1993 (9) TMI 11 - SC - Income Tax

Undisclosed cash deposits: penalty under s.271(1)(c) cannot stand without Revenue proof; burden shifts when returned income

SC held that where undisclosed cash deposits were found and the assessee's explanation was rejected but Revenue produced no further material proving ... Concealment of the particulars of income or furnished inaccurate particulars - burden of proof - Whether, the Tribunal was right in holding that no penalty could be imposed with reference to the cash deposits on the principle of Anwar Ali's case [1970 (4) TMI 1 - SUPREME COURT], even after the amendment of section 271 in 1964 ? - HELD THAT:- The case where an undisclosed cash deposit was discovered and the explanation offered by the assessee in that behalf was rejected but the Revenue did not adduce any further material from which it could be inferred that the assessee had concealed the particulars of his income or had deliberately furnished inadequate particulars in respect of the same or that the disputed amount was a revenue receipt. Reassessment was completed, whereafter proceedings were initiated under section 271(1)(c) of the Act. It is not really necessary for us to state the several facts of the case except to mention that the question before the High Court was whether the Explanation to sub-section (1) of section 271, added by the Finance Act, 1964, with effect from April 1, 1964, makes any difference to the position of law obtaining till then, as explained in this court's decision in CIT v. Anwar Ali [1970 (4) TMI 1 - SUPREME COURT]. Once the returned income is shown to be less than 80 per cent. of the total income assessed, the presumption comes into play and then the burden shifts to the assessee to establish that his failure to return the correct income was not on account of any fraud or gross or wilful neglect on his part. If he fails to establish the same, the presumption will become a finding and it would be open to the authority to levy the penalty. But if the assessee establishes that his failure to return the correct income was not on account of any fraud or any gross or wilful neglect on his part, it is evident, no penalty can be levied. In this case, we are concerned with five assessment years as indicated hereinabove. We are not furnished with the dates on which returns were filed for each of the said five assessment years. So far as the three subsequent assessment years, viz., 1965-66, 1966-67 and 1967-68 are concerned, it cannot but be that the returns were filed subsequent to April 1, 1964, and if so, the penalty proceedings with respect to these three assessment years will be governed by and have to be disposed of in the light of section 271(1)(c) read with the Explanation. So far as the earlier two assessment years are concerned, no opinion can be expressed by us in the absence of relevant particulars. Appeals are allowed in part as indicated hereinbefore. Issues:Interpretation of penalty imposition for cash deposits post amendment in 1964.Analysis:The Supreme Court heard appeals by the Revenue challenging a judgment favoring the assessee by the Allahabad High Court. The central question concerned the imposition of a penalty related to cash deposits post the 1964 amendment to section 271 of the Income-tax Act. The case pertained to assessment years 1962-63, 1963-64, 1965-66, 1966-67, and 1967-68, involving an individual running a tea stall in Nainital. The Department discovered potential income concealment prompting reassessment and penalty proceedings under section 271(1)(c). The High Court deliberated on the impact of the 1964 Explanation on the existing legal principles derived from Anwar Ali's case [1970] 76 ITR 696 (SC).The Supreme Court revisited the principles established in Anwar Ali's case [1970] 76 ITR 696 (SC) regarding penalty imposition for income concealment. The court emphasized that penalty proceedings are penal in nature, requiring the Department to prove deliberate concealment or furnishing of inaccurate income particulars. The case highlighted the significance of evidence beyond the assessee's explanation to establish tax liability. The 1964 amendment introduced an Explanation shifting the burden of proof to the assessee if the returned income is less than 80% of the assessed income. This presumption can lead to penalty imposition unless the assessee proves the lack of fraud or neglect in reporting income accurately.The court clarified that the introduction of the Explanation altered the burden of proof in penalty proceedings post the 1964 amendment. The onus now lies on the assessee to rebut the presumption of concealment if the returned income is significantly lower than the assessed income. The court referenced past decisions, including CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, to underscore the impact of the Explanation on penalty imposition. The judgment emphasized the need for relevant and cogent evidence to counter the presumption of concealment under the amended law.The court concluded that post the 1964 amendment, penalty proceedings must consider the presumption created by the Explanation, shifting the burden of proof to the assessee. The judgment highlighted that rejection of the assessee's explanation alone is insufficient for penalty imposition; the Revenue must demonstrate deliberate concealment of income. The court directed the Tribunal to reevaluate the penalty imposition in accordance with the amended law and observations in the judgment, emphasizing the need for factual analysis and adherence to the revised burden of proof standards.In summary, the Supreme Court's judgment clarified the impact of the 1964 amendment on penalty imposition for income concealment, emphasizing the revised burden of proof and the necessity of cogent evidence to counter the presumption created by the Explanation. The decision underscored the need for a comprehensive factual analysis in penalty proceedings post the legislative changes introduced in 1964.