MAHAVIR METAL WORKS Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS judgment will dispose of Income-tax Reference No. 12 of 197?.

(2.) BRIEFLY stated, the facts giving rise to this reference are that the petitioner-firm. Messrs. Mahavir Metal Works, Kapurthala, is engaged in the manufacture and sale of aluminium utensils with its head office at Kapurthala. This firm, apart from its branch at Delhi, had another branch at Trivandrum under the style of Kolpunj Enterprises where it was carrying on the business of manufacture and sale of Bandsaw Blades and wire netting. The petitioner-firm is alleged to have raised loans from some of the parties at Madras which were taken against hundis for a specified period. The branch of the petitioner-firm at Trivandrum was closed some time during August, 1963. In the course of assessment proceedings, for the assessment year 1964-65, the Income-tax Officer enquired from the petitioner-firm about these loans. The firm produced evidence in the form of hundis before the Income-tax Officer. The Income-tax Officer was also informed that some of the loans were received by drafts and even the payments towards interest were made by drafts. The Income-tax Officer was not satisfied and he required the petitioner-firm to produce the parties along with their confirmatory letters. This could not be done as, according to the petitioner-firm, the business at Trivandrum had been closed and the latest whereabouts of the persons from whom the loans were taken were not known. Therefore, the firm surrendered the loan amounts aggregating to Rs. 35,000 raised from these parties. The said amount of Rs. 35,000, along with the interest of Rs. 2,728 alleged to have been paid to these parties, were thus assessed as the income of the petitioner-firm and subsequently in the penalty proceedings, on these facts, a penalty of Rs. 12,000 was imposed. The petitioner-firm filed an appeal before the Tribunal that no penalty was exigible, but the Tribunal taking note of the surrender of the amount of Rs. 35,000 as the assessee's income from undisclosed sources came to the conclusion that the penalty was exigible. It is on these facts that the following question of law has been referred for our opinion :

(3.) AFTER hearing the learned counsel for the parties I am of the opinion that this question must be answered in the affirmative and in favour of the revenue. It is well-settled by now that the penalty proceedings are of a penal nature and it is for the department to establish that the assessee was guilty of concealment of the particulars of income. The mere fact that the assessee has given a false explanation, does not prove that the disputed amount constitutes income of the assessee. Moreover, the finding given during the course of 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 the penalty pro ceedings that the disputed amount was the assessee's income, but it must be remembered that since the said proceedings are of penal nature, 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 explana tion furnished by the assessee was false cannot be taken to be conclusive. Before the penalty can be imposed, the entirety of the circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had. consciously concealed the particulars or had deliberately furnished inaccurate particulars. Reference in this connection may be made to Commissioner of Income-tax v. Anwar Ali, [1970] 76 I. T. R. 696, [1971] 1 S. C. R. 446 (SC.) and Commissioner of Income-tax v. Khoday Eswarsa and Sons, [1972] 83 I. T. R. 369 (S. C. ). Therefore, keeping in view this position of law, the facts of the present case have to be examined. It is clear from the order of the Inspecting Assistant Commissioner of Income-tax, Jullundur Range, Jullundur, annexure "a", that the petitioner-firm filed a revised return of the income in question wherein the firm itself showed this amount as its income and it was in view of this admission of the assessee that the amount in question was assessed as income of the assessee from undisclosed sources. It was a different matter if the assessee during the course of the assessment proceedings would have failed to prove the explanation given by him about this amount having been taken as a loan from three parties and the Income-tax Officer might have recorded a finding that the explanation furnished by the assessee was not proved. In that case, during the subsequent penalty proceedings, it was incumbent upon the income-tax authorities to have discharged its onus by leading evidence to show that the undisclosed amount was the income of the assessee and once it was proved that the same was the income of the assessee and that the assessee had concealed the particulars of income or had deliberately furnished inadequate particulars of such income, the penalty could be imposed. But in a case where the assessee himself, during the course of the assessment proceedings, files a revised return and owns the amount in question as his income and he also having earlier filed a return concealing the said income by deliberately furnishing inaccurate particulars of that income, the moment the said admission of the assessee is proved by the department during the course of the penalty proceedings the onus on the department is discharged. In that situation, the assessee is put to proof and it is open to the assessee to prove in the penalty proceedings that the admission made by him during the course of the assessment proceedings was wrongly or illegally made or was incorrect. He can, by leading evidence in the penalty proceedings, prove that the explanation put forth by him that the amount in question was a loan taken by the assessee was correct and if he is able to show during the course of the penalty proceedings that the explanation furnished was correct, no penalty can be levied. The learned counsel for the petitioner-firm relied on Anwar Ali's case decided by their Lordships of the Supreme Court. In my opinion, the said decision is of no help to the petitioner, keeping in view the fact that the petitioner himself owned the amount in question as his income by filing a revised return and having failed to prove during the course of the penalty proceedings that the explanation furnished by him earlier that the said amount was a loan was correct. In I. T. R. No. 35 of 1971 (Jawahar Woollen Textile Mills v. Commissioner of Income-tax, [1973] 92 I. T. R. 510 (Punj.)) decided on January 17, 1972, a Division Bench of this court, in more or less similar circumstances, came to the conclusion that the decision in Anwar Ali's case was not applicable and it was found that there was material on the record on which the Inspecting Assistant Commissioner and the Tribunal came to the conclusion that there was concealment of the income. The Delhi High Court in Durga Timber Works v. Commissioner of Income-tax, [1971] 79 I. T. R. 63 (Delhi) also took the same view as I am inclined to take in this case. In that case during the course of the assessment proceedings of the firm, Durga Timber Works, the Income-tax Officer noticed cash credits to the tune of Rs. 17,500 in certain accounts and the accounts were shown as squared up. Similarly, a sum of Rs. 36,900 was shown in the assessee's books as having been invested in a supposed factory out of which a sum of Rs. 22,800 was shown as adjusted. But, for the balance of Rs. 14,100 no explanation was given. When the assessee was asked to adduce evidence to establish these cash credits and to explain the source of investment of Rs. 14,100, it admitted that the two amounts could be treated as its concealed income and included in its total income for that year. On these facts, a penalty notice was issued to the assessee, and it was held by the Division Bench of the Delhi High Court that, in these circumstances, it would amount to laying an impossible burden of proof on the department and making the provisions for imposition of penalty wholly unworkable if even after the assessee had admitted that the two amounts could be treated as its concealed income, the department had still to prove by independent evidence that the assessee had concealed its income. The levy of penalty for concealment of income was justified.