COMMISSIONER OF INCOME TAX v. NATHULAL AGARWALA & SONS
[Citation -1985-LL-0312]

Citation 1985-LL-0312
Appellant Name COMMISSIONER OF INCOME TAX
Respondent Name NATHULAL AGARWALA & SONS
Court ITAT
Relevant Act Income-tax
Date of Order 12/03/1985
Assessment Year 1964-65
Judgment View Judgment
Keyword Tags initiation of penalty proceedings • statutory presumption • concealment of income • imposition of penalty • legislative history • undisclosed income • show-cause notice • judicial opinion • returned income • disputed amount • burden of proof • income returned • fresh evidence • initial burden • additional tax • onus to prove • tax evasion
Bot Summary: On further appeal by the assessee, the matter came up before the Tribunal which categorically held that the explanation offered by the assessee was rightly rejected by the taxing authorities. Thereafter, the IAC rejected the explanation and held that in view of the amended provisions of the Finance Act of 1964, the added Explanation to s. 271(1)(c) of the I.T. Act, 1961, was clearly attracted. The presumption against the assessee in the said Explanation had to be mandatorily and statutorily raised against the assessee. To apply the Explanation in its full rigour and the raising of the demand against the assessee in a case where the returned income is less than eighty per cent. For clarity's sake, these may be formulated as under: that the amount of the assessed income is the correct income and it is in fact the income of the assessee himself; that the failure of the assessee to return the aforesaid correct income was due to concealment of the particulars of his income on his part; or that such failure of the assessee was due to furnishing inaccurate particulars of such income. As to the nature of the explanation to be rendered by the assessee, it seems plain on principle that it is not the law that the moment any fantastic or unacceptable explanation is given, the burden placed upon him would be discharged and the presumption rebutted. In my view, the explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation.


JUDGMENT JUDGMENT judgment of court was delivered by SANDHAWALIA C. J.-Whether ratio of CIT v. Anwar Ali [1970] 76 ITR 696 (SC) still holds field despite designed deletion of word " deliberately " from s. 271(1)(c) of I.T. Act, 1961, and pointed insertion of exhaustive Explanation thereto by Finance Act No. 5 of 1964 has come to be focal question in this reference to Full Bench. Equally at issue is correctness of either one of two strands of parallel judicial thought within this court itself. Somewhat regretfully it must be noticed that issues aforesaid arise from assessment made way back for year 1964-65. assessee, M/s. Nathulal Agrawala & Sons, Hazaribagh, had declared its income at merely Rs. 22,116. ITO, however, completed assessment at nearly four-fold figure of Rs. 82,378. He included in this assessment sum of Rs. 26,000 purporting to be in names of wives of three of partners of assessee firm. Admittedly, ITO had required assessee to explain nature and sources of these alleged cash credits. This was said to be furnished by assessee but same was categorically rejected and amount of Rs. 26,000 was added to income as accruing from undisclosed sources. On appeal to AAC, this addition was in terms challenged, inter alia, but he also rejected explanation of assessee and upheld addition. On further appeal by assessee, matter came up before Tribunal which categorically held that explanation offered by assessee was rightly rejected by taxing authorities. However, it accorded relief of Rs. 7,500 in this account. After completion of assessment, ITO initiated penalty proceedings. Since amount of penalty leviable exceeded Rs. 1,000, he forwarded matter to IAC. latter issued show-cause notice to assessee to which certain explanations were offered including written reply dated May 11, 1970. assessee's representative was also heard in matter. Thereafter, IAC rejected explanation and held that in view of amended provisions of Finance Act of 1964, added Explanation to s. 271(1)(c) of I.T. Act, 1961, was clearly attracted. He, consequently, imposed penalty of Rs. 12,000. assessee came up in appeal to Tribunal against aforesaid penalty order. Tribunal observed that undoubtedly case was one where there was difference of over twenty per cent. between income assessed and income returned and this had been done after rejecting assessee's explanation offered by it with regard to cash credits mentioned above. Nevertheless, it concluded as follows: " assessee has maintained books of account in ordinary course of business but same were not accepted and some estimate of sales and rate was made. No specific item of omission of sales or purchases was pointed out by authorities below either in assessment order or in penalty order. In our opinion, authorities below were not right in levying penalty which is deleted. amount, if paid, is directed to be refunded." On aforesaid facts, following question of law has now been referred to this court by Tribunal, at instance of Commissioner of income-tax, Bihar: " Whether, on facts and in circumstances of case, Tribunal was legally correct in deleting penalty of Rs. 12,000 levied by Inspecting Assistant Commissioner under section 271(1)(c) read with Explanation to that section? " This case originally came up for hearing before Division