COMMISSIONER OF INCOME-TAX Versus AZAD BHARAT FINANCE Co.
1. KAPUR, J.----‑ The question in this case related to the justification and/or legality of the penalty sought to be levied by the revenue on the assessee in the assessment year 1952‑53 (previous year ending March 31, 1952). The assessee enjoyed certain overdraft facilities from the United Commercial Bank and had furnished security for the same. Part of the said security was represented by three deposits of Rs. 10,000 each in the names of Lal Singh, Gobind Singh and Pishorilal. There was an additional security furnished, being a deposit of Rs. 10,000 standing in the name of one Faqir Chand but that was in .the subsequent year and, therefore, in the opinion of the Tribunal at had no relevance to the year'" in question. By the time the assessment proceedings were taken up, Pishorilal had died and was, therefore, not produced. The other two persons were however, produced and deposed that they offered their‑deposits as security to enable the assessee to enjoy the overdraft facilities. The Income‑tax Officer and the Appellate Assistant Commis sioner came to the conclusion that the said three deposits represented undisclosed income of the assessee and, there fore, taxed the same in his hands: The said amounts had been deposited by the deposit‑holders in November 1951. The assessee then took an appeal before the Income‑tax Appellate Tribunal. The Tribunal dealt with the statement of the depositors in its order dated 19th July 4962. About Faqir Chand the Tribunal took the view that the person produced was different from the real depositor and observed :
2. "This by itself would not only prove that this particular deposit was fictitious but would also render that the other deposits also were of a similar nature because (as we shall later mention) all the deposits were made as, part of the same scheme."
3. The Tribunal dismissed the appeal with the observation that the' department had succeeded beyond reasonable doubt in establishing that the assessee itself brought in the security moneys in the shape of those fixed deposits, in the names of various persons who were totally at its influence or were obliged.
4. It may be pointed out that the deposits were pledged over a year after the‑date of deposit. The inclusion of Rs. 30,000 in the hands. of the assessee was, therefore,, upheld finally by the Tribunal in the appeal. The Income‑tax Officer then initiated penalty proceedings and decided that there was a wilful and deliberate concealment of particulars of the assessee's income: He, therefore, levied a penalty of Rs. 20,000. The Appellate Assistant Commissioner dismissed the assessee's appeal and the assessee took the matter up in appeal before the Tribunal. The Tribunal allowed the penalty appeal and held that, "since mens rea has not been established by the Department to warrant levy of penalty' under section 28(1)(c), we cancel the order levying penalty . . ." In the judgment, the Tribunal observed:
5. "Therefore, at best, the reason for the additions being made in regard to these deposits in the quantum assessment could at best amount to the assessee's explanation being .not satisfactory. We have gone through the Tribunal's order. We are sorry to say that there is no material in it to support its conclusion that the 'fixed deposits represented the secret moneys of the assessee‑firm. No link has been established between the assessee's moneys and the deposits in question. A perusal of the said order makes it patent that the explana tion offered by Faqir Chand which related to the next year has weighed very much with the Members of the Tribunal when they came to the aforesaid conclusion. As we have observed earlier the Department has not discharged its onus of proving the fault of the assessee in concealing its income."
6. It is in these circumstances that the Tribunal referred the following question to this Court under section 66(1) of the Indian Income‑tax Act, 1922:
7. "Whether, on the facts and in the circumstances of the case, penalty is leviable under section 28(1)(c) of the Indian Income‑tax Act, 1922 ?"
