ORDER
R.K. Bali (Accountant Member)
1. These two appeals by the assessee relating to the assessment year 1984-85 are taken up together and disposed of by a common order for the sake of convenience.
2. So far as I.T.A. No. 54/Chandi of 1992 is concerned, learned representative of the assessee sought a Bench’s permission to withdraw the appeal. The learned Departmental Representative had no objection to the proposed withdrawal. Accordingly, the appeal filed by the assessee in I.T.A. No. 54/Chandi of 1992, is dismissed as withdrawn.
3. I.T.A. No. 553/Chandi of 1993, is the appeal by the assessee which is directed against the order of the Commissioner of Income-tax (Appeals) confirming levy of penalty of Rs. 20,910 imposed by the Assessing Officer under section 271(1)(c). Briefly the facts are that during the course of search and seizure operation on the premises of the assessee, it was found that the assessee had made investment of Rs. 25,651 in Flame Agencies and it was also found that he had made an investment in the purchase of a VCR for Rs. 14,600. The Assessing Officer made these additions and initiated penalty proceedings under section 271(1)(c). The assessee appealed and the Commissioner of Income-tax (Appeals) confirmed both the additions and on further appeal the Tribunal deleted the addition of Rs. 25,651. However, the addition of Rs. 14,600 was confirmed by the Tribunal, vide order dated June 27, 1996, in I.T.A. No. 487/Chandi of 1990. In the mean-while, the Assessing Officer initiated penalty proceedings and after considering the explanation of the assessee, penalty of Rs. 17,500 was imposed. The assessee appealed and pleaded before the learned first appellate authority that since the concealed income exceeded Rs. 25,000 the Assessing Officer was required to seek the approval of the Range Deputy Commissioner of Income-tax before levying the penalty. Accordingly, the Commissioner of Income-tax (Appeals) set aside the penalty order to the file of the Assessing Officer with the direction that he should obtain prior approval of the Range Deputy Commissioner of Income-tax before levying penalty and also allow opportunity to the assessee before arriving at a fresh decision. The assessee filed appeal against this order of the Commissioner of Income-tax (Appeals) which was listed as I.T.A. No. 54/Chandi of 1992, which has since been dismissed as withdrawn.
4. The penalty having been set aside by the Commissioner of Income-tax (Appeals), the Assessing Officer, after taking approval of the Range Deputy Commissioner of Income-tax, levied the penalty of Rs. 20,910 which has since been confirmed by the Commissioner of Income-tax (Appeals) in appeal.
5. Shri D. S. Gupta, learned counsel for the assessee, submitted that the two additions on the basis of which penalty has been levied are Rs. 25,651 on account of alleged unproved investment in Flame Agencies and Rs. 14,600 on account of investment in the VCR. It was submitted that the addition of Rs. 25,651 has been deleted by the Tribunal in the quantum appeal and with regard to the addition of Rs. 14,600, the Tribunal has upheld the same for the reasons given in para. 8 of its order. It was submitted that during the course of search, one VCR was found at the residence and there was a customs receipt in respect of some other VCR in the name of some other person. The addition of Rs. 14,600 is in relation to the amount paid as customs duty as per the receipt found from the premises of the assessee. The Tribunal, it was submitted, upheld the addition on the ground that since the receipt was recovered from the residence of the assessee, it was for the assessee to explain as to how the receipt was found at his place and since the assessee has failed to explain, the amount was rightly added. Shri D. S. Gupta, Advocate, learned representative of the assessee, submitted that while levying the penalty, the Assessing Officer has not invoked the Explanation to section 271(1)(c) and as such the penalty has been levied on the basis of the substantive provisions of section 271(1)(c). In such a situation, the onus lies on the Revenue to prove that there is concealment of particulars of income by the assessee and the Departmental authorities were wrong in holding that mens rea was not required. It was submitted that the penalty proceedings are quasi-criminal in nature and when the Explanation to section 271(1)(c) is not applied, the law declared by the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696 would be applicable and the onus would lay on the Department to show concealment coupled with mens rea. Since the addition has been made only on the basis of a paper found from the residence of the assessee which was not in the name of the assessee and the VCR whose number was on the customs receipt was also not found from the residence of the assessee, the mere fact that the addition has been confirmed by the Tribunal will not be sufficient to hold that the assessee was guilty of concealment of income within the substantive provisions of section 271(1)(c). Reliance was placed on the decision of the Bombay High Court in the case of CIT v. P. M. Shah [1993] 203 ITR 792 and CIT v. Dharamchand L. Shah [1993] 204 ITR 462 as also the decision of the Income-tax Appellate Tribunal, Bombay A-Bench in the case of Sidhivinayak Chemicals P. Ltd. v. Asst. CIT.
