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PETITIONER: CHUHARMAL S/O TAKARMAL MOHNANI

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, M.P., BHOPAL

DATE OF JUDGMENT02/05/1988

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RANGNATHAN, S.

CITATION:  1988 AIR 1384            1988 SCR  (3) 788  1988 SCC  (3) 588        JT 1988 (2)   495  1988 SCALE  (1)1119

ACT:      Income  Tax  Act,  1961:  Sections  69A  and  271(1)(c) Explanation-Assessee-Customs  authorities   seizing  foreign watches from assessee’s bedroom-Assessee not showing that he was not  owner-Value  of  watches-Whether  ‘deemed  income’- Assessable to tax.      Penalty-Income  returned   less  than   80%  of  income assessed-Penalty can be imposed.      Indian Evidence  Act, 1872:  Section 110-Normally title follows possession-Person  shown to  be in possession-Owner- Onus of  proving that  he is  not owner  is  on  person  who affirms he is not owner-Applicability of principle to income tax proceedings.

HEADNOTE:      Petitioner is  the assessee.  For the  assessment  year 1974-75 he  submitted his  return of  income showing a total income of  Rs.3,113 and  stated that  he derived this income from two stores which he had been running.      On May 12, 1973 in a search by the Customs authorities, 565 watches  of foreign  make of the value of Rs.87,455 were seized  from  the  petitioner’s  bedroom.  A  panchnama  was prepared.      The Income  Tax Officer  issued a  notice dated January 19, 1974  to the  petitioner to  show cause  why  a  sum  of Rs.87,455 the  value of  the watches  seized should  not  be treated as  his concealed  income and  brought to  tax under section 69A  of the  Act. He  further directed  issuance  of notice under section 271(1)(c) of the Act.      Being aggrieved  the petitioner  filed an appeal before the  Appellate  Assistant  Commissioner  who  dismissed  the appeal holding  that in  view of  the order  passed  by  the Collector of  Customs confiscating  the watches  and levying penalty of  Rs.2 lakhs under the Customs Act, the Income Tax Officer was  justified in  including the  cost of watches in the income of the assessee for the assessment year 1974-75. 789      Thereafter on March 29, 1978 the Assistant Commissioner issued a  notice of  penalty under  section 271(1)(c) of the Act, imposing a penalty of Rs.90,000.      The two  appeals filed by the petitioner were dismissed

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by the  Income-tax Appellate  Tribunal, and  the  petitioner sought a reference to the High Court under section 256(1) of the Act.      The High  Court held  that: (i) by virtue of the search in the house of the petitioner the watches were seized and a Panchnama was prepared, that under Section 110 of the Indian Evidence  Act,   1872  it   clearly  establishes   that  the possession  of   the  wrist   watches  was  found  with  the petitioner, that  as  the  petitioner  did  not  adduce  any evidence, he had not discharged the onus by proving that the wrist watches  did not  belong  to  him,  the  Tribunal  had rightly held  that the  value of  the wrist  watches is  the income of assessee, and (ii) that in view of the Explanation to section  271(1)(c)  the  Department  had  discharged  the burden  of   establishing  concealment.  The  reference  was accordingly answered against the assessee.      Dismissing the Special Leave Petition, ^      HELD: 1. The expression ’income’ as used in section 69A of the  Income Tax  Act, 1961 has a wide meaning which meant any thing which came in or resulted in gain.[794D]      2. Section  110 of the Evidence Act provides that where a person  was found  in possession  of anything  the onus of proving that  he was  not the  owner was  on the  person who affirms that  he was  not the  owner. The High Court in J.S. Parker v.  V.B. Palekar, 94 ITR 616 held that what was meant by saying that the Evidence Act did not apply to proceedings under the Income Tax Act was that the rigour of the rules of evidence contained  in the  Evidence Act, was not applicable but that does not mean that when the taxing authorities were desirous in  invoking the  principles of the Evidence Act in proceedings before  them, they were prevented from doing so. [793G-H;794A-B]      3. All  that section  110 of  the Evidence  Act does is that  it   embodies  a  salutary  principle  of  common  law jurisprudence  which   could  be   attracted  to  a  set  of circumstances that satisfy its condition. [794B]      4. In the instant case, possession of the wrist watches was found with the petitioner. The petitioner did not adduce any evidence, far less 790 discharged the  onus of  proving that  the wrist  watches in question did  not belong to him. Hence, the High Court held, and according  to this  Court rightly, that the value of the wrist watches  is the  income of  the assessee  by virtue of Section 69A of the Act. [793D-E]      5.  The   amendment  to   the  Explanation  to  section 271(1)(c) by  the Taxation  Laws  (Amendment)  Act  1975  is prospective in effect. [795G]      6. In  the instant  case, the assessee had shown only a total income  of Rs.3113  and subsequently the raiding party seized wrist  watches worth  Rs.87,455. The  value  of  that income  was   included  in  the  assessable  income  of  the assessee. The  total assessable  income of the assessee came to Rs.90,568  whereas the returned income was Rs.3,113 which was certainly  less than  80% of  the total  income and,  as such, Explanation to section 271(1)(c) applied. Accordingly, the Revenue  has discharged  the onus of proving concealment of income. [795E]      Vishwakarma Industries  v. Commissioner  of Income-tax, 135 ITR  652 and  Commissioner of  Income  Tax  v.  Bherulal Shrikishan,  [1983]  28  Madhya  Pradesh  Law  Journal  162, approved.      7. Though  the penalty proceedings are penal in nature, in the  facts of  this case the onus on the Revenue has been

