1980 (4) TMI 2 - SC - Income Tax

Availability of pre-existing funds doesn't automatically rebut inference of undisclosed income for s.271(1)(c); revenue bears burden; remitted under s.260(1)

SC held that for levy of penalty under s.271(1)(c) the availability of a previously concealed fund does not automatically rebut the inference of ... Scope of s. 271(1)(c) - concealed the particulars of income or furnished inaccurate particulars - imposition of penalty - discrepancies in the disclosed income - Cash credits - Burden of proof - Income Tax Officer (ITO) rejected the assessee's explanations for excess expenditures and cash deposits - HELD THAT:- The mere availability of such a fund cannot, in all cases, imply that the assessee has not earned further secret profits during the relevant assessment year. Neither law nor human experience guarantees that an assessee who has been dishonest in one assessment year is bound to be honest in a subsequent assessment year. It is a matter for consideration by the taxing authority in each case whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year. In each case, the true nature of the cash deficit and the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. Evidence may exist to show that reliance cannot be placed completely on the availability of a previously earned undisclosed income. A number of circumstances of vital significance may point to the conclusion that the cash deficit or cash credit cannot reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed come earned during the assessment year under consideration. It is open in to the revenue to rely on all the circumstances pointing to that conclusion. What these several circumstances can be is difficult to enumerate and indeed, from the nature of the enquiry, it is almost impossible to do so. In the end, they must be such as can lead to the firm conclusion that the assessee has concealed the particulars of his income or has deliberately furnished inaccurate particulars. It is needless to reiterate that in a penalty proceeding the burden remains on the revenue of proving the existence of material leading to that conclusion. While considering the legal principles involved in the application of s. 271(1)(c) the High Court, in our opinion, has erred in entering into the facts of the case and determining in point of fact that the assessee earned income during the relevant previous year and that he was guilty of concealing such income or furnishing inaccurate particulars of it. Having found that the legal basis underlying the order of the Appellate Tribunal was not sustainable, the High Court should have limited itself to answering the question raised by the reference in the negative, leaving it to the Appellate Tribunal to take up the appeal again and redetermine it in the light of the law laid down by the High Court. It is the Appellate Tribunal which has been entrusted with the authority to find facts. A High Court is confined to deciding the question of law referred to it on facts found by the Appellate Tribunal. That is the kind of order we now propose to make. Because the finding of the Appellate Tribunal that no penalty was leviable rests on an erroneous legal basis, we endorse the opinion of the High Court that the question referred must be answered in the negative. But as the High Court should not have rendered findings of fact, we vacate the findings of fact reached by the High Court, without expressing any opinion on their correctness, leaving it to the Appellate Tribunal in exercise of its duty under s. 260(1) of the Income-tax Act to take up the appeal and to redetermine it conformably to this judgment and in the light of the principles laid down in it. The appeal is disposed of accordingly. Issues:Scope of s. 271(1)(c) of the I.T. Act, 1961; Burden of proof in penalty proceedings; Consideration of all relevant facts and circumstances in penalty proceedings; Applicability of legal principles in the application of s. 271(1)(c); Authority of the Appellate Tribunal to find facts.Analysis:The judgment by the Supreme Court dealt with an appeal against the judgment of the Andhra Pradesh High Court regarding the scope of s. 271(1)(c) of the I.T. Act, 1961. The case involved an abkari contractor who had discrepancies in the disclosed income leading to penalty proceedings under s. 271(1)(c). The Income Tax Officer (ITO) rejected the assessee's explanations for excess expenditures and cash deposits, estimating the income at Rs. 5,00,018. However, the Appellate Tribunal reduced the assessed income to Rs. 1,30,000, leading to the penalty imposition of Rs. 75,000 by the Income-tax Appellate Tribunal (IAC). The Appellate Tribunal later set aside the penalty order made by the IAC, leading to the reference of the question to the High Court.The High Court held that the Appellate Tribunal was not justified in holding that no penalty was leviable. The Supreme Court analyzed the legal principles involved in the application of s. 271(1)(c), emphasizing that the burden of proof in penalty proceedings lies on the revenue to establish that the disputed amount represents income and that the assessee has concealed the particulars of income or furnished inaccurate particulars. The Court highlighted that the entirety of circumstances must be considered to determine if the disputed amount represents income and if the assessee has concealed particulars. The Court reiterated that the burden of proof in a penalty proceeding is different from that in an assessment proceeding.The Appellate Tribunal's reliance on an intangible addition made to the book profits of the assessee in a previous year was deemed erroneous by the Supreme Court. The Court emphasized that the mere availability of a previously earned undisclosed income does not automatically imply that it is the source of unexplained expenditure in a subsequent year. The Court outlined that each case must be examined based on the particular facts and circumstances to ascertain the true nature of cash deficits and credits. The High Court's findings of fact were vacated by the Supreme Court, leaving it to the Appellate Tribunal to redetermine the case in line with the legal principles laid down in the judgment.In conclusion, the Supreme Court endorsed the High Court's opinion that the question referred must be answered in the negative due to the erroneous legal basis of the Appellate Tribunal's finding. The Court directed the Appellate Tribunal to reexamine the case in accordance with the judgment and principles outlined, emphasizing the authority of the Tribunal to find facts in the matter. The appeal was disposed of with no order as to costs.