Commissioner of Income Tax West Bengal
Vs. Anwar Ali  INSC 117 (29 April 1970)
29/04/1970 GROVER, A.N.
CITATION: 1970 AIR 1782 1971 SCR (1) 446 1970
SCC (2) 185
F 1972 SC 132 (18) D 1973 SC 22 (13) RF 1977
SC2194 (2) RF 1980 SC1146 (7) RF 1992 SC 591 (2)
Income-tax Act (11 of 1922), s. 28-Penalty
proceedings- Whether of a criminal nature-Onus on department show amount
concealed as income.
The Income-tax Officer, while assessing the
respondent to tax discovered an undisclosed bank account of the 'respondent for
a large sum. He did not accept the explanation of the respondent as to the
source of the amount and held that it represented income from an undisclosed
source. Thereafter he initiated penalty proceedings under s. 28 and imposed a
penalty which was confirmed by the Appellate Assistant Commissioner. In appeal,
the Tribunal held that penalty proceedings were of a criminal nