JUDGMENT
Rajesh Balia, J.
1. The following questions of law were referred to this Court for its decision in these proceedings by the Tribunal, Ahmedabad, ‘A’ Bench, Ahmedabad :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal has been right in law in cancelling the penalty imposed by the ITO under s. 271(1)(c) of the IT Act, 1961 ?
2. Whether the finding of the Tribunal that the assessee had discharged its burden and there was no positive evidence before the Revenue to establish that the admitted amount represented concealed income of the assessee is correct in law ?
3. Whether when the assessee had agreed to the addition of Rs. 21,500 for taxation of the same as income in the assessment year in question any further inquiry was necessary as to whether the amount agreed to be added represented concealed income of the assessee of the previous year relevant to the assessment year in question ?
4. Whether, the effect of the provisions of ss. 68, 69 and 69A is only fictional and not real, inasmuch as, even though the additions could be made to the income of the assessee such added amount cannot be considered as income or concealed income of the assessee in the relevant previous year ?”
2. We have heard the learned counsel for the parties. The facts of the case are that the assessee is engaged in the manufacture and sale of tin containers, drums, buckets and other tin articles. In the previous year relevant to the asst. yr. 1971-72 the assessee furnished the return under s. 139 of the Act declaring an income of Rs. 43,297. The return was supported by the trading account, copy of P&L account and copy of the balance sheet. The ITO, during the course of assessment proceedings, noticed certain cash credits in the names of several parties. He required the assessee to produce copies of accounts of such creditors to prove the genuineness of the documents. The assessee was able to produce before the ITO some confirmatory letters from some of the creditors. The ITO also issued summons under s. 131(1) of the Act to the creditors from whom confirmatory letters were made available. However, the creditors could not appear before the ITO and they were stated to be untraceable. In the aforesaid circumstances, the assessee agreed for addition of the peak credits which was worked out to be Rs. 21,500 as income from undisclosed sources. On the basis of these additions, notice under s. 271(1)(c) initiating penalty proceedings was issued on 26th Oct., 1974 calling upon the assessee to explain and adduce evidence why the amount added be not treated as representing concealed income. In reply to show cause notice, the assessee stated that he has obtained confirmatory letters of the depositors in some cases, whose deposits were added to the total income. At the time when the said deposits were taken it is noted that the addresses of the depositors as they were given to the assessee. In the absence of positive proof of deposits in the form of confirmatory letters for producing them before the assessing authority for examination, he agreed for adding the said deposits in the total income and when the question comes for levy of penalty, mere agreement to include the amount in total income does not entitle the Revenue to levy penalty. The assessee relied on the principle enunciated in the case of CIT vs. Vinaychand Harilal (1979) 120 ITR 752 (Guj) for confirming that the deposits made by creditors are concealed income of the assessee.
3. The ITO rejected the explanation offered by the assessee holding that had it not been the concealed income, the assessee would not have agreed to addition. He was of the view that the case of the assessee is covered by Explanation under s. 271(1)(c) considering the difference in income in return and assessed. Therefore, it held that the addition of Rs. 21,500 be treated as concealed income from undisclosed sources and penalty was imposed.
4. The AAC in appeal found that mere consent of the appellant that impugned amount of peak credits be taxed in its hands will not tantamount to an admission on its part that what was brought to tax was either its concealed income or its business income. The ITO ought to have established in the course of penalty proceeding that appellant had either concealed its income or furnished inaccurate particulars of his income, which the ITO has failed to do.
5. The AAC was further of the opinion that the facts of the present case on all fours are similar with that of the facts of the case decided by this Court in the case of CIT vs. Vinaychand Harilal (supra). Following the said decision, the appeal of the assessee was allowed.