6. The learned Departmental Representative supported the order of the learned Commissioner of Income-tax (Appeals).
7. We have considered the rival submissions. The addition of Rs. 14,600 has been sustained by the Tribunal vide order dated June 27, 1996, in I.T.A. No. 487/Chandi of 1990, by observing as under :
“8. We have considered the rival contentions, and we are of the view that the addition made had to be sustained inasmuch as the VCR found at the residence of the assessee at the time of search, was not properly explained, in the light of the customs receipt during the search operation. It was for the assessee to discharge the onus in that respect. The recovery of the receipt at the residence of the assessee did lay heavy burden on the assessee to explain as to how the receipt was found at his place. The number recorded on the receipt and the one found in the VCR were indeed different but that would not exonerate the assessee from discharging the onus. It is correct that one VCR was found at the residence of the assessee. The receipt might or might not relate to that VCR but that discrepancy was required to be explained by none other than the assessee. It was for the assessee to explain the investment in respect of the VCR found and also to explain the circumstances in which the customs receipt was recovered from the residence. The addition is, therefore, found to have been rightly made. Ground No. 2 fails.”
8. A perusal of the above clearly indicates that the addition is sustained as the assessee could not satisfactorily explain the presence of the customs receipt which was in the name of a third party but was found from the residence of the assessee. The customs duty paid was in relation to a VCR which was not found from the residence of the assessee. Thus, the addition was sustained on the ground that the assessee could not satisfactorily explain the presence of the customs receipt which was in the name of a third party. It is also undisputed that the penalty has been levied by the Assessing Officer without invoking the Explanation to section 271(1)(c) and as such we are of the opinion that learned counsel for the assessee is right in saying that the levy or otherwise of penalty under section 271(1)(c) has to be adjudicated in the light of substantive provisions of section 271(1)(c) and the onus of proving the concealment will lie on the Department. Since, in the case before us the addition has been sustained only because the assessee could not explain the customs receipt found from his residence and there is no material on record to prove-that the assessee has concealed the income to the extent of Rs. 14,600, we are of the opinion that it was not a fit case for levy of penalty which is accordingly directed to be deleted.
U.B.S. Bedi (Judicial Member)
1. I have gone through the proposed order of the learned Accountant Member but find myself unable to agree to the conclusions arrived at by him and I base my reasons and conclusion for the same as given below.
2. For the facts, paras. 3 and 4 of the proposed order and for arguments of learned counsel for the assessee para. 5 are relevant and need not be repeated. The learned Departmental Representative, while supporting the order of the learned Commissioner of Income-tax (Appeals), reiterated the arguments as taken before the authorities below and further submitted that penalty had been imposed on two items, one for cash credit of Rs. 25,652 in the name of Flame Agencies taken in the books of the assessee recorded from March 16, 1984, to March 30, 1984, and the other on account of investment of Rs. 14,600 in the purchase of a VCR, which remains unexplained. It was submitted by the learned Departmental Representative that the addition on account of first item of Rs. 25,652 had been deleted in the quantum appeal of the assessee by this Bench vide order dated May 27, 1995, but so far as the second addition on account of investment in the VCR amounting to Rs. 14,600 was concerned, the Tribunal upheld the addition.
3. It will be appropriate, if the background of the facts and the respective submissions of the parties which led the Tribunal to uphold the addition is brought into the close focus. Paras. 5, 6, 7 and 8 from the Tribunal’s order in I.T.A. No. 487/Chandi of 1995, dated June 27, 1995, are, therefore, reproduced as they are :
“5. Ground No. 2 relates to the addition of Rs. 14,600 made on account of unexplained investment in the purchase of a VCR, found at the residence of the assessee, during the search operation. One receipt in the name of Shri Raminder Singh Grewal was also found, mentioning payment of Rs. 9,645 as the customs duty. The Assessing Officer recorded the statement of Shri Grewal, who admitted sale of one VCR to the assessee for Rs. 14,600. It was explained by Shri Grewal that he had purchased the VCR jointly with Shri Sukhdev Singh Bedi. The statement of Shri Bedi was also recorded. It was further found that the VCR number recorded in the customs receipt was different from the number found at the VCR, at the residence. Since the two numbers did not tally, addition was made.