Bench consisting of my learned brothers, Uday Sinha and Nazir Ahmad JJ. It was forcefully urged before them that even within this court, there appeared to be two strands of, thought with regard to scope and ambit of Explanation to s. 271(1)(c) of I.T. Act, 1961 (hereinafter referred to as " Act "), after amendment by Finance Act of 1964 and equally about applicability of ratio in Anwar Ali's case [1970] 76 ITR 696 (SC). In very lucid reference order, it was noticed that even though Anwar Ali's case may no longer be applicable in context where Explanation was directly attracted, yet its ghost seems to permeate several decisions within this court as also in some other High Courts. In order to resolve cleavage of judicial opinion and also to lay down nature and content of explanation which must be rendered by assessee to rebut statutory presumption now raised against it, case has been referred to Full Bench for authoritative decision. Mr. Rajgarhia, learned counsel for Commissioner of Incometax, has plausibly and forcefully assailed ambivalent stand of Tribunal in deleting penalty imposed. It was highlighted that it is common ground that in view of wide divergence betwixt income declared by assessee and correct income assessed under Act, Explanation to s. 271(1)(c) of Act was admittedly attracted in this case. presumption against assessee in said Explanation had, therefore, to be mandatorily and statutorily raised against assessee. purported explanation by assessee stood categorically rejected in assessment proceedings concurrently by Income-tax Officer, Appellate Assistant Commissioner and Tribunal itself. Equally in penalty proceedings, AAC rejected explanation out of hand and Tribunal had again in no way deviated from that conclusion. Nevertheless, for wholly unwarranted reasons, penalty had been directed to be deleted. Counsel submitted with force and plausibility that despite clear legislative intendment in Finance Act No. 5 of 1964, ghost of Anwar Ali's case [1970] 76 ITR 696 (SC) and earlier precedents prior to amendment still straddled field. judgments of this court either expressly or impliedly applying ratio of Anwar Ali's case to post-amendment law after 1964 were frontally assailed as patently erroneous. It is manifest from above that crucial issue herein is true legislative intent in deleting word " deliberately " from s. 271(1)(c) and addition of Explanation thereto and resultant construction to be placed on these amendments. Equally it is plain that there already exists vast volume of legal literature on import and scope of added Explanation. It may, therefore, be unnecessary to launch exhaustive dissertation on first principles in this context. Nevertheless, in view of sharp cleavage of judicial opinion in other High Courts and, in particular, within our court itself, which has necessitated this reference, question has to be examined both against backdrop of its legislative history as also on language of statutory Explanation itself. Inevitably one must first advert to legislative background. Though it is well known, it calls for pointed notice that corresponding provision of present s. 271 of Act was s. 28 of Indian I.T. Act, 1922. When earlier statute was replaced by present Act of 1961, s. 271 thereof retained provisions of earlier s. 28, virtually in pari materia therewith. It deserves highlighting that in construing provisions of s. 28 of 1922 Act and unamended s. 271(1)(c) of present Act (that is prior to 1964), there came to fore two distinct schools of judicial thought. One was represented by judgment of Allahabad High Court in Lal Chand Gopaldas v. CIT [1963] 48 ITR 324. Ranged on other side was view of Bombay High Court in CIT v. Gokuldas Harivallabhdas [1958] 34 ITR 98 and judgments of Gujarat High Court and our court taking similar view. latter view was tilted heavily in favour of assessee. Apparently faced with this conflict of judicial opinion and almost impossible burden of proof which was laid on Income-tax Department by Bombay and Gujarat views, legislature envisaged, inter alia, amendment of s. 271(1)(c) in order to shift burden of proof in certain cases from shoulders of Department to clearly those of assessee, provided specific conditions were satisfied. underlying purpose for doing so is evident from following paragraph 17 of Memo explaining provisions of Finance Bill of 1964 ([1964] 51 ITR (St) 102): " (17) Concealment of income.-It is proposed to provide that where income declared by assessee in return furnished by him is less than 80 per cent. of assessed income (reduced by expenditure incurred bona fide for earning income but disallowed), assessee shall be deemed to have concealed his income or furnished inaccurate particulars thereof and be liable to penalty accordingly, unless he produces proof to establish his bona fides in matter." objects and purposes of legislature in doing so seem to be manifest from following note on clause 40 of amending Bill, which later came to be enacted as Finance Act (No. 5 of 1964): " Clause 40 seeks to amend section 271 of Income-tax Act to provide that where income returned by assessee is less than 80 per cent. of assessed income, assessee shall be deemed to have concealed income or furnished inaccurate particulars thereof and be liable to penalty accordingly, unless he furnishes evidence to prove his bona fides in matter." It was to