8. Mr. Kirpal, the learned counsel for the revenue, contended that on precisely the same evidence the Tribunal having come to the conclusion that the assessee had itself "brought in the security moneys in the shape of those fixed deposits' id the names of various persons who were totally at his influence or were obliged", there was no scope for the Tribunal to come to a different conclusion in the penalty proceedings. He further contended that the earlier decision of the Tribunal, even though not res judicata, had, in the circumstances of the case, a binding effect because no other evidence was produced by the assessee to rebut the presumption arising against It Mr. Bajaj, the learned counsel for the assessee, on the other hand, said that penalty proceedings, being independent proceedings it was open to the Tribunal to come to a different conclusion, or, in any case, to come to a conclusion that the revenue had failed to discharge tae onus that the concealment was conscious or deliberate. Mr. Kirpal relied on Lal Chand Gopal Das v. Commissioner of Income‑tax ((1963) 48 I T R 324), Haji Abdul Rahman, Abdul Qayum v. Commissioner of Income‑tax ((1965) 56 I T R 172) and Moman Ram Ram Kumar v. Commissioner of Income‑tax ((1966) 59 I T R 135). In Lal Chand's case it was held that :
9. "Whatever were the materials in the assessment proceedings are materials in the penalty proceedings also and, if they are sufficient to justify the finding in the assessment proceed ings that the receipt was income, there is no reason why , they should not be sufficient for the same finding in the penalty proceedings. Once it is found in the assessment proceedings that the receipt is income, it follows that there has been concealment of the correct particulars because the ` receipt has been described in the accounts as a deposit and not as income. The law simply is that the finding in the assessment‑ proceedings is not res judicata or conclusive in the penalty, proceedings anti the income‑tax authorities cannot refuse, in the penalty proceedings, to consider any other material that may be laid before them by the assessee to show that the finding arrived at in the assessment proceedings was erroneous and that the receipt was not income. What the income‑tax authorities cannot do in the penalty proceedings is, to refuse to hear the assessee and consider the additional materials produced by him or even to reconsider the materials already produced by him in the assessment proceedings. But there is nothing to prevent their, holding that the materials produced in the assessment proceedings were sufficient to justify the finding of concealment of the particulars."
10. In Haji Abdul Rahman's case the Allahabad High Court decided that a finding reached in the assessment proceedings is a relevant fact. In Moman Ram Ram Kumar's case which is again a judgment of the Allahabad High Court, it was held that if an explanation offered by an assessee was deliberately false it could justify imposition of penalty. Lal Chand's case was approved.
11. I will now take up the decisions relied upon by Mr. Bajaj, the learned counsel for the assessee. In Commissioner of Income tax v. Gokuldas Harivallabhdas ((1958) 34 I T R 98), the Bombay High Court held that:
12. "Whether the assessee has committed an offence or not, it is for the Tribunal to decide, and the majority of the Tribunal having decided that he has not committed an offence the matter is concluded."
13. Dealing with the legal position, Chagla, C. J. held:
(1) the penalty proceedings being quasi‑criminal proceedings, the Department must establish that the receipt In question constituted income of the assessee ;
(2) merely because the particular explanation given by the assessee is found, to be false it does not necessarily attract penalty ; . ,
(3) a decision given in assessment proceedings cannot possibly be binding on the authorities who try the assessee for an offence ; and
(4) it is open to the Income‑tax Officer in the penalty proceedings to consider his own finding that the receipt constituted an income for the assessment year, but he is, not bound by that finding and if, for instance, any other evidence is produced in the penalty proceedings, it would be open to him to come to a different conclusion.
14. It is not necessary to elaborately discuss the other decisions relied upon by Mr. Bajaj as his point of view is sufficiently represented by the above‑quoted decision of the Bombay High Court in Gokuldas's case. I may, however, mention that in Commissioner of Income‑tax v. Anwar Ali ((1967) 65 I T R 95), the Calcutta High Court held that:
(1) the assessment proceedings are not binding on the income‑tax authorities in proceedings under section 28 of the Income‑tax Act. It is true that materials disclosed in assess ment proceedings can be taken into consideration but such materials do not constitute res judicata ; and
(2) in proceedings under section 28(1)(c) the charge against the assessee is never that he gave a false explanation with the result that even if that explanation. had been disbelieved in the assessment proceedings and the amount brought to tax that will not be decisive of the matter in penalty proceedings and the department must establish that the receipt constituted income and that the assessee concealed the particulars of his income or deliberately furnished inaccurate particulars of such income.
