29 April 1970
Supreme Court


Case number: Appeal (civil) 2560 of 1966






DATE OF JUDGMENT: 29/04/1970


CITATION:  1970 AIR 1782            1971 SCR  (1) 446  1970 SCC  (2) 185  CITATOR INFO :  F          1972 SC 132  (18)  D          1973 SC  22  (13)  RF         1977 SC2194  (2)  RF         1980 SC1146  (7)  RF         1992 SC 591  (2)

ACT: Income-tax  Act  (11 of 1922),  s.  28-Penalty  proceedings- Whether of a criminal nature-Onus on department show  amount concealed as income.

HEADNOTE: The  Income-tax Officer, while assessing the  respondent  to tax   discovered   an  undisclosed  bank  account   of   the ’respondent  for  a  large  sum.   He  did  not  accept  the explanation of the respondent as to the source of the amount and  held  that it represented income  from  an  undisclosed source.   Thereafter he initiated penalty proceedings  under s.  28  and  imposed a penalty which was  confirmed  by  the Appellate  Assistant Commissioner.  In appeal, the  Tribunal held that penalty proceedings were of a criminal nature  and that  the  burden  lay on the department to  show  that  the amount concealed was of a revenue nature and was  assessable as  income  and  that the onus was  not  discharged  in  the present   case  by  merely  showing  that   the   assessee’s explanation was not accepted in the assessment  proceedings. The High Court agreed with the Tribunal. In appeal to this Court, HELD. (1) Penalty proceedings are included in the expression "assessment"  and  the  true  nature of  a  penalty  is  the imposition of an additional tax.  But, one of the  principal objects  of  s.  28  is  to  provide  a  deterrent   against recurrence  of default on the part of the assessee.   There- fore,  the section is a penal provision and the  proceedings were of a penal nature. [450 B-C] C.   A. Abraham v. Income-tax officer, 41 I.T.R. 425 (S.C.), explained. Commissioner of Income-tax, Ahmedabad v. Gokuldas Harivallabhdas 34 I.T.R. 98,  Commissioner of Income-tax Gujarat v.  L.  H. Vora, 56 I.T.R. 126 and Commissioner of Income Tax Bihar and



Orissa v. Mohan Mallah, 54    I.T.R. 499, approved. Moman     Rain  Ram  Kumar v.  Commissioner  of  Income-tax, U.P., 59 I.T.R. 135 and Lal Chand Gopal Das v.  Commissioner of Income-tax, U.P., 48 I.T.R. 324, not approved. Hindustan  Steel  Ltd. v. State of Orissa, C.As.  Nos.  883- 892/66  dt.  4-8-1969 and Fattorini  (Thomas)  (Lanchashire) Ltd.  v.  Inland Revenue Commissioner,  (1943)  (11)  I.T.R. Supp. 50, referred to. (2)The  gist  of the offence under s. 28(1)(c) is  that  the assessee  has  concealed the particulars of  his  income  or deliberately   furnished  inaccurate  particulars  of   such income,  and therefore, the department must  establish  that the  receipt of the amount in dispute constitutes income  of the assessee.  If there is no evidence on the record  except the  explanation  has been found to be false,  if  does  not follow that the receipt constitutes his taxable income. [450 E-G]                             447 Commissioner    of,   Income-tax,    Ahmedabad    v.Gokuldas Harivallabhdas, 34 I.T.R. 98, approved. (3)’Since the proceedings under s. 28 are of a penal  nature and  the  burden  is  on the  department  to  prove  that  a particular amount is a revenue receipt, the finding given in the  assessment proceedings that the assessee’s  explanation is  false and that the disputed amount represents income  is evidence  but  is not conclusive.  Before penalty  could  be imposed the, entirety of circumstances must reasonably point to  the  conclusion  that the  disputed  amount  represented income  and that the assesses , had  consciously.  concealed the particulars of his income or had deliberately  furnished inaccurate particulars. [450-451 A-C]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2560 of 1966. Appeal from the judgment and order dated May 11, 1966 of the Calcutta High Court in Income-tax Matter No. 98 of 1962. S.   T.  Desai,  G. C. Sharma and R. N.  Sachthey,  for  the appellants. D.   K. De, A. N. Sinha, Rathin Das for P. K. Mukherjee, for respondent. The Judgment of the Court was delivered by Grover,  J. This is an appeal by special leave from a  judg- ment  of  the Calcutta High Court  answering  the  following question  which  was referred to it by the Tribunal  in  the negative and in favour of the assessee.               "Whether on the facts and in the circumstances               of  the case, the Income-tax authorities  were               justified   in  imposing  a  penalty  on   the               assessee  under  Section, 28 (1)  (c)  of  the                             Income-tax Act ?" The  assessee  during  the  assessment  year  1947-48,   the corresponding- previous year being the financial year ending on March 31, 947 was a partner in the firm of M/s.  Haji Sk. Md.   Hussain Md. Jan of Calcutta.  The  Income-tax  Officer while  making the assessment discovered an undisclosed  bank account of the assessee with the Central Bank of India  Ltd. Bettiah,  Bihar.   It was found that a cash-deposit  of  Rs. 87,000 had been made by the assessee on November 21, 1946 in that  Bank.   He  was asked to explain the  source,  of  the amount  of  deposit.  According to his explanation  all  his relations got panicky during the communal riots in Bihar  in the  year 1946 and entrusted him with whatever cash  amounts they had with them at that time for safe custody.