effectuate statutorily aforesaid purpose that first meaningful change made was by omitting word " deliberately " from clause (c) of s. 271(1) which had earlier existed both in s. 28 of 1922 Act as also in unamended s. 271 of present Act. Thereafter, elaborate change was made by insertion of exhaustive Explanation to clause (c), which is now primary subject-matter of interpretation. To precisely appreciate language of change which was designedly brought by legislature in this context, it becomes necessary to juxtapose earlier provisions of s. 28 of 1922 Act and s. 271(1)(c) of present Act as it stood prior to amendment and subsequent thereto: ------------------------------------------------------------------------------- Section 28 of 1922 Act Section 271(1)(c) of After amendment 1961 Act: Before amendment -------------------------------------------------------------------------------(1) (2) (3) -------------------------------------------------------------------------------(1) If Income- tax (1) If Income-tax (1) If Income-tax Officer, Appellate Officer or Appellate Officer, Appellate Assistant Commissioner Assistant Commissioner Assistant Commissioner, or Appellate Tribu- in course of any or Commissioner, nal in course of proceedings under this (Appeals) in course ----------------------------------------------------------------------------(1) (2) (3) ---------- ------------------------------------------------------------------any proceedings under Act, is satisfied that of any proceedings this Act, is satisfied any person-... under this Act, is satisthat any person-... fied that any person-... (c) has concealed (c) has concealed (c) has concealed particulars of his particulars of his particulars of his income or deliberately income or deliberately income or furnished furnished inaccurate furnished inaccurate inaccurate particulars particulars of such particulars of such of such income-income, income, he or it may direct he may direct that he may direct that that such person shall such person shall pay such person shall pay pay by way of penalty by way of penalty,-... by way of penalty,-... in case referred to in clause (a), in addition (iii) in cases (iii) in cases to amount of referred to in clause (c), referred to in clause (c), income-tax and super- in addition to any tax in addition to any tax tax, if any, payable by payable by him, sum payable by him, sum him, sum not exceed- which shall not be less which shall not be less ing one and half times than twenty per cent. than, but which shall that amount, and in but which shall not not exceed twice, cases referred to in exceed one and half amount of income clauses (b) and (c), in times amount of in respect of which addition to any tax tax, if any, which particulars have been payable by him, sum would have been concealed or inaccurate not exceeding one and avoided if income particulars have been half times amount as returned by such furnished. of income-tax and person had been super-tax, if any, which accepted as correct Explanation.-Where would have been income. total income avoided if income (2)........... " returned by any person as returned by such is less than eighty per person had been cent. of total income accepted as correct (hereinafter in this income:--....... Explanation referred to as correct income) as assessed under section 143 or section 144 or section 147 (reduced by expenditure ---------------------------------------------------------------------------(1) (2) (3) ----------- ----------------------------------------------------------------incurred bona fide by him for purpose of making or earning any income included in total income but which has been disallowed as deduction), such person shall, unless he proves that failure to return correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed particulars of his income or furnished inaccurate particulars of such income for purposes of clause (c)of this sub-section." clause (c)of this sub-section." Now confining oneself first to change made in clause (c) of s. 271(1) alone, significant thing that meets eye is designed omission of word " deliberately " therefrom. It bears reiteration that this word had equally found place in earlier s. 28 of 1922 Act. With extinction of word " deliberately ", requirement of designed furnishing of inaccurate particulars of income was obliterated. When legislature pointedly deleted this word, it seems that it clearly did so in order to bring it in harmony and in consonance with intent and purposes of Explanation which was added thereto. As long as word " deliberately " existed in clause (c), conscious mental element would have to be required to be established thereunder and inevitably burden of proving thereof would have to be on Department. When legislature contemplated reversal, or in any case change in this burden of proof by addition of Explanation thereto, it necessarily first neutralised provisions of clause (c) by taking out therefrom word " deliberately " with express intention of excluding designed mental element. This aspect has to be permanently kept in mind in construing Explanation, which was added to clause (c) thereof. Before adverting to language of inserted Explanation, certain broad characteristics in this context call for particular notice with regard to its nature and scope. It seems plain that statute visualised assessment proceedings and