R.R. Misra, J. - (1.) BY means of this application under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the assessee has assailed the order dated August 22, 1985, passed by the Income-tax Appellate Tribunal rejecting the reference application of the assessee.
(2.) DURING the assessment year 1978-79, the assessee carried on cloth business. DURING the said year, the assessee was a registered firm. It had filed return showing an income of Rs. 66,787 on July 28, 1978. The revised return was filed by the assessee on September 28, 1979, showing an income of Rs. 2,18,810, thereby including an extra income of Rs. 1,52,027 82. This extra income was surrendered by the assessee under the head "Other sources". The circumstances leading to the filing of the revised return was in consequence of a search conducted in the business premises of the assessee on October 25, 1978, i.e., after the filing of the original return. Among the papers seized during the search was a diary in which were noted sales to various parties to the extent of Rs. 1,52,027 82. The total income of the assessee was ultimately determined at Rs. 2,59,315 up to the stage of the Tribunal. The Income-tax Officer, however, initiated penalty proceedings under Section 271(1)(c) of the Act and ultimately levied a penalty of Rs. 1,04,000 under the said provision. He held that it was only when the search and seizure operations were conducted and the Income-tax Officer found that the assessee had done considerable business outside the books and he called upon the assessee by an order-sheet entry dated August 7, 1979, to explain the nature of entries in the seized papers that the assessee confronted witJi that situation, was forced to file a revised return. He also held that it cannot be said that the revised return was filed on account of any bona fide inadvertence or omission in the original return. Ultimately, the finding recorded by the Income-tax Officer, therefore, was that the asses-see had concealed the particulars of income. The Commissioner of Income-tax (Appeals) also confirmed the penalty order passed by the Income-tax Officer under Section 271(1)(c) and dismissed the appeal filed by the assessee. On further appeal, the Income-tax Appellate Tribunal has also dismissed the appeal of the assessee, vide its order dated February 13, 1984. Thereupon, the assessee filed a miscellaneous application before the Tribunal under Section 256(2) of the Act which was also rejected by the Tribunal, vide its order dated September 10, 1984. Thereafter, the assessee filed a reference application before the Tribunal under Section 256(1) of the Act which was also rejected by the Tribunal by the impugned order dated August 22, 1985. We have heard learned counsel for the assessee. The first submission made on behalf of the assessee is that on the facts of this case, the question involved was the construction of the letter dated September 28, 1979, which was filed by the assessee along with the revised return and as such a question of law arises in the case. For this submission, learned counsel for the assessee relied upon a decision of the Calcutta High Court in the case of Bhagwanji Bhawanbhai andamp; Co. v. CIT [1983] 141 ITR 640. In this case, the Tribunal had referred the following question of law to the High Court (at p. 642): "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in holding that the credit of amount of Rs. 2,45,000 under ' Disclosure Capital Account' in place of various loan amounts in its books of account at a later year amounted to an admission of concealed income on the part of the assessee, as envisaged under the provisions of Section 271(1)(c) of the Income-tax Act, 1961 ?" The Calcutta High Court has distinguished the case by a decision of the Supreme Court in the case of CIT v. Ashoka Marketing Ltd. [1976] 103 ITR 543 on the ground that in that case the question was regarding the truth of the existence of an agreement and the question of interpretation of the agreement was not involved. The High Court found that the question before it really was as to whether on a proper interpretation of the disclosure petition, the assessee could be brought within the mischief of Section 271(1)(c) of the Act and that was the question referred by the Tribunal to the High Court for its opinion. We have considered the said decision of the Calcutta High Court. In our opinion, the ratio of the said case is not applicable to the present case for a number of reasons. Firstly, the assessment year involved in the said case was 1957-58. Till then, the Explanation to Section 271(1)(c) of the Act was not in existence at all. We shall presently refer to it as it has made a material difference in the matter of considerations which arise for the levy of penalty as well as regarding the burden of proof.
(3.) THE relevant Explanation to Section 271(1)(c) of the Act as was in force on the date of the riling of the return in the year 1978 stood as follows : "Explanation 1.--Where in respect of any facts material to the computation of the total income of any person under this Act,-- (A) such person fails to offer an explanation or offers an explanation which is found by the Income-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) to be false, or (B) such person offers an explanation which he is not able to substantiate, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed : Provided that nothing contained in this Explanation shall apply to a case referred to in Clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him." In the present case, Clause (B) of Explanation 1 is applicable. The Tribunal has held that the explanation offered by the assessee was not bona fide. It has also confirmed the view of the Income-tax Officer that it could not be said that the original return was revised by the assessee due to bona ride inadvertence or omission. It has further held that the surrender of the income made in the revised return was not voluntary but was a result of detection made by the Income-tax Officer. In view of the aforesaid findings of fact recorded by the Tribunal, it is clear that by virtue of Clause (B) of the said Explanation, the aforesaid amount of Rs. 1,52,027 added to the total income of the assessee represented the concealed income of the assessee.;