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duly discharged. [795G-H]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Special  Leave  Petition (Civil) No. 1863 of 1986.      From the  Judgment and  Order  dated  10.12.85  of  the Madhya Pradesh  High Court  in Misc.  Civil case  No. 297 of 1981.      Dr.  N.M.   Ghatate  and   S.V.   Deshpande   for   the Petitioners.      Kuldip Singh,  Additional Solicitor General, B.B. Ahuja and Miss A. Subhashini for the Respondents.      The Judgment of the Court was delivered by      SABYASACHI MUKHARJI,  J. This  petition  for  leave  to appeal is directed against the judgment and order dated 10th December, 1985 of the High Court of Madhya Pradesh, Jabalpur Bench. The  High Court  upheld the  imposition of penalty as well as  the addition  of alleged  concealed income  in  the income-tax assessment of the peti 791 tioner. The  relevant assessment  year  with  which  we  are concerned in this application is 1974-75.      It appears that the petitioner had submitted his return of income  for the  assessment year  1974-75 showing a total income of  Rs.3,113 in  response to  a notice  issued  under section 143(2)  of the  Act  of  the  Income-tax  Act,  1961 (hereinafter called ’the Act’). According to the petitioner, he had  derived his income from 2 stores, i.e. M/s. Mohanani Fancy General Stores and M/s. Roopkala General Stores, Durg. It, however, appears that on 19th January, 1974 on the basis of the  order passed  by the Superintendent, Central Excise, Jagpur, dated  25th December, 1975 there was confiscation of foreign watches from the house of the petitioner and levy of penalty  of   Rs.2  lakhs   under  the  Customs  Act,  1962. Accordingly, the  Income Tax Officer issued a notice calling upon the assessee to show-cause why the value of the watches seized from  his residence  should not  be  treated  as  his income from  undisclosed sources.  In this connection it may be relevant to note that on 12th May, 1973 a search was made of the  petitioner’s bed-room  from where  a  total  of  565 wrist-watches of  foreign  make  valued  at  Rs.87,455  were seized from  a suit-case  and in a secret cavity of a looked steel almirah and also behind the almirah there were watches folded in a bundle of waste papers. A Panchnama was prepared at the  same time  mentioning these  facts. According to the Customs Authorities,  the petitioner found himself unable to make  any  statement  at  that  time  on  account  of  which recording of statements was deferred. However, it is stated, the petitioner  went out  of the  station on 14th May, 1973. The petitioner’s statement was recorded on 13th May, 1973 as soon as  he was  available. In  his statement Annexure R-III duly signed  by him,  he has admitted these facts and merely denied knowledge  of the  manner in which those watches came to be in his house.      It appears  from the  records of the Customs case, with which we  will have to deal later in S.L.P. No. 1008/86, the petitioner was  given a  show-cause notice  as  to  why  the period of  six months  fixed under  section  110(2)  of  the Customs Act,  1962 should  not be  extended but no reply was given by  the petitioner  till 10th  November, 1973  or even thereafter. Hence,  by an  order dated  10th November,  1973 before the  expiry of  six months,  time was extended by the Collector of  Customs for  a further  period of 6 months for