penalty proceedings as wholly distinct and independent of each other, at least so far as applicability of Explanation is concerned. assessment proceedings necessarily precede and herein are very foundation of subsequent penalty proceedings, if any. In true essence, until assessment proceedings in shape of final determination of assessed income are completed, provisions of Explanation could hardly come into play. This is so because objective and indeed virtually arithmetical test (which would be elaborated hereafter) is raised basically on income assessed which has been designated as correct income for this purpose. It is only when this correct income has been determined, that, by comparing it with returned income of assessee, test of same being less than eighty per cent. of former can be applied. Again, it is only when this test is satisfied and case squarely falls within ambit of higher levels of concealment that later part of Explanation would come into play. Therefore, assessment proceedings and penalty proceedings must be kept sharply distinct and independent from each other. Equally axiomatic it is that penalty would follow assessment or, in reverse, assessment of income by Department must precede penalty thereafter, if any, to attract provisions of Explanation. It is no doubt true that sometimes, even during assessment proceedings itself, notice to show cause why penalty be not imposed is issued when disparity between returned income and income likely to be assessed is glaringly patent. However, to apply Explanation in its full rigour and raising of demand against assessee in case where returned income is less than eighty per cent. of assessed income, penalty proceedings can truly be taken only if correct income has been finalised. However, as point is not directly before us (and, therefore, has not at all been debated) we do not in any way wish to opine about validity of penalty notice issued prior to determination of assessed income. Adverting now to language of Explanation, analysis thereof would indicate that for purpose of levying of penalty, legislature has made two clear cut divisions. This has been done by providing objective, and, if one may say so, almost mathematical test. touchstone therefor is income returned by assessee as against income assessed by Department and designated as correct income. case where returned income is less than eighty per cent. of assessed income can be squarely placed in one category. Where, however, such variation is below 20 per cent., that would fall in second category. To first category, where there is larger concealment of income, provisions of newly added Explanation become at once applicable with resultant attraction of presumptions against such assessee. However, those falling in second category, where variation between returned income and assessed income is less or relatively marginal, that would be out of net of Explanation and continue to be governed by law as it existed prior to amendment and insertion of Explanation. amendment and insertion of Explanation. It would necessarily follow from above that in order to determine applicability of Explanation, first exercise is to see as to in which of two categories assessee would fall. As noticed earlier, criterion here is purely arithmetical. If difference between returned income and assessed income varies between 20 per cent. or more, then assessee straightaway falls within net of newly added Explanation. Once this is so, Explanation is attracted at once and what remains thereafter is to determine consequences of its application. close reading of later part of Explanation would indicate that once it is held that it is applicable to case of assessee, it straightaway raises three legal presumptions against him. For clarity's sake, these may be formulated as under: (i) that amount of assessed income is correct income and it is in fact income of assessee himself; (ii) that failure of assessee to return aforesaid correct income was due to concealment of particulars of his income on his part; or (iii) that such failure of assessee was due to furnishing inaccurate particulars of such income. Now, it would follow from above, and factum of presumptions spelled out therein, that in essence Explanation is rule of evidence. This indeed appears to be well established both on language and principle of Explanation as also by mass of precedent holding to same effect which does not need to be referred to. Further, it must at once be pointed out that presumptions raised by Explanation are not conclusive presumptions. These are only rebuttable presumptions. As is rule under civil law, initial burden of discharging onus of rebuttal is on assessee. However, once he does so, he would be out of mischief of Explanation until and unless Department is able to establish afresh that assessee in fact had concealed particulars of his income or furnished inaccurate particulars thereof. nature of initial onus placed on assessee herein under Explanation is not unlike ordinary burden of proof placed on either party in judicial proceedings. basic rule of evidence is that if person on whom onus to prove lies is unable to discharge same, his cause would fail. It must further be reiterated that presumption raised herein is only initial presumption, which is rebuttable by evidence. burden of discharging onus to prove thereunder would again be like