6. On further appeal before the Tribunal, the Tribunal recorded its finding as under :
“From the evidence on record it is clear that the assessee maintains books in the ordinary course of business. The deposits in question were recorded in the different accounts. At the time of filing of the return, the assessee filed the copies of accounts of such creditors. Even copies of trading account, P&L account and the balance sheet were furnished. Some of the confirmatory letters from the depositors were filed. In case such confirmatory letters were not available request was made to the learned ITO to summon the creditors and accordingly they were summoned. Unfortunately, the said creditors were not available on the given address at the relevant time. The learned ITO did not require the assessee to do what he could not do in the circumstances it was not possible for him physically to produce the depositors before the taxing authority. The learned ITO recorded the statement of one of the partners. He also stated that the cash credits were genuine. He was quite categorical in saying that since the depositors could not be produced, the assessee agreed for the addition, so, in substance, the consistent stand of the assessee has been that all such cash credits were genuine. They were duly recorded in the books maintained in the ordinary course of the business. On account of the circumstances discussed above the assessee agreed for the addition. So it is not a case in which assessee has admitted categorically that the disputed amount was its income and the same may be taken as concealed income. In the penalty proceeding, the assessee has again taken clear stand that the disputed amount was not its concealed income and the assessee agreed to the addition on account of the circumstances discussed above.
For the reasons discussed above, it is proved that there were preponderance of probabilities which would go to show that there was no fraud or gross or wilful neglect on the part of the assessee in not returning its assessed income. So initially the legal burden which was on the assessee was fully discharged.”
In view of the aforesaid finding, the Tribunal applied the ratio of the decision in Vinaychand Harilal case (supra) and affirmed the decision of the AAC.
7. It was contended before us by the learned counsel for the Revenue that certain cash credits were found in the books of account of the assessee for the previous year related to asst. yrs. 1971-72. Admittedly the assessee has failed to furnish satisfactory explanation before the Assessing Officer (AO) and, therefore, he agreed to the addition of peak amount of cash credit during the year to be added in its total income, under provisions of s. 68 of the IT Act wherein the explanation offered by the assessee in respect of credits found in the books of account maintained by him is not, in the opinion of the AO, satisfactory, the sum so credited may be charged to income-tax as income of the assessee of that previous year. Relying on this provision, the learned counsel contends that under the statute the unexplained credits are deemed to be income for the previous year. The ratio in CIT & Anr. vs. Anwar Ali (1970) 76 ITR 696 (SC) is not applicable to the case arising after the Explanation was inserted in s. 271(1)(c), that is to say, after 1st April, 1964 and once the same is treated to be an income within the meaning of s. 68 to be charged to tax, in the penalty proceedings, the Revenue is not further under any obligation to prove the same as income of the previous year for the purpose of levying penalty. Learned counsel further sought to distinguish the decision of this Court in Vinaychand Harilal’s case (supra) on the ground that the same pertains to provisions vis-a-vis the additions made with the aid of s. 69A of the IT Act which related to the cases where the assessee is found to be owner of any asset enumerated under s. 69A in respect of which the assessee has not been able to offer satisfactory explanation and the case of unexplained cash credit cannot be equated with the case of Vinaychand Harilal’s case (supra).
8. Learned counsel appearing for the assessee reiterated that the case is fully covered by the decision in Vinaychand Harilal’s case (supra) of this Court.
9. We have carefully considered rival contentions. It is true that in Anwar Ali’s case (supra) the apex Court was concerned with law as was in force before enactment of IT Act, 1961 as the same arose under IT Act, 1922. The Court enunciated, where no aid of statutory provision was available, in the matter of levying penalty for concealment as under :
“Proceedings under s. 28 of the IT Act, 1922, are penal in character. The gist of the offence under s. 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and the burden is on the Department to establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.”
The principle was reiterated in the case of CIT vs. Khoday Eswarsa & Sons (1972) 83 ITR 369 (SC).