6. Learned counsel has argued that the addition made on the basis of the receipt was not at all justified because the name of the assessee was not recorded in that receipt. Moreover, the Assessing Officer did not allow the assessee, in particular, to examine Shri Grewal. The Assessing Officer was of the view that there were two VCRs – one found at the time of search and the other relating to the receipt recovered at the residence of the partner. However, the addition in respect of one VCR only was made, on the basis of the customs’ receipt. There is nothing to presume that the receipt belonged to the assessee. The receipt was indeed found at the residence of the assessee but, in the absence of any other connecting evidence, the assessee could not be held liable for having invested money in the purchase of the VCR. Learned counsel has submitted that it was only on suspicion that the addition was made. No addition has been made on the basis of the VCR found at the residence of the assessee.
7. The learned Departmental Representative has, in reply, submitted that the statements of S/Shri Grewal and Bedi establish, beyond doubt, that the VCR in respect of which the receipt had been found, was sold to the assessee. The onus lay on the assessee to rebut the presumption raised in law.
8. We have considered the rival contentions and we are of the view that the addition made had to be sustained inasmuch as the VCR found at the residence of the assessee at the time of the search, was not properly explained, in the light of the customs receipt during the search operation. It was for the assessee to discharge the onus in that respect. The recovery of the receipt at the residence of the assessee did lay heavy burden on the assessee to explain as to how the receipt was found at his place. The number recorded on the receipt and the one found on the VCR were indeed different but that would not exonerate the assessee from discharging the onus. It is correct that one VCR was found at the residence of the assessee. The receipt might or might not relate to that VCR but that discrepancy was required to be explained by none other than the assessee. It was for the assessee to explain the investment in respect of the VCR found and also to explain the circumstances in which the customs receipt was recovered from the residence. The addition is, therefore, found to have been rightly made. Ground No. 2 fails.”
4. The arguments of learned counsel for the assessee have been recorded in the proposed order of my learned Brother which need not be incorporated. Having considered the arguments of both the parties, perusing the material available on record and in view of the facts and circumstances of the case enumerated above, I am of the considered opinion that the assessee has failed to establish investment in the VCR and under these circumstances, the Tribunal had rightly upheld the addition. The onus that lay on the assessee having not been discharged, in my opinion, the learned authorities below were justified in levying/confirming the penalty. The impugned penalty of Rs. 20,912 was levied on account of cash credit of Rs. 25,651 and investment in VCR Rs. 14,600. In the quantum appeal, the Tribunal had deleted the addition of Rs. 25,651 observing that no addition could at all be made because the entries related to the firm Flame Agencies and it was in the hands of that firm alone that any addition, if at all justified, could be made. Therefore, penalty imposed for this part of the addition, i.e., Rs. 25,651, it is directed to be deleted. So far as penalty imposed for unexplained investment in VCR of Rs. 14,600 is concerned, for the reasons as explained above, it is confirmed. Accordingly, the Assessing Officer is directed to recompute the penalty.
5. Regarding I.T.A. No. 54/Chandi of 1992, I concur with my learned Brother.
ORDER OF REFERENCE TO THIRD MEMBER
6. On a difference of opinion between the Members who heard this appeal, the following point of difference is referred to the hon’ble President for the opinion of the third Member :
“Whether, on the facts and in the circumstances of the case, the view of the Accountant Member that penalty levied by the Departmental authorities in relation to the alleged investment of Rs. 14,600, should be deleted is correct or the view taken by the Judicial Member that penalty in relation to the above investment be confirmed, is justified”.
ORDER OF THIRD MEMBER
R.M. Mehta (Vice-President)
1. There being a difference of opinion between the Members constituting the Division Bench, the hon’ble President has referred the following point of difference to me for disposal under section 255(4) of the Income-tax Act, 1961 :
“Whether, on the facts and in the circumstances of the case, the view of the Accountant Member that penalty levied by the Departmental authorities in relation to the alleged investment of Rs. 14,600, should be deleted is correct or the view taken by the Judicial Member that penalty in relation to the above investment be confirmed, is justified ?”
