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PETITIONER: COMMISSIONER OF INCOME-TAX, MADRAS

       Vs.

RESPONDENT: K.R. SADAYAPPAN

DATE OF JUDGMENT10/07/1990

BENCH: MUKHARJI, SABYASACHI (CJ) BENCH: MUKHARJI, SABYASACHI (CJ) SAIKIA, K.N. (J)

CITATION:  1992 AIR  591            1990 SCR  (3) 255  1990 SCC  (4)   1        JT 1990 (3)   199  1990 SCALE  (2)89

ACT:     Income Tax Act, 1961: s. 271(1)(c)--Explanation  (intro- duced   by   Finance  Act,  1964)--Deemed   concealment   of income--Total  income returned less than 80 per cent of  the total income assessed--Rebuttable presumption raised against the assessee--Validity of.

HEADNOTE:     Under  the  Explanation  added to s.  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 s. 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

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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 s. 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. v. Mussadilal Ram Bharose, 165 ITR 14 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 s. 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]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil 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

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   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

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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. v. Anwar Ali, 76 ITR 696 and C.I.T. v. Khoday Ramarao & Sons, 83 ITR 369.  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 s. 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

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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 s. 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 v. Mussadilal  Ram Bharose, 165 ITR 14 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

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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. v. 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. 263