When the IT Act, 1961 was brought into force w.e.f. 1st April, 1962, repealing the IT Act, 1922, s. 271 corresponded to s. 28 of the repealed Act. With effect from 1st April, 1964, s. 271 was amended. For the present purposes, with this amendment in sub-s. (1)(c) the word ‘deliberately’ was omitted and the Explanation was added. The Explanation meant that where the total income returned is less than 80% of the total income assessed the assessee shall, unless he proves that the failure to return the correct income did not arise from any fraud or any wilful or gross neglect on his part, he is deemed to be guilty of concealment or furnishing inaccurate particulars. A rebuttable presumption was allowed to be raised about concealment of income in case of substantial understatement of income vis-a-vis assessed income. However, no presumption of any particular part of assessed income being concealed income of that year was raised. Obviously, it could not be raised merely on the basis of difference of returned and assessed income. It could not be said that where returned income is less than 80% of assessed income, no concealment has taken place, though no presumption under the Explanation could be raised, nor could it be said, in the absence of any statutory provision, that every part of the difference between the assessed and returned income is concealed income. Moreover, on establishing the absence of fraud or wilful or gross neglect on the part of the assessee, no presumption under the Explanation could survive to treat the assessee guilty of concealment of income. The amount of proof needed for rebutting the presumption would depend on facts and circumstances of each case. No rigid rule could be applied. Whether in a given case the presumption has been rebutted or not is a finding of fact depending on the facts and circumstances of each case.
The position of law after insertion of Expln. to s. 271(1)(c) came to be considered by the Supreme Court in the case of CIT vs. Mussadilal Ram Bharose (1987) 165 ITR 14 (SC), wherein the Court has held as under :
“Where the total income returned by the assessee is less than 80% of the total income as assessed, the Expln. to s. 271(1)(c) of the IT Act, 1961, shifts the burden to the assessee to show that the difference was not owing to fraud or gross or wilful neglect on his part. This onus is rebuttable. If, in an appropriate case, the Tribunal or the fact-finding body is satisfied on relevant and cogent material on record and draws an inference thereupon that the assessee was not guilty of gross or wilful neglect or fraud, then, in such a case, the assessee cannot come within the mischief of the section and suffer penalty. The conclusion of the Tribunal is a conclusion of fact and no question of law arises.”
This Court in CIT vs. Vinaychand Harilal (supra) has held that, normally, the Revenue must establish that the receipt of the amount in question constituted the income of the assessee. The Expln. to s. 271(1)(c) of the Act enables the Revenue to discharge this burden of proof laid on it if the condition regarding the returned income being less than 80% of the assessed income is satisfied. But the presumption can be rebutted by the assessee. The Court further held that in order to rebut the presumption raised by the Expln. to s. 271(1)(c), it is open to the assessee to bring to the notice all materials on record which would enable him to show that he had not concealed the particular income or furnished inaccurate particulars.
In this connection, it was further said that it is also not necessary that any positive material should be produced by the assessee in order to discharge his burden which rests upon him. The assessee may claim to have discharged the burden by relying on the material which is on record in the penalty proceedings, irrespective of whether it is produced by him or by the Revenue.
10. It may be noticed in this connection that where presumption of concealment of particulars of income is raised under Expln. to s. 271(1)(c) on account of additions having been made or deductions being disallowed in returned income, the burden on the assessee is to prove that the failure to return the correct (assessed) income did not arise from any fraud or any gross or wilful neglect on his part. Establishing such absence of fraud or gross or wilful neglect on the part of the assessee results in discharge of burden placed on the assessee under the Explanation and once that burden is discharged the position reverts to as it was before the insertion of the Explanation. That is to say that on a finding that return of income which is less than 80% of assessed income is not result of fraud or gross or wilful neglect, the penalty cannot be sustained by raising presumption of concealment of income under the Explanation.
11. In this connection we may refer to the decision of the Rajasthan High Court in the case of Addl. CIT vs. Noor Mohd. & Co. & Ors. (1974) 97 ITR 705 (Raj). The Court said :
“In sub-s. (1)(c) the word “deliberately” was omitted and the Explanation was added to sub-s. (1) by the Finance Act, 1964, w.e.f. 1st April, 1964. The Explanation means that where the total income returned is less than 80% of the total income assessed the assessee shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have been guilty of concealment or furnishing inaccurate particulars. In other words, if the income returned is less than 80% of the income assessed the burden of proof would be on the assessee to show that this disparity was not the result of any fraud or wilful or gross neglect.”