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giving a  notice as  required under  section 124(a)  of  the Customs Act,  1962. Under  the proviso  to subsection  2  of section 110  of the  Customs Act,  1962, a show-cause notice specifying the  requisite  particulars,  was  given  to  the petitioner on  4th May,  1974. In  the reply  the petitioner made a general denial. The 792 enquiry was  fixed  on  30th  october,  1975  for  giving  a personal hearing  to the  petitioner, when  the petitioner’s Counsel appeared  and sought  for  an  adjournment  to  20th November,  1975,   which  was   granted.  However,  on  20th November, 1975 the Counsel of the petitioner stated that the petitioner did  not want  to avail  of  the  opportunity  of personal hearing  or even  to cross-examine the witnesses in whose presence the Panchayatnama was made at the time of the seizure of  the watches. It is necessary to bear these facts in mind  because it  has repercussions  to the  notice dated 19th January,  1974, as mentioned hereinbefore issued by the Income Tax  Officer to  show-cause why  the aforesaid sum of Rs.90,768  should   not  be   treated  as  the  petitioner’s concealed income.  The Income  Tax Officer  further directed issuance of the notice under section 271(1)(c) of the Act.      Being  aggrieved  by  the  said  order  the  petitioner preferred  an   appeal  before   the   Appellate   Assistant Commissioner against  the order  dated 20th  February, 1976. The Appellate  Assistant Commissioner  dismissed the  appeal and held  that in  view of the order passed by the Collector of  Customs,   the  Income  Tax  Officer  was  justified  in including the  cost of  the watches  in the  income  of  the assessee for  the assessment  year 1974-75.  Thereafter,  on 29th March,  1978 the  Assistant Commissioner of the Income- tax issued  notice of penalty under section 271(1)(c) of the Act, imposing  penalty of  Rs.90,000 minimum imposable being Rs.87,455 and  maximum imposable  being  Rs.1,74,910.  Being aggrieved thereby  the petitioner  filed two  appeals before the Income Tax Appellate Tribunal. The Tribunal by its order dated  19th   August,  1980  dismissed  these  appeals.  The petitioner has  further stated  that in  the  meanwhile  the State of Madhya Pradesh initiated criminal proceedings under section 125  read with  111 of the Customs Act, 1962 and the learned  Chief  Judicial  Magistrate,  Durg,  by  his  order convicted the  petitioner and  awarded one  year’s  rigorous imprisonment.  Thereafter,   on  2nd   November,  1982   the petitioner filed  an appeal in the Court of Additional Judge in the  Court of  Sessions, who  by his judgment allowed the appeal and  acquitted the  petitioner of  the said  criminal charge.      Thereafter, there  was a reference to the High Court on two questions  against the  order of the Income-tax Tribunal under section  256(1) of  the  Act.  The  questions  are  as follows:-           "(i)  Whether,   on   the   facts   and   in   the           circumstances  of   the  case,  was  the  Tribunal           justified in  holding that  the assessee  was  the           owner of the watches and thus including the value 793           thereof in the assessment of the assessee?           (ii)  Whether,   on   the   facts   and   in   the           circumstances  of   the  case,  the  Tribunal  was           justified  in  holding  that  the  department  had           discharged  its   burden  for   establishing   the           concealment of income by the assessee for the year           under  consideration   and  thus   confirming  the           penalty of  Rs.90,000  levied  by  the  Inspecting           Assistant Commissioner of Income Tax?"

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    The High  Court in  its order  noted that  the  raiding party by  virtue of  the search entered into the bed-room of the assessee  on 12th  May, 1973  and seized  the watches. A Panchnama  was  prepared.  The  Department  found  that  the assessee was  the owner.  Section 110 of the Evidence Act is material in  this respect  and the  High Court relied on the same which  stipulates that when the question is whether any person is  owner of  anything of  which he is shown to be in possession, the onus of proving that he is not the owner, is on the person who affirms that he is not the owner. In other words, it  follows from  wellsettled principle  of law  that normally,  unless  contrary  is  established,  title  always follows possession.  In the facts of this case, indubitably, possession  of   the  wrist-watches   was  found   with  the petitioner. The  petitioner did not adduce any evidence, far less discharged  the onus  of proving that the wrist-watches in question  did not  belong to  the petitioner.  Hence, the High Court  held, and in our opinion rightly, that the value of the  wrist-watches is the income of the assessee. In this connection reference  may be  made to the views expressed by Justice Tulzapurkar  as his Lordship then was, of the Bombay High Court  in the  case of  J.S. Parkar v. V.B. Palekar, 94 ITR 616  where on  difference  of  opinion  between  Justice Deshpande and Justice Mukhi, Justice Tulzapurkar agreed with Justice Deshpande  and held  the  question  whether  on  the evidence established,  the petitioner  was the  owner of the gold seized,  though there  was no  direct  evidence  placed before the  taxing authorities  to prove that the petitioner had actually  invested moneys  for purchasing  the  gold  in question, the  inference of the ownership of the gold in the petitioner in that case rested upon circumstantial evidence. There also  gold was seized from a motor launch belonging to the petitioner  in that  case. There a contention was raised that the  provision in section 110 of the Evidence Act where a person  was found  in possession  of anything, the onus of proving that  he was  not the  owner was  on the  person who affirmed that  he was  not  the  owner,  was  incorrect  and inapplicable to  taxation proceedings.  This contention  was rejected. The High Court of Bombay held that what was 794 meant by  saying that  the Evidence Act did not apply to the proceedings under  the Act  was that the rigour of the rules of  evidence   contained  in   the  Evidence  Act,  was  not applicable but that did not mean that the taxing authorities were desirous  in invoking  the principles  of  the  Act  in proceedings before  them, they were prevented from doing so. Secondly, all  that section  110 of the Evidence Act does is that  it   embodies  a  salutary  principle  of  common  law jurisprudence  which   could  be   attracted  to  a  set  of circumstances that satisfy its condition.      We are  of the  opinion that this is a correct approach and following  this principle  the High Court in the instant case was  right in  holding that  the value  of  the  wrist- watches represented the concealed income of the assessee.      Section 69A of the Act was inserted in the Finance Act, 1964 and  it came  into force  w.e.f. 1st January, 1964. The High Court  has rightly held that the expression ’income’ as used in section 69A of the Act, has wide meaning which meant anything which  came in  or resulted  in gain. Hence, in the facts of  this case  a legitimate  inference could  be drawn that the  assessee had  income  which  he  had  invested  in purchasing the  wrist-watches and,  as such, that income was subject to  tax. In the view the High Court was justified in justifying the  Tribunal’s holding that the assessee was the owner of  the wrist-watches  and thus including the value in