15. It was observed :
16. "There are two ingredients in that offence. First, there is to be proved concealment or deliberate furnishing of inaccurate particulars. Secondly, it is to be proved that the concealment or deliberate inaccuracy is with regard to income. To my mind the principles laid down by Chagla, C. J. In the case of Gokuldas Harivallabhdas correctly express the character of proceedings under section 28(1)(c) of the Indian Income‑tax Act."
17. The Calcutta High Court approved the decision of the Gujarat High Court in Commissioner of Income‑tax v. L. H. Vora ((1965) 56 I T R 126). Vora's case was mainly based on the decision of the Bombay High Court in Gokuldas Harivallabhdas's case. It was held that it was for the revenue to establish that the assessee had committed defaults as set out in section 28. Dealing with the question as to whether the revenue could' rely on, the findings arrived at during the assessment proceedings as prima facie proof that certain cash credits (as in that case) in the assessee's books were his income and then draw an inference of his guilt, observed:
18. "'The proceedings being of a penal nature and the burden being upon the Department, it would be but legitimate to say that mere falsity of an explanation given in assessment proceedings would not necessarily mean that the disputed amount represented income and that, apart from that circum stance, there must be some additional material from which the Income‑tax Officer has to satisfy himself whether the assessee was guilty of the charge against him under section 28.
19. But that does not mean that because an assessee chooses to give a false statement or declines to give any explanation, no penalty proceedings can ever betaken against him. The question whether an assessee is guilty of any of the defaults enumerated in section 28 is always a question of fact and the question of guilt must depend upon the facts and circumstances of each case. If, therefore, there are additional circumstances or materials before the Income‑tax Officer besides the explanation given by an assessee, in the assessment proceedings, action under section 28 would be possible, if such circumstances or materials' and reasonable inferences drawn from them are sufficient in the view of the Income‑tax Officer to establish default under section 28."
20. The principles that emerge from the aforesaid decisions relied upon by Mr. Bajaj may be summarised thus:
(1) Though the findings arrived at in the assessment proceedings constitute relevant and admissible materials In penalty proceedings, yet they do not op‑rate as res judicata as the considerations relevant in penalty proceedings are different from those in the assessment proceedings.
(2) Merely disbelieving the assessee's explanation about the sources of certain amounts entered in his books that they did not belong to him and taxing the amounts in the hands of the assessee will not per se justify an imposition of penalty.
21. The Department must do something more and establish that the amounts constituted the assessee's taxable income and he was guilty of defaults 'specified in section 28.
(3) Only conscious and deliberate concealment on the part of the assessee can attract penalty.
(4) Each case has to be decided on its own facts bearing in mind the aforementioned principles.
22. With utmost respect, I find it difficult to concur with the opinion of the Allahabad High Court in Lal Chand's case to the extent the decision records a departure from the above mentioned principles. In the case at hand, the Tribunal, while 'dealing with the penalty appeal, came to the conclusion that at best the reason for the additions‑being made in the quantum assessment was the unsatisfactory nature of the assessee's explanation. I have already extracted above the relevant passage from, the Tribunal's order and that passage shows that the Tribunal approached the problem from the point of view that in the earlier decision the Tribunal was' influenced by the unsatisfactory explanation of Faqir Chand's deposit, which deposit had no relevance in the relevant year. It is possible that my decision on facts may have been different. It is equally possible that if I were sitting as a Court of appeal I may have come to the same conclusion. But the factual controversy is not before me. What calls for my decision is whether the Tribunal could on facts come to the conclusion to which it did. I need say no more than this that the Tribunal's view on facts is a possible one, namely that, that .the moneys were taxed in the hands of the assessee on the footing that his explanation was not correct. In this view, I must answer the question in the negative and in favour of the assessee. In the circum stances of the case, however, I‑ will leave the parties to bear their own, costs.