The Court further considered that Explanation gives rise to rebuttable presumption and what evidence would be sufficient to rebut that presumption, it observed –
“The disparity between the income returned and the income assessed was less than 80% and they related to the assessment years which were governed by the Explanation. In fact, the Tribunal has referred to the Explanation in so many words. The Tribunal, however, felt satisfied that the presumption raised by the Explanation stood rebutted because the additions made to the incomes returned were merely estimated or notional and the difference was also not substantial and the Tribunal was not prepared to conclude fraud, wilful or gross neglect. The evidence which satisfied the Tribunal were the facts and circumstances of the case which it had decided itself. The evidence may be direct or circumstantial or both. Mere statement of the assessee may be enough in some cases. What quantum of evidence would rebut a legal presumption in a given set of facts does not admit of any rigid rule.”
We find enunciation of the aforesaid principle about raising of rebuttal of presumption under the Explanation and the amount of proof required to rebut the same expressed in the two decisions referred to above have found echo in the case of CIT vs. Mussadilal Ram Bharose (supra).
Whether onus of proving a fact has been discharged or not has always been held to be a question of fact. As far back as in 1930, in the case of Wali Mohammad vs. Mohammad Baksh AIR 1930 PC 91 the Board said that :
“The question whether the onus had been discharged or not is primarily a question of fact and it raises no question of law.”
The same principle applies when it comes to whether a presumption of fact stands rebutted or not.
Applying the aforesaid principle, we find that, in the present case, the Tribunal has considered the entire evidence and material on record and has come to a positive finding that it is proved that there was preponderance of probabilities which go to show that there was no fraud or gross or wilful neglect on the part of the assessee in not returning assessed income. This is the finding of fact and does not give rise to any question of law unless it is specifically challenged on the grounds on which the finding of fact can be challenged.
We may reiterate at this stage at the cost of repetition that the Supreme Court has said in unequivocal terms that if, in an appropriate case, the Tribunal or fact-finding authority is satisfied that there is no fraud or gross or wilful neglect on the part of assessee in submitting his return, then in such a case the assessee cannot be found within the mischief of the Explanation. At best, additions made on account of provisions of ss. 68, 69, 69A, 69B and 69C become relevant at the time of raising presumption under Expln. to s. 271(1)(c) on account of difference between assessed income and returned income. Once the presumption of concealment or concealed income stands rebutted, it is for the Department to establish that the income which assessee is alleged to have concealed, is, in fact, as distinguished from deemed, income of the assessee which he failed to disclose in his returns.
12. So far as the contention of the learned counsel for the Revenue that in view of the provisions of s. 68 for treating unexplained cash credits in the books of account of the assessee as income of the previous year relevant to the assessment year in question, the further question of proving that the additions were income of the assessee of the relevant previous year for the purpose of penalty proceeding does not arise, after a close scrutiny we are unable to accept.
Secs. 68, 69, 69A, 69B and 69C are all part of the same scheme where certain amounts though not proved to be income of the assessee of the previous year concerned are, for the purpose of charging to tax, deemed to be so by creating legal fiction absolving the Department from its initial duty to prove that any such (sum is) income of the assessee. But for these provisions, it was for the Revenue to prove that any sum, not disclosed by the assessee but which is sought to be taxed as income of the assessee, is income of the assessee for the previous year relevant to the assessment year.
The law is well settled that though the findings recorded in assessment orders are relevant evidence to support the allegation of concealment, but these cannot be foundation for holding the assessee guilty of concealment. Under s. 68, as under s. 69A, no such legal fiction has been created to treat such additions as concealed income of the assessee for the purpose of penalty proceedings. This conclusion is further strengthened by the fact that such fiction has been created by the present Expln. 1 to s. 271(1)(c) in the following form which was inserted w.e.f. 1st April, 1976, by Finance Act, 1975 [sic Taxation Laws (Amendment) Act, 1975] :
“Explanation 1. – Where in respect of any facts material to the computation of the total income of any person under this Act, –
(A) such person fails to offer an explanation or offers an explanation which is found by the AO or the Dy. CIT(A) or the CIT(A) to be false, or
(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him,
then, the amount added or disallowed in computing the total income of such persons as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.”