one in ordinary civil proceedings, i.e., it can be so discharged by preponderance of evidence. Again, it must not be insisted upon that there is any necessary or mandatory requirement of leading evidence by one of parties. Such burden can be discharged by existing material on record in specific case. As was pointed out earlier, assessment proceedings and penalty proceedings are distinct and separate. It would be permissible for assessee under penalty proceedings to show and prove that on existing material itself, presumption raised by Explanation would stand rebutted. It is apt to highlight that in penalty proceedings within tax field as such, there is no room for bringing in rules of criminal law and insist on mens Yea or proof beyond all reasonable doubt. In this context, it is apt to recall observations of Full Bench in CIT v. Patram Dass Raja Ram Beri [1981] 132 ITR 671 (P & H) [FB], wherein after full discussion of principle and precedent, it was concluded as follows (p. 682): " In view of aforesaid authoritative enunciations, it is unnecessary to elaborate matter further and it would be evident that generally penalty proceedings in taxing statute are civil proceedings of remedial or coercive nature imposing additional tax as sanction for speedy collection of revenue. Therefore, imposition of penalty for tax delinquency cannot possibly be equated with conviction and sentence for criminal offence." It follows from above that penalty proceedings are separate and distinct from any nuances of criminality and it is, therefore, inapt to use terminology of criminal law, like offence, crime, or charge, etc., which should be scrupulously avoided. Lastly, in this context, it appears that apart from clear language of Explanation, it also has support of sound rationale behind it. In case of concealment of income and tax evasion (it must be regretfully said that this seems to have, in way, become national syndrome) modus of concealment is obviously within special knowledge of assessee. settled, and virtually hallowed, rule of evidence in this context is epitomised by s. 106 of Evidence Act: "106. When any fact is especially within knowledge of any person, burden of proving that fact is upon him." It was in light of aforesaid rule of evidence and larger principle that Mr. Rajgarhia for Revenue rightly assailed trend of reasoning permeating some of judgments discussed hereinafter to effect that assessee herein was required to prove negative and, consequently, burden was almost impossible to discharge. It was pointed out that in most cases, if not in all, this would indeed be very far from factual position, since inevitably undisclosed income or concealed sources are themselves within special knowledge of assessee himself alone. Since under Evidence Act itself, burden of proving such facts is on person having such special knowledge, Legislature herein has also rightly placed same on assessee. Consequently, once presumption of law under s. 271(1)(c) of Act is raised against assessee, it is for him to prove by adducing material or exhibiting from that already on record for rebutting or dislodging such presumption. To whittle down this presumption on theory that herein burden has been laid to prove negative does not appear to me as justifiable. Consequently, in cases of blatant evasion, legislature was compelled to take off impossible burden of establishing facts which were obviously within special knowledge of assessee alone. onus was, therefore, rightly placed on shoulders of assessee who alone could reasonably discharge same. It was apparently inherent impossibility of discharging such onerous burden placed on Department (under unamended provision and interpretation placed thereon by some of High Courts) that Legislature was ultimately compelled to bring in amendment by way of adding Explanation by Finance Act of 1964. That this was designedly done to effect change in law appears to be matter of little doubt. In fact, it has been nobody's case that insertion of Explanation and omission of word " deliberately " from clause (c) of s. 271(1) was merely declaratory of existing law. changes were obviously brought in to remedy particular mischief. To say that despite amendment in clause (c) and insertion of Explanation, no change was brought about in law would be rendering whole of these provisions nugatory and would be violating settled canon of construction that meaning must be given to every word in statute. rule of interpretation in celebrated Heydon's case [1584] 3 Co. Rep. 7a, is thus clearly attracted. One must at once look to what was state of law before making of amendment and what was mischief or defect for which law did not earlier provide and what remedy has now been provided by Legislature and equally reasons for that remedy. stage is now set for adverting to precedent and inevitably pride of place must be given to CIT v. Anwar Ali [1970] 76 ITR 696 (SC). perusal of judgment therein makes it mainfest that question that had arisen was with regard to assessment year 1947-48 and, expressly, law applicable was unamended provision of s. 28(1)(c) of Indian I.T. Act, 1922. primary question which seems to have been determined was whether imposition of penalty is in nature of penal provision, which was answered in affirmative. ancillary question was with regard to nature of burden upon Department for establishing that