448 It was stated that a sum of Rs. 87,000 had been received  in the following manner  Zahir Hussain alias Md. Zahir (Cousin)Rs.    18,500/-  Mohammad Jan (deceased father)Rs.  1,000  Mohd. Haniff (cousin)    Rs.1,750  Khairunnessa Bibi (mother)Rs.23,000  Safihan Bibi (Sister)    Rs.13,000  Fatema Bibi (Wife)  Rs.15,750  Hasuia Bibi (Brother’s wife)Rs.12,000                                     ___________                                     Rs.87,000                                     ____________ These  amounts which were received by the assessee from  his relations  were deposited by him in a fixed deposit  account in the joint name of himself and his minor sons in the  Bank at  Bettiah.   The  Income-tax Officer did  not  accept  the explanation  of  the assessee and held that the sum  of  Rs. 87,000  represented  income from  undisclosed  sources.   He added the amount to the total income of the assessee in  his personal  assessment.  This addition was maintained  by  the Appellate  Assistant Commissioner in appeal.  The  Appellate Tribunal  also agreed with the decision of  ,the  Income-tax Officer and the Appellate Assistant Commissioner. Penalty proceedings were initiated after the assessment  and in  due  course  the Income-tax Officer  imposed  a  penalty amounting to Rs. 66,000 on the assessee under S. 28 (1)  (c) for concealing income and deliberately furnishing inaccurate particulars.  The Appellate Assistant Commissioner in appeal held that the case clearly called for a penal action but  he reduced  the amount of penalty by Rs. 22,000.   Subsequently he rectified his order under S. 35 and confirmed the penalty of  Rs.  66,000  imposed by  the  Income-tax  Officer.   The assessee  went up to the Appellate Tribunal in appeal.   The Tribunal  took the view that penalty proceedings were  of  a criminal nature.  The onus lay on the department to show  by adequate evidence that the amount of the cash stated to have been  concealed by the assessee was of a revenue nature  and was assessable as income and that the assessee had concealed it  or  deliberately furnished false particulars  in  regard thereto.  This onus, in the opinion of the Tribunal, was not ,discharged by the Income-tax authorities by showing  merely that the explanation given by the assessee in the assessment proceedings  was found to be unacceptable.   The  Income-tax Officer, according to the Tribunal, must find some  material apart  from  he  falsity of the  assessee’s  explanation  to support  his  finding  that  the  receipt  from  undisclosed sources  was income.  As no satisfactory evidence  had  been produced by the department to establish 4 49 that  the amount in question represented the income  of  the assessee the Tribunal held that no penalty could be imposed. Now penalty can be imposed under s. 28 (1) (c) if the Income tax  Officer,  the Appellate Assistant Commissioner  or  the Appellate  Tribunal in the course of any  proceedings  under the  Income-tax Act 1922 is satisfied that any  person  "has concealed  the  particulars of his  income  or  deliberately furnished  inaccurate particulars of such income".   In  the judgment  under  appeal  reference  has  been  made  to  the decisions  of the various High Courts on the true ambit  and scope  of  this provision and the burden in  the  matter  of establishing   concealment  of  particulars  of  income   or deliberately  furnishing  inaccurate  particulars  of   such income.   The  majority of High Courts,  namely,  Bombay  in Commissioner   of   Income-tax,   Ahmedabad   v.    Gokuldas