2. The facts of the case briefly stated are that the search and seizure operations were conducted under section 132 on the business and residential premises of the assessee on August 29/30, 1985, resulting in seizure of documents and records which included, inter alia, one day-book marked ten relating to Flame Agencies and one customs receipt bearing No. 81728, dated October 15, 1983, in the name of one Shri Raminder Singh Grewal. The customs receipt pertained to payment of customs duty amounting to Rs. 9,645 for import of the VCR bearing Identification No. NV-30 13 AL-014270. One imported VCR was also found at the residence of the assessee bearing Identification No. NV-300 EN-N with S. No. 13KL00848 which was different from the one mentioned in the customs receipt. While making the assessment, the Assessing Officer made addition of Rs. 25,651 on account of credits in the name of the assessee appearing in the seized day-book. A further addition of Rs. 14,600 was made on account of unexplained investment in the purchase of the VCR. Both the additions were confirmed in appeal by the Commissioner of Income-tax (Appeals) and on further appeal the Tribunal deleted the addition of Rs. 25,651 but confirmed the addition of Rs. 14,600 vide order dated June 27, 1995, in I.T.A. No. 487/Chandi of 1990. The relevant portion of the Tribunal’s order has been reproduced by the learned Judicial Member in his dissenting order.
3. The difference of opinion in the instant case has arisen between the learned Members on the issue of exigibility of penalty under section 271(1)(c) in relation to the addition of Rs. 14,600 made on the purchase of the VCR. A few facts with regard to the addition may be indicated. The customs receipt found at the residence of the assessee for the purchase of the VCR was in the name of Shri Raminder Singh Grewal as indicated before. The statement of Shri Grewal was recorded by the Assessing Officer. In his statement, Shri Grewal stated that he had purchased the VCR jointly with Shri Sukhdev Singh Bedi and sold the same to the assessee for an amount of Rs. 14,600 in October/November, 1983. The Statement of Shri Bedi was also recorded. However, both the statements were recorded at the back of the assessee. The Assessing Officer while making the addition of Rs. 14,600 observed that the assessee had purchased two VCRs and since the difference in the identification numbers mentioned on the customs receipt as well as on the VCR found at the residence of the assessee could not be explained, an addition of Rs. 14,600 was made. While upholding the addition, the Tribunal has observed that it was for the assessee to explain the circumstances in which the customs receipt was recovered from the residence and also to explain the investment in the purchase of the VCR found at the residence.
4. The learned Accountant Member while deleting the penalty has held that since the penalty has been levied by the Assessing Officer without invoking the to section 271(1)(c), the Explanation could not be invoked before the Tribunal and the issue of exigibility of penalty under section 271(1)(c) has to be adjudicated in the light of substantive provisions of section 271(1)(c) and the onus of proving the concealment would lie on the department. In support of this view, reliance has been placed on the decisions of the Bombay High Court in the case of CIT v. P. M. Shah [1993] 203 ITR 792 and CIT v. Dharamchand L. Shah [1993] 204 ITR 462, as also the decision of the Appellate Tribunal, Bombay A-Bench, in the case of Sidhivinayk Chemicals P. Ltd. v. Asst. CIT. The learned Accountant Member held that since there is no material on record to prove that the assessee has concealed the income, no penalty for concealment can be sustained.
5. The learned Judicial Member in his dissenting order held that since the assessee has failed to discharge the onus to explain the investment in the purchase of the VCR, the penalty is liable to be sustained. However, the learned Judicial Member has not expressed any opinion with regard to invoking the Explanation.
6. Before me, learned counsel for the assessee argued that the customs receipt found from the residence of the assessee was in the name of Shri Raminder Singh Grewal and did not belong to the assessee. He further submitted that the VCR found from the residence of the assessee having identification number different from that mentioned in the receipt has been found to be explained by the tax authorities. In the absence of positive evidence on record, learned counsel argued, that no penalty under the main substantive provision of section 271(1)(c) could be in-voked. With regard to the statements of Shri Raminder Singh Grewal and Shri Sukhdev Singh Bedi, learned counsel argued that the statements recorded at the back of the assessee cannot be relied upon by the Department. Learned counsel strongly urged that since Explanation 1 has not been invoked by the Assessing Officer, no penalty invoking the aid of the Explanation can be sustained by the Tribunal.