assessee is liable to payment of penalty under applicable provisions of s. 28(1)(c) of 1922 Act. It was held that mere fact that explanation of assessee is false did not necessarily give rise to inference that disputed amount represents his income and he was ipso facto liable to penalty though same was good evidence for consideration in that context. It is manifest from above that in case of CIT v. Amway Ali 1970] 76 ITR 696 (SC), no question whatsoever of interpretation of s. 271(1)(c) of present Act and specific change sought to be wrought therein by amendment had even remotely arisen and in view of fact that assessment pertained to year 1947-48, it could not possibly arise. As already assessment pertained to year 1947-48, it could not possibly arise. As already noticed, questions which fell for determination were altogether different and not even remotely analogous to what we are herein called upon to decide. It would inevitably follow that because of amendments wrought in s. 271(1)(c) by Finance Act of 1964 and designed deletion of word " deliberately " therefrom and insertion of Explanation thereto, ratio and reasoning of Anwar Ali's case which had construed earlier and different provisions of s. 28(1)(c) of 1922 Act, cannot even remotely be applicable to construction of s. 271(1)(c) as now amended. Apart from principle, there appears to be near unanimity of precedent (barring some marginal discordant notes) for view that deletion of word " deliberately " and addition of Explanation to s. 271(1)(c) introduced by Finance Act of 1964 were intended to make clear change in earlier law and have spelt out categoric rule of evidence raising three rebuttable presumptions against assessee in cases where returned income was less than 80 per cent. of assessed income. In forefront herein is consistent and unbroken line of precedent in Allahabad High Court, whose earlier view seems to have been expressly accepted by Legislature in preference to contrary opinion prevailing in Bombay High Court. latest exposition thereof is by Satish Chandra C.J., in Addl. CIT v. Ram Prakash [1981] 128 ITR 559 (All), in following words (p. 562): " Taking up last feature first, position is that cl. (c) to s. 271(1) used word'deliberate' in connection with phrase'furnish inaccurate particulars of such income'. word'deliberate' was omitted by Finance Act of 1964, which came into force on 1st April, 1964. Clause (c) as it stood after amendment provided that if assessee has concealed particulars of his income or has furnished inaccurate particulars of such income, it is no longer necessary to establish that those actions were deliberate on part of assessee. view that it is necessary to establish that assessee deliberately acted in defiance of law, etc., is not tenable after 1st April, 1964. Explanation which was added with effect from 1st April, 1964, completely reversed burden of proof in cases where returned income was less than 80 per cent. of assessed income. In this class of cases Explanation provided that assessee shall be deemed to have concealed particulars of income or furnished, inaccurate particulars of such income for purpose of cl. (c) unless he proves that failure to return correct income did not arise from any fraud or any gross or wilful neglect on his part. In other words, presumption is that assessee has concealed or furnished inaccurate particulars. This presumption is rebuttable only if assessee proves affirmatively that failure to return correct income was not due to fraud or any gross or wilful neglect on his part. Thus, burden is squarely on assessee, not in relation to concealment either of income or of particulars thereof, but in very distinct matter. burden of proof on assessee is that failure to return correct income was not due to either of three things, fraud or gross or wilful neglect. On this aspect, burden cannot be shifted on to Department by merely saying that explanation offered by assessee that amount in question was not his income though not believable or acceptable, yet mere disbelief will not lead to conclusion that he was guilty of fraud or gross or wilful neglect. By saying so, in substance, burden is shifted without any material. " Totally, in consonance with above are observations of Division Benches of Allahabad High Court in CIT v. Zeekoo Shoe Factory [1981] 127 ITR 837, Addl. CIT v. Quality Sweet House [1981] 130 ITR 309, CIT v. Chiranji Lal Shanti Swarup [1981] 130 ITR 651 and Mohd. Ibrahim Azimulla v. CIT [1981] 131 ITR 680. In Orissa High Court, whilst adopting view in consonance with above, Division Bench in CIT v. K. C. Behera [1976] 103 ITR 479, expressly opined in following words that Amway Ali's case [1970] 76 ITR 696 (SC), would no longer hold field in context of amended provision (p. 486): " That decision has no application to initiation of penalty proceedings subsequent to April 1, 1964. Explanation brought in radical changes. object of Explanation was to get over difficulty created by decisions which placed burden of proving concealment of particulars of income on Revenue as was done in Amway Ali's case [1970] 76 ITR 696 (SC). Explanation now places burden of proving that failure to return correct income did not arise from any fraud or gross or wilful neglect on assessee. object of Explanation is to create presumption in favour of Revenue in certain contingency. That is to say, where