Harivallabhdas(1),  Gujarat  in Commissioner  of  Income-tax Gujarat  v.  L. H. Vora (2 ) and Patna  in  Commissioner  of Income-tax  Bihar & Orissa v. Mohan Mallah(3) had  expressed the  view that proceedings under s. 28 ( 1 ) (c) were  of  a penal nature and it was for the department to establish that the  assessee was guilty of concealment of, the  particulars of  income.   The mere fact that the assessee  had  given  a false explanation did not prove that the receipt necessarily constituted  income of the assessee.  Allahabad High  Court, however,  in  Moman Rain Rant Kumar(1)  v.  Commissioner  of Income-tax U.P. observed that where the explanation  offered by  the assessee in respect of an item of income-  shown  as capital  receipt was deliberately false it was open  to  the Income-tax authorities to impose a penalty under s. 2 8  (1) (c).   In  the earlier judgment in Lal Chand  Gopal  Das  v. Commissioner  of Income-tax U.P.(5) the Allahabad court  had said  that if a receipt was income but was disguised in  the account or in the return as a non-assessable receipt it  was clearly  a  case  of concealment of the  particulars  or  of furnishing  inaccurate particulars of income and  a  penalty under s. 2 8 (1) (c) should be imposed on the assessee. The  first point which falls ’for determination  is  whether the  imposition  of  penalty is in the  nature  of  a  penal provision.   The determination of the question of burden  of proof  will depend largely on the penalty proceedings  being penal  in nature or being merely meant for imposition of  an additional  tax,, the liability to pay such tax having  been designated  as  penalty under s. 28.  One line  of  argument which  has  prevailed particularly with the  Allahabad  High Court  in Lal Chand Gopal Das(5) cage is that there  was  no essential  difference  between tax and penalty  because  the liability for payment of both was imposed as a part of the- (1) 34 I.T.R. 98.                              (2) 56 I.T.R. 126. (3)  54 I.T.R. 499.                             (4) 59  ].T. P. 135. (5)  48 I.T.R. 324., 450 -machinery  of  assessment  and the penalty  was  merely  an additional  tax imposed in certain circumstances on  account of  the assessee’s conduct.  The justification of this  view was  founded  on certain observations in C.  A.  Abraham  v. Income-tax  Officer,  Kottayam & Anr.(1). It  is  true  that penalty  proceedings  under  s.  28  are  included  in   the expression  "assessment" and the true nature of penalty  has been  held to be additional tax.  But one of  the  principal objects in enacting S. 28 is to provide a deterrent  against recurrence  of  default on the part of  the  assessee.   The section  is  penal in the sense that  its  consequences  are intended to be an effective deterrent which will put a  Stop to  practices which the legislature considers to be  against the  public  interest.   It is significant  that  in  C.  A. Abraham’s(1)  case  this  Court  was  not  called  upon   to determine whether penalty proceedings were penal or of quasi penal  nature  and  the observations  made  with  regard  to penalty  being  an additional tax were made in  a  different context  and  for a different purpose.  It appears  to  have been  taken as settled by now in the sales tax law  that  an order  imposing  penalty is the result of a  quasi  criminal proceedings;   (Hindustan  Steel  Ltd.  v.  The   State   of Orissa(1).   In England also it has never been doubted  that such proceedings are penal; Fattorini (Thomas) (Lanchashire) (Ltd., v. Inland Revenue Commissioner (3). The  next question is that when proceedings under S. 28  are penal  in character what would be the nature of  the  burden



upon  the department for establishing that the  assessee  is liable to payment of penalty.  As has been rightly  observed by Chagla C.J., in Commissioner of Income-tax, Ahmedabad  v, Gokuldas Harivallabhdas (4) the gist of the offence under S. 2  8  (  1  ) (c) is that the  assessee  has  concealed  the particulars   of  his  income  or   deliberately   furnished inaccurate  particulars  of such income  and  therefore  the department must establish that the receipt of the amount  in dispute ,constitutes income of the assessee.  If there is no evidence  on the record except the explanation given by  the assessee  which ,explanation has been found to be  false  it does  not  follow that the receipt constitutes  his  taxable income. Another  point is whether a finding given in the  assessment proceedings  that  a  particular  receipt  is  income  after rejecting  the  explanation given by the assessee  as  false would   prima  facie  be  sufficient  for  establishing   in proceedings  under  S. 28 that the disputed amount  was  the assessee’s   income.   It  must  be  remembered   that   the proceedings under S. 28 are of a penal nature and the burden is on the department to prove that a particular amount (1)  41 1. T.R. 425. (3)  1943 (11) I.T.R. (Supp.)50. (2)  C.A.S. 883-392/66 dt. 4-8-1969. (4)  34 I.T.R. 98. 451 is  a revenue receipt.  It would be perfectly legitimate  to say that the mere fact that the explanation of the  assessee is  false  does not necessarily give rise to  the  inference that  the disputed amount represents income.  It  cannot  be said  that the finding given in the  assessment  proceedings for determining or computing the tax is conclusive.  However it  is  good evidence.  Before penalty can  be  imposed  the entirety  of  circumstances  must reasonably  point  to  the conclusion  that the disputed amount represented income  and that the assessee had consciously concealed the  particulars of  his  income or had  deliberately  furnished.  inaccurate particulars. In  the  present case, it was neither suggested  before  the High  Court nor has it been contended before us  that  apart from  the falsity of the explanation given by  the  assessee there was cogent material or evidence from which it could be inferred that the assessee had concealed the particulars  of his   income  or  had  deliberately   furnished   inaccurate particulars  in  respect of the same and that  the  disputed amount was a revenue receipt.  The question was,  therefore, rightly answered by the High Court. The appeal fails and it is dismissed with costs. V.P.S.                                            Appeal dismissed. 4 5 2