7. The learned Departmental Representative, on the other hand, argued that in view of the presumption under section 132(4A), the onus lies upon the assessee to explain the position with regard to the possession of the customs receipt found at his residence. It is further argued that the statements of S/Shri Raminder Singh Grewal and Sukhdev Singh Bedi as well as the possession of the customs receipt by the assessee cast a heavy burden on the assessee to prove his case. The learned Departmental Representative argued that Explanation 1 to section 271(1)(c) can be pressed into service by the Department for supporting the order of the Commissioner Of Income-tax (Appeals) confirming the penalty under section 271(1)(c). In Support of this contention, the learned Departmental Representative placed reliance on the following decisions :
(i) CIT v. Laxmi Auto Stores [1977] 106 ITR 626 (Orissa);
(ii) CIT v. Shri Rajeshivar Singh [1986] 162 ITR 173 (P & H);
(iii) CIT v. Simco Auto India [1989] 179 ITR 265 (P & H);
(iv) Rahmat Development and Engineering Corporation v. CIT [1981] 130 ITR 602 (Cal); and
(v) Shri Loknath Chowdhury v. CIT [1985] 155 ITR 291 (Cal).
8. In the final analysis she supported the order of the learned Judicial Member for sustaining the penalty in question.
9. I have heard the rival submissions and perused the materials on record. I have also gone through the orders of the learned Members. In view of the binding decisions of the Punjab and Haryana High Court relied upon by the learned Departmental Representative, I am inclined to accept the contention of the revenue that the Explanation 1 to section 271(1)(c) can be invoked for the first time before the Tribunal in support of the penalty under section 271(1)(c). The view taken by the learned Accountant Member against the application of Explanation 1 to section 271(1)(c) is therefore not correct. It would therefore be necessary to examine the issue of exigibility of penalty in the light of the Exploitation 1 to section 271(1)(c).
10. At this juncture it is necessary to refer to the legislative history in so far as section 271(1)(c) is concerned. There are three stages of amendment of section 271(1)(c). The periods are (a) prior to April 1, 1964, (b) April 1, 1964, to March, 1976, and (c) after April 1, 1976. In a series of decisions beginning with the judgment in the case of CIT v. Anwar Ali [1970] 76 ITR 696 (SC) based on the law as it stood prior to April 1, 1964, the Supreme Court laid down the following basic principles for levy of penalty under these provisions :
(i) An order imposing penalty is the result of quasi-criminal proceedings and the burden lay on the income-tax Department to establish that the disputed amount represents his income; and
(ii) The Department has to prove that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars thereof.
11. Finance Act, 1964, made the following amendments with effect from April 1, 1964 :
(i) In clause (c), the word “deliberately” occurring after the words “particulars of his income” was omitted; and
(ii) An Explanation was inserted at the end of sub-section (1) of section 271 in order to cast on the assessee the burden of proving that the omission to disclose true income did not arise from any fraud or gross or wilful neglect.
12. Inadequacy of the Explanation added by the Finance Act led to the substitution by the Taxation Laws (Amendment) Act, 1975, of four Explanations. Explanation 1, which is relevant for our purpose in the instant case, consists of two clauses. Clause (A) provides that the assessee fails to offer an Explanation or offers an explanation which is found to be false. Clause (B) provides for the situation where the assessee is not able to substantiate the explanation and fails to prove that the explanation is bona fide. In the situations envisaged by the aforesaid clauses, deeming fiction would come into play and the amount added in the total income would be deemed to represent the income in respect of which particulars have been concealed.