total income returned is less than 80 per cent. of total income assessed, presumption would apply. presumption is rebuttable one and can be displaced by assessee by proving that failure to return correct income did not arise from any fraud or gross or wilful neglect on his part. " later Division Bench of Orissa High Court in CIT v. Puranmal Prabhudhayal [1977] 106 ITR 675 has again conformed to earlier view. In recent judgment in CIT v. Rupabani Theatres P. Ltd. [1981] 130 ITR 747, Calcutta High Court has exhaustively considered this aspect and taking identical view has observed as follows (at p. 765 of report); " In effect, this, in our opinion, makes explicit what was implicit in previous Explanation and in appropriate case, in our opinion, unless certain presumptions are made, that is to say, presuming it to be income of assessee for that year, no question of deeming to have furnished inaccurate particulars or concealed that income would arise. Tribunal, therefore, in our opinion, was wrong in legal approach that after introduction of Explanation, no change was intended which affected observations of Supreme Court. Change undoubtedly was intended to be effected, not to nullify observations of Supreme Court because those observations were made long after Explanation had come into effect, but to implement legislative policy which was felt necessary to ensure implementation of these provisions. " other High Courts also seem to have taken stand consistent with above. Division Bench of Gujarat High Court in CIT v. Drapco Electric Corporation [1980] 122 ITR 341 and later followed in Kantilal Manilal v. CIT [1981] 130 ITR 411 expressed identical opinion. To same effect is judgment of Madhya Pradesh High Court in Addl. CIT v. Bhartiya Bhandar [1980] 122 ITR 622 and that of Rajasthan High Court in CIT v. Dr. R. C. Gupta and Co. [1980] 122 ITR 567. It remains to advert pointedly to cleavage of judicial opinion within this court which necessitated placing of this case before Full Bench. As has been pointed out very forcefully by my learned brother, Uday Sinha J. in his lucid order of reference, it would seem that, ghost of Anwar Ali's case still permeates number of judgments of this court despite legislative mandate and pointed amendments in s. 271(1)(c) by Finance Act, 1964. This must be finally set at rest and cobwebs in penumbral area must be cleansed. Mr. B.P. Rajgarhia, learned counsel for Revenue, was not far wrong in his assertion that, despite amendment, judicial thought has not been wholly able to free itself from observation in Anwar Ali's case and earlier precedents which had construed provisions of s. 28(1)(c) of 1922 Act or unamended provisions of s. 271(1)(c) of present Act. Thus, there, appears to be two streams of parallel precedent running in this court even after amendment one rightly holding that after radical change wrought by amendment of s. 271(1)(c), ratio of Anwar Ali's case and earlier precedents had ceased to apply to situation. other school of thought still clings in way to coat-tails of this ratio, and subjectively re-introduces same by bringing in afresh concept of deliberate fraud or concealment by assessee still to be established by Department even in cases where Explanation to s. 271(1)(c) is attracted subsequent to its amendment. It would be unnecessary to individually advert to facts, reasoning and ratio of this line of cases. It perhaps suffices to mention that there was long era in which s. 28(1)(c) of Indian I.T. Act, 1922, and unamended provisions of s. 271(1)(c) of present Act (prior to 1964) had held field and precedents had interpreted same. However, it would seem that even after amendment and radical change in law, earlier ghost has still continued to permeate judicial thought for considerable time. Reference in this context may chronologically be made to Addl. CIT v. Kashiram Mathura Prasad [1979] 119 ITR 497 (Pat), CIT v. Gopal Vastralaya [1980] 122 ITR 527 (Pat), CIT v. Binod Co. [1980] 122 ITR 832 (Pat) and CIT v. Chotanagpur Glass Works [1984] 145 Co. [1980] 122 ITR 832 (Pat) and CIT v. Chotanagpur Glass Works [1984] 145 ITR 225 (Pat). It calls for pointed notice that in CIT v. Gopal Vastralaya [1980] 122 ITR 527 (Pat), Division Bench approved and followed decision of Punjab and Haryana High Court in Addl. CIT v. Karnail Singh V. Kaleran [1974] 94 ITR 505, which has been subsequently overruled by Full Bench in its parent court in Vishwakarma Industries v. CIT [1982] 135 ITR 652 (P & H). On other hand, there is clear and categoric view within this court that amendment of s. 271(1)(c) was intended to bring radical change and, in fact, to override line of reasoning of earlier cases and later symbolised by Anwar Ali's case. Reference in this context may be made to CIT v. Parmanand Advani [1979] 119 ITR 464 (Pat), Addl. CIT v. South Gobindpur Colliery Co. [1979] 119 ITR 472 (Pat) and later judgment in CIT v. Central Kooridih Colliery Company [1985] 153 ITR 311 (Pat) (Appx.), wherein it was categorically observed as under (p. 313): " After addition of Explanation, above quoted, with effect from April 1, 1964, position in this respect has changed and decision in cases of Anwar Ali [1970] 76 ITR 696 (SC) and Hindustan Steel Limited [1972] 83 ITR 26 (SC) have no application. Therefore, question is answered in favour of Department and against assessee." I would unhesitatingly