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the assessment  of the  income of the assessee as his wealth and so  deemed to be the income of the assessee by virtue of section  69A   of   the   Act   coupled   with   surrounding circumstances.  Therefore,   inclusion  of   the  money   in purchasing the  wrist-watches, that is to say, Rs.87,455 was correct and  proper for the assessment year under reference. In this  connection section  69A of  the Act may usefully be set out as follows:           "Where in any financial year the assessee is found           to be  the owner  of any money, bullion, jewellery           or other valuable article and such money, bullion,           jewellery or  valuable article  is not recorded in           the books  of account,  if any,  maintained by him           for any  source of income, and the assessee offers           no explanation  about the  nature  and  source  of           acquisition of  the money,  bullion, jewellery  or           other valuable article, or the explanation offered           by him  is not,  in the  opinion of  the Assessing           Officer, satisfactory,  the money and the value of           the bullion,  jewellery or  other valuable article           may be deemed to be the income of the assessee for           such financial year." 795      So far  as the  first question  is concerned,  the High Court answered accordingly and in our opinion rightly.      As regards  the second  question, section  271(1)(c) of the Act was inserted in the Finance Act, 1974 which reads as follows:                "Explanation: Where the total income returned           by any  person is less than eighty per cent of the           total  income   (hereinafter  in  the  Explanation           referred to  as the  correct income)  as  assessed           under section  143 or  section 144  or section 147           (reduced by  the expenditure incurred bona fide by           him for  the purpose  of  making  or  earning  any           income included  in the total income but which has           been disallowed as a deduction), such person shall           unless he  proves that  the failure  to return the           correct income did not arise from any fraud or any           gross or  wilful neglect on his part, be deemed to           have concealed  the particulars  of his  income or           furnished inaccurate  particulars of  such  income           for the  purposes  of  clause  (c)  of  this  sub-           section."      From the  facts found  by the revenue, the assessee had shown only  a total  income of Rs.3,113 and subsequently the raiding party seized wrist-watches worth Rs.87,455. Thus the value of  that income  was included in the assessable income of the  assessee. Therefore,  the total assessable income of the assessee  came to  Rs.90,568 whereas the returned income was Rs.3,113  which was certainly less than 80% of the total income and,  as such,  Explanation applied. Accordingly, the revenue has  discharged the  onus of  proving concealment of income. This  view was expressed by a Full Bench of Punjab & Haryana High Court in Vishwakarma Industries v. Commissioner of  Income-tax,   135  ITR   652  where   all  the  relevant authorities have been discussed.      In  that  view  of  the  matter  and  in  view  of  the principles behind  the purpose  of Explanation, the assessee in the  instant case,  has failed  to discharge  his onus of proof. The aforesaid Explanation was amended by Finance Act, 1964 with  effect from  1st April,  1964. The  amendment was prospective in  effect and  in the  year under reference the amendment was  in force.  Though the penalty proceedings are penal in  nature but  in the  facts of this case the onus on

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revenue has  been duly discharged. This was also the view of the Bench  decision of  the Madhya  Pradesh  High  Court  in Commissioner of Income Tax v. Bherulal Shrikishan, [1983] 28 Madhya Pradesh Law Journal 162. 796      The  second  question  referred  to  hereinbefore  was, therefore, answered  in favour  of the  revenue by  the High Court and  in our opinion the High Court was justified in so doing.      In the  aforesaid view of the matter, there is no merit in  this   application  for   leave  to  appeal  and  it  is accordingly dismissed. N.V.K.                              Petition dismissed. 797