1990 (7) TMI 1 - SC - Income Tax

Tribunal properly found assessee's explanation false; presumption of fraud under s.273(1)(c) unrebutted, therefore penalty sustained

SC held the Tribunal correctly found the assessee's explanation false; absent cogent, reliable rebuttal, a presumption of fraud or wilful neglect leading ... penalty proceedings under section 273.(1)(c) - concealment of income - undisclosed income - onus to prove - Explanation introduced by the Finance Act, 1964, to section 271 - Refusal of the Tribunal to refer questions of law to the High Court - HELD THAT:- 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 in saying 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 put forward as to wherefrom the extra money came. If that was the position and the further presumption was that the assessee was guilty of fraud, then the subsequent presumption followed that the assessee has concealed the income and that can be rebutted only 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 justified 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 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 CIT v. Mussadilal Ram Bharose [1987 (1) TMI 1 - SUPREME COURT], 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 controversy that the amount was not the income of the year in question. Appeal is allowed and is disposed of in these terms. Issues:1. Assessment of income-tax under the Income-tax Act, 1961 for the assessment year 1966-67.2. Penalty proceedings under section 273(1)(c) of the Act for concealment of income.3. Refusal of the Tribunal to refer questions of law to the High Court.4. Interpretation of the Explanation to section 271(1)(c) of the Act regarding concealment of income.Detailed Analysis:1. The case involved the assessment of income-tax under the Income-tax Act, 1961 for the assessment year 1966-67. The appellant, an individual engaged in film distribution, initially declared 'No loss' in the return of income but later revised it to show a net loss. The Income-tax Officer discovered undisclosed income related to a land purchase and initiated penalty proceedings under section 273(1)(c) for concealment of income. The Inspecting Assistant Commissioner imposed a penalty, which was later set aside by the Tribunal based on the appellant's explanations and legal principles cited. The High Court refused to refer questions of law to the High Court, leading to an appeal to the Supreme Court.2. The penalty proceedings under section 273(1)(c) of the Act for concealment of income were a crucial aspect of the case. The Income-tax Officer treated a specific amount as undisclosed income, leading to penalty imposition by the Inspecting Assistant Commissioner. The Tribunal overturned the penalty based on the appellant's explanations and the absence of willful negligence or fraudulent intent. The Tribunal's decision was challenged by the Revenue, highlighting the dispute over whether the addition represented concealed income. The Supreme Court analyzed the legal principles regarding concealment of income and the burden of proof on the assessee under the Explanation to section 271(1)(c) of the Act.3. The refusal of the Tribunal to refer questions of law to the High Court was another significant issue in the case. The Revenue sought to refer questions regarding the cancellation of the penalty by the Tribunal, but the Tribunal declined. Subsequently, the respondent moved the High Court under section 256(2) of the Act, which also found no question of law arising from the Tribunal's decision. This led to the appeal to the Supreme Court challenging the refusal to refer the questions, emphasizing the need for legal clarity on the interpretation of relevant provisions.4. The interpretation of the Explanation to section 271(1)(c) of the Act regarding concealment of income played a crucial role in the Supreme Court's decision. The court discussed the shifting burden of proof on the assessee in cases where the returned income is less than the assessed income. The court referred to precedents and legal principles to determine whether the appellant had discharged the onus to prove the discrepancy in income declarations. The court emphasized the need for cogent and reliable evidence to rebut the presumption of concealment of income, ultimately setting aside the High Court's decision and directing a reference on the question of law for further consideration.