The above Explanation was substituted for the Explanation, which was in existence at the relevant time when the returns in the present case were filed, and was governing provision. Obviously, the Explanation which was inserted in s. 271(1)(c) w.e.f. 1st April, 1976 cannot be held to be retrospective in operation to govern the cases coming earlier. This fact goes to show that prior to the insertion of this Explanation it was not open for the AO to raise any presumption about specific sum added or a deduction disallowed, to consider it income in respect of which particulars of income have been concealed merely on the ground of non-submission of explanation or explanation furnished but not found satisfactory though in such event amount could be added or deduction disallowed by resorting to other deeming provisions. It is to be noticed that falsity of explanation was expressly put differently from mere unsatisfactory nature of explanation offered. So also a clear distinction was drawn between an explanation which is not satisfactory and which is not bona fide. The former was sufficient to include the disputed sum in computation of income of the assessee as falsity of explanation inheres wilful non-disclosure. In the latter case, though explanation offered by assessee in respect of such additions or disallowance may be not satisfactory, in the opinion of ITO, may be sufficient to include it in income, but still if assessee establishes his bona fides about explanation submitted by him, penalty could not be imposed by invoking the Explanation.
However, as the present case is governed by the explanation as it existed prior to above referred provision, the only presumption that could be raised was that in case returned income is less than 80% of assessed income, the assessee could be deemed to have concealed particulars of income. On assessee’s showing that difference was not owing to fraud or gross or wilful neglect on his part the presumption stood rebutted.
13. The fiction created under ss. 68, 69, 69A, 69B and 69C by itself cannot be extended to penalty proceedings to raise presumption about concealment of such income.
This Court has categorically held in Vinaychand Harilal (supra) arising on account of additions being made the mandate of s. 69A and such additions having given rise to presumption under Expln. to s. 271(1)(c) for the asst. yr. 1967-68. The Court said :
“It is undoubtedly true that in this case the income returned by the assessee was less than 80% of the total income as assessed by the ITO. However, it must not be forgotten that it was by resorting to the provisions of s. 69A that the ITO and the AAC assessed the amounts of the demand drafts as income of the assessee of the particular previous year relevant to the assessment year under consideration.
Unless and until we come to the stage of it being established, that the receipt of Rs. 60,000 constituted income of the assessee and that too without resort to the deeming provisions of s. 69A, it cannot be said that there was any scope for invoking the penalty provisions of s. 271(1)(c). In any event, the burden of proof would be clearly discharged the moment it was pointed out on behalf of the assessee in the penalty proceedings that it was by virtue of the deeming provisions after the assessee’s version was rejected that the amount was brought to tax under s. 69A of the IT Act.”
Thus, the decision of this Court in Vinaychand Harilal (supra) clearly covers the present case.
14. In our opinion, no distinction can also be found about the deeming provisions for treating unexplained cash credit, investment or expenditure, etc., as income chargeable to tax by treating the same as income of the assessee of previous year in their application to penalty proceedings, as sought to be drawn by learned counsel for the Revenue to distinguish the aforesaid decision of this Court, on the ground that principle was laid down with reference to s. 69A and not with reference to s. 68.
15. In view of the discussion, our answer to question No. 1 and 2 is in the affirmative, that is to say, in favour of the assessee and against the Revenue.
16. Our answer to question No. 3 whether further enquiry about the nature of sums added on agreement represent concealed income of the assessee or not depends upon the facts and circumstances of the case, depending upon what exactly the admission of the assessee had been. Where the assessee admits unequivocally that it is the income of the assessee of the previous year, it may need no further enquiry unless such admission is explained by the assessee. However, if the agreement of assessee is simpliciter that he is not in a position to adduce satisfactory evidence in support of his case and agrees for addition in view of the legal fiction created under various statutory provisions, it cannot be treated as an admission of such sum representing the income of the assessee particulars of which were concealed by the assessee on the basis of such agreement either. In view of our answer to question No. 1, in the present case, it must be held that the Tribunal was right in not sustaining penalty on the basis of alleged agreement to surrender the sum to be taxed.
17. To question 4, our answer is that until the insertion of the Expln. 1 w.e.f. 1st April, 1976 the very fact that additions have been made under the provisions of s. 68/69A cannot lead to a presumption that such additions were income of the assessee for the purpose of penalty proceedings. The purpose of legal fiction created under ss. 68, 69, 69A was only to bring such unexplained sums within the ambit of charging provision.
18. There is no order as to costs.