13. The aforesaid Explanation introduced with effect from April 1, 1976, enacts a rule of evidence which has the effect of shifting the burden of proof on to the assessee and the principles laid down in CIT v. Anwar Ali [1970] 76 ITR 696 (SC) would obviously not be applicable with full force. However, it has to be borne in mind that the introduction of the Explanation does not alter the intrinsic character of penalty proceedings being quasi-criminal in nature. It is a cardinal rule of interpretation of statutes that penal provisions are to be strictly construed. The burden of proof, which prior to April 1, 1964, lay upon the Department, shifted to the assessee by virtue of the deeming fiction introduced by the Explanation. It is well settled that the degree of proof required for proving a negative fact would not be as heavy as required for proving a positive fact. In the case of proving a negative fact, the test of preponderance of probabilities would apply. If the assessee is able to furnish a bona fide and plausible explanation in respect of material facts, the burden cast by the Explanation would be discharged and the case would not be hit by the mischief of the said Explanation.
14. The words used in Clause (A) of the Explanation 1 “found to be false” expressly imports an element of deceitful intent. The word “false” in its juristic sense implies something more than a mere untruth. Untruth is simply a statement which is not true and may have been uttered without intention to deceive and through ignorance. However, falsehood necessarily denotes the violation of truth for the purposes of deceit. Merely because the explanation furnished by the assessee is considered not satisfactory or unreasonable would not ipso facto justify the invocation of clause (A) to levy penalty under section 271(1)(c).
15. Applying the aforesaid principles to the facts of the instant case, I am of the considered opinion that the case of the assessee is not hit by the mischief of Explanation 1 and, therefore, penalty levied under section 271(1)(c) cannot be sustained. The tax authorities have come to the conclusion in the quantum proceedings that the assessee purchased two VCRs and one VCR found at the residence is explained, whereas the VCR corresponding to the customs receipt found at the residence of the assessee remains unexplained. The customs receipt obviously does not belong to the assessee, since it is in the name of Shri Raminder Singh Grewal. It is not the case of the department that the said Shri Grewal is merely a dummy entity. The presumption contained under the provisions of section 132(4A) would obviously not be applicable since the document found during the search is in the name of a third party and does not belong to the assessee. The statements of S/Shri Raminder Singh Grewal and Sukhdev Singh Bedi relied upon by the Department have been recorded at the back of the assessee and would not constitute admissible evidence for the purposes of penalty proceedings. The addition of Rs. 14,600 has been made without specifically indicating the statutory provision in support thereof. The Department has obviously invoked the deeming fiction under sections 69, 69A, 69B and 69C. The basic parameters for invoking the said sections are that the assessee offers no explanation or the explanation offered is not satisfactory. The failure of the assessee to furnish a satisfactory explanation for the possession of the customs receipt may be sufficient for making the addition for the purposes of assessment. However, with a view to bring the case within the scope/ambit of Explanation 1, the explanation of the assessee has to be found to be false. In the instant case, the purchase of one VCR found at the residence of the assessee has been held to be explained, whereas the addition of Rs. 14,600 has been made merely on the basis of the customs receipt which does not belong to the assessee. The explanation of the assessee that the customs receipt does not belong to him, and that the receipt does not prove the purchase of the VCR by him may be considered unsatisfactory for the purposes of invoking section 69, yet it cannot be treated as false for invoking clause (A) of the Explanation 1. Examining the facts and circumstances of the case against the touch-stone of preponderance probabilities, I have no hesitation in holding that the Explanation 1 does not apply and the penalty levied under section 271(1)(c) is, therefore, liable to be deleted.
16. There is another aspect of the matter which may be adverted to. The tax authorities have proceeded on the basis that the assessee has purchased two VCRs – one VCR found at the residence during the search on August 29/30, 1985, and another VCR purchased for Rs. 14,600 for which customs receipt has been found at the time of search. Addition of Rs. 14,600 has, however, been made for one VCR only. The Commissioner of Income-tax (Appeals) while upholding the addition vide her order dated January 19, 1990, observed “… the appellant had purchased two VCRs and against these only the sources of investment in one VCR were explained.” It has not been specifically indicated as to which purchase of VCR has been treated as unexplained. In case the VCR found at the time of search on August 29/30, 1985, is treated as unexplained, then by virtue of section 69A, the fiction of deemed investment would be invoked for the assessment year 1986-87 and not for the assessment year 1984-85 under appeal. In the circumstances, no penalty under section 271(1)(c) would be leviable for the assessment year 1984-85 under appeal. The view of the learned Accountant Member is therefore confirmed.
17. The case would now go back to the Division Bench for passing an order in accordance with the majority opinion.