted. The rebuttal must be on materials relevant and cogent. It is for the fact finding body to judge the rele vancy and sufficiency of the materials If such a fact finding body	 bearing the aforesaid principles in mind	 comes to the conclusion that the assessee has discharged the onus	 it becomes a conclusion of fact. " 262 Mr. Ahuja and Mr. Sampath both relied on this decision to contend what was the position in law. Relying on this decision	 Mr. Sampath appearing for the assessee sought to urge that in the instant case	 the Tribunal had found that there was explanation for the excess and that was the end of the matter. No question of law arose thereafter	 according to him. It is true that the presumption that arose was rebuttable presumption that there was concealment of income and if there was cogent material to rebut the evidence that was acceptable then presumption would not stand. In the instant case	 the falsity of the explanation given by the assessee has been accepted by the Tribunal. The Tribunal stated that in the instant case no doubt the Income Tax Officer was justified to say that not only the explanation was not convincing	 but false because there was no cash available to the assessee for payment of the extra money paid. Therefore	 no explanation was forwarded as to where from the extra money came. If that was the position and the presumption was further that the assessee was guilty of fraud	 then the subsequent presumption followed that the assessee concealed the income and that can be only rebutted by cogent and reliable evidence. No such attempt in this case was made. In that view of the matter	 in our opinion	 it cannot be said that in this case the Tribunal was justi fied in rejecting the claim and penalty may be imposed. The presumption raised as aforesaid	 that is to say that the assessee was guilty of fraud or wilful neglect as a result of which the assessee has concealed the income	 would be there. This presumption could have been rebutted by cogent	 reliable and relevant materials. There was none	 at least neither the tribunal nor the High Court has indicated any. If that is the position	 the High Court	 in our opinion	 was in error in not correctly applying the principles laid down by this Court in C.I.T. vs Mussadilal Ram Bharose	 (supra) and the principles of law applicable in a situation of this type to the facts of this case and	 therefore	 the decision is not sustainable. In the instant case there was no contro versy that the amount was not the income of the year in question. In the aforesaid view of the matter	 we set aside the judgment and order of the High Court and direct reference on the aforesaid question of law to the High Court. Let a statement of the case on the aforesaid question be forwarded by the Tribunal within four months from this date	 and the High Court dispose of the reference as quickly as possible. The appeal is allowed and is disposed of in those terms. The cost of this appeal will be the cost in the reference. P.S.S. Appeal allowed.

Summary:
Under the Explanation added to section 271(1)(c) of the Income Tax Act 1961 by the Finance Act	 1964	 the assessee	 in a case where the total income returned was less than 80 per cent of the total income assessed	 was to he deemed to have concealed the particulars of his income unless he proved that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. In his return of income for the assessment year 1966 67 the assessee respondent declared certain loss. The wealth statements called for did not disclose investment in lands. Later it was found that he had purchased a plot in his son 's name. In the assessment it was stated that the total consid eration was Rs.80	000 out of which Rs.25	000 was the payment in respect of the portion purchased for his son. The exami nation of the material and the document revealed that the total consideration was Rs. 1	40	000. The on money payment made by him on behalf of his son was Rs. 18	750. Since the assessee could not adduce evidence to prove the nature and source of investment the ITO treated the sum as the undisclosed income and initiated penalty proceedings under section 271(1)(c) of the Act for concealment of income and referred the case to IAC. The IAC imposed a penalty equal to the income concealed holding that the assessee had not discharged the burden cast upon him by the Explanation. In appeal	 the Tribunal set aside the penalty on the ground that the assessee had at no time given any false or different particulars about this property in his return of income or at any time during the assessment proceedings and	 therefore	 there could not he any question of his having filed any incorrect particulars; that since the assessee had not stated in the assessment proceedings that he had pur chased the pro 256 perty only for Rs.80	000	 and during the examination and accepted that though there were two agreements but the real consideration was Rs. 1	40	000	 it could not be said that he had been wilfully negligent or fraudulent in this regard; that as regards concealment	 his explanation was that there was some cash available for purchase of the plot	 and that no doubt the Income Tax Officer might be justified to say that not only this explanation was not convincing but false the rejection of explanation even on the ground of falsity would not mean that the addition represented the assessee 's income and more so of the concealed income. It also refused to refer to the High Court the questions of law preferred by the revenue. In the appeal by the Revenue under section 256(2) of the Act the High Court found that there was no proof to show that the said sum of Rs. 18	750 represented the income of the relevant year and accordingly held that no question of law arose. Allowing the appeal by special leave	 the Court	 HELD: 1. The High Court was in error in not correctly applying the principles of law laid down by this Court in C.I.T. vs Mussadilal Ram Bharose	 to the facts of the case. The decision	 therefore	 was not sustainable. [262F] 2.1. The presumption that could be raised against the assessee under section 271(1)(c) of the Act	 as it stood at the relevant time	 that he was guilty of fraud or gross or wilful neglect resulting in concealment of income was a rebuttable presumption and if there was cogent material to rebut the evidence that was acceptable	 the said presumption would not stand. 1261E; 262B] 2.2. In the instant case	 the falsity of the explanation given by the assessee had been accepted by the Tribunal in as much as it had stated that the Income Tax Officer was justified to say that not only the explanation was not convincing but false because there was no cash available to the assessee for payment of the extra money paid. Therefore	 no explanation was forwarded as to where from the extra money came. If that was the position and the presumption was further that the assessee was guilty of fraud	 then the subsequent presumption followed that he had concealed the income. [262B D] 2.3. The presumption thus raised against the assessee that he was guilty of fraud or wilful neglect as a result of which he had concealed the 257 income	 would be there. This presumption could have been rebutted By cogent	 reliable and relevant materials. No such attempt was made in the case. It could not	 therefore	 be said that the Tribunal was justified in rejecting the claim. [262E F] [Statement of the case to be forwarded by the Tribunal within four months and the High Court to dispose of the reference as quickly as possible.] [262G]