record my agreement with this line of reasoning and affirm judgments of this court taking similar view. For detailed reasons spelt out earlier and for purposes of clarity of precedent, it must be held with deepest deference that observations to contrary-either explicitly or implicitly-tending to apply ratio and reasoning of Anwar Ali's case [1970] 76 ITR 696 (SC) (even after amendment of s. 271(1)(c)) in Addl. CIT v. Kashiram Mathura Prasad [1979] 119 ITR 497 (Pat), CIT v. Gopal Vastralaya [1980] 122 ITR 527 (Pat), CIT v. Binod Co. [1980] 122 ITR 832 (Pat) and CIT v. Chotanagpur Glass Works[1984] 145 ITR 225 (Pat), do not lay down law correctly and I hereby overrule them on this point. To conclude on this aspect, it must be held that patent intent of Legislature in amending s. 27l(1)(c) and omitting word " deliberately " therefrom and inserting Explanation thereto by Finance Act of 1964 was to bring about change in existing law. Consequently, ratio of Anwar Ali's case, which had considered earlier provisions of s. 28(1)(c) (1922 Act) is no longer attracted to situation. principal logical import of Explanation is to shift burden of proof from Revenue on to shoulders of assessee in class of cases where returned income was less than 80 per cent. of income assessed by Department. In this category of cases, Explanation raises three rebuttable presumptions against assessee as spelt out in detail above in paragraph 14 (supra p. 302) of this judgment. onus of proof for rebutting presumptions lies squarely on assessee. This burden, however, can be discharged (as in civil cases) by preponderance of evidence. Equally it may not be inflexibly necessary to lead fresh evidence and it would be permissible in penalty proceedings for assessee to show and prove that on existing material itself, presumptions raised by Explanation stand rebutted. All that now remains is to consider question rightly posed in referring order whether it is enough for assessee in penalty proceeding to just set out any sort of explanation and whether taxing authorities are obliged to accept that explanation without regard to its worth or credibility. It is plain that in post-amendment situation after Finance Act of 1964, question is primarily one of fact to be decided by courts competent to do so rather than one involving any niceties of law. Once Explanation is attracted, law raises legal presumption that assessee was guilty of concealing particulars of his income or of furnishing inaccurate particulars thereof. onus to dislodge that presumption is thus placed squarely on assessee and he has to show that this has not arisen from any fraud or gross or wilful neglect on his part. Therefore, it is for courts of fact to arrive at clear conclusion whether assessee has discharged that onus and rebutted presumption against him. put it in other words, it is for them alone to either accept or reject explanation or evidence in support thereof. I am afraid that there appears to be some ambivalence on this point by courts of fact which raises pointless complications thereafter. It would, therefore, be necessary and indeed most apt that wherever Explanation is attracted, ITO or AAC or Tribunal must record clear and categoric finding whether explanation of assessee has been accepted and thereby he has discharged onus laid upon him by law. If this were to be consistently done, much avoidable confusion would get out of way. As to nature of explanation to be rendered by assessee, it seems plain on principle that it is not law that moment any fantastic or unacceptable explanation is given, burden placed upon him would be discharged and presumption rebutted. It is not law and perhaps hardly can be that any and every explanation by assessee must be accepted. In my view, explanation of assessee for purpose of avoidance of penalty must be acceptable explanation. He may not prove what he asserts to hilt positively but as matter of fact materials must be brought on record to show that what he says is reasonably valid. It bears repetition that issue is one for courts of fact whether they will accept or reject explanation and they should be explicit in recording finding on point. Now, applying law laid down above, present case itself appears to be example of ambivalence displayed by Tribunal itself. AAC had in no uncertain terms rejected explanation given by assessee. In impugned assessment proceedings, Tribunal itself (vide annex. C) had unequivocally held that explanation offered by assessee was rightly rejected by taxing authorities. However, in penalty proceedings, Tribunal, while not in any way deviating from earlier finding of rejection of explanation, has proceeded to observe that since Revenue had not been able to show any specific item of omission of sales or purchases, penalty imposed could not be sustained. Clearly enough, once Explanation to s. 271(1)(c) was attracted, no burden lay on Revenue and indeed it was squarely on shoulders of assessee which had remained undischarged. Tribunal's setting aside of penalty order was thus plainly unwarranted. Accordingly, we answer question of law referred to us (recorded at end of paragraph 3 above) in negative, that is, in favour of Revenue and against assessee. UDAY SINHA J.-I agree. NAZIR AHMAD J.-I agree. *** COMMISSIONER OF INCOME TAX v. NATHULAL AGARWALA & SONS
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