1972 (12) TMI 6 - HC - Income Tax

Imposition of penalty for concealment of income on surrender in reassessment: surrender alone insufficient; prosecution must prove undisclosed income

Imposition of penalty for dishonest concealment arising from surrender of amounts in reassessment was examined: the legal basis is that penalty ... Imposition of penalty - dishonest concealment of the undisclosed income - opportunity to show - Surrender by the assessee of some debts in reassessment proceedings - Whether such surrender is enough to initiate penalty proceedings - HELD THAT:- It is an established principle of law that a party is entitled to show and prove that the admission made by him previously is in fact not correct and true. In the instant case the assessee had definitely alleged that the amounts surrendered were not in fact his undisclosed income, that the hundis in favour of the creditors were genuine and that the surrender was made simply to avoid botheration. It is to be borne in mind that the penalty proceedings are distinct from the assessment proceedings and are in the nature of quasi-criminal proceedings. The onus was on the department to positively prove and produce for that purpose, certain other material besides the factum of surrender that the amounts in dispute were the undisclosed income of the assessee. We agree with the learned counsel for the assessee, that the mere fact of surrender could not necessarily be an admission of the assessee that the amounts surrendered were its undisclosed income. The surrender by the assessee could have been for more than one reason in spite of the fact that it was not his income and that fact alone could not be the basis of imposing penalty as has been done in the present case. This view of ours finds full support from a Bench decision of this court in Gumani Ram Siri Ram v. Commissioner of Income-tax [1971 (8) TMI 50 - PUNJAB AND HARYANA HIGH COURT], wherein, in similar circumstances, it was held that there may be hundred reasons for the assessee to surrender the amount irrespective of the fact whether it was his income or not and it was incumbent for the Income-tax Officer to find on evidence that the amount surrendered represented the income of the assessee. As a result, we are clearly of the view that, the order imposing penalty was not justified and accordingly answer the question in the negative. The assessee shall have his costs from the department which are assessed. Question answered in the negative. Issues:1. Imposition of penalty on the assessee-firm based on surrendered amounts during assessment proceedings.2. Denial of opportunity to the assessee-firm to prove assertions during penalty proceedings.3. Legal principles governing penalty proceedings and burden of proof on the department.4. Distinction between penalty and assessment proceedings in tax matters.Analysis:1. The judgment pertains to Income-tax References Nos. 42 and 43 of 1971, involving the imposition of penalties on an assessee-firm for surrendering certain amounts during assessment proceedings for the years 1959-60 and 1960-61. The Income-tax Officer accepted the surrenders and reassessed the firm's income from undisclosed sources. Subsequently, penalties were imposed without affording the firm an opportunity to prove the genuineness of the surrendered amounts, leading to appeals and a referral to the High Court for opinion on the justification of the penalties.2. The key contention revolved around the denial of the assessee-firm's right to present evidence during penalty proceedings. The Inspecting Assistant Commissioner refused to allow the firm to prove that the surrendered amounts were not undisclosed income but were surrendered to avoid hassle. The High Court found that the denial of this opportunity was unjustified and contrary to legal principles, emphasizing the right of a party to challenge and disprove earlier admissions.3. The judgment delved into the legal principles governing penalty proceedings, citing precedents that establish penalties as quasi-criminal in nature. The burden of proof lies on the department to demonstrate that the surrendered amounts indeed constitute undisclosed income. Mere surrender by the assessee cannot be construed as an admission of guilt, necessitating additional evidence to establish dishonest concealment. The court emphasized the need for the department to provide substantial proof beyond mere surrender to justify penalties.4. Drawing a distinction between assessment and penalty proceedings, the court highlighted that penalties are distinct and require a higher standard of proof. The judgment underscored that penalties cannot be levied solely based on surrender without allowing the assessee to challenge the assertion and provide evidence to the contrary. The court's decision was influenced by legal precedents and upheld the assessee's right to disprove the alleged concealment of income, ultimately ruling against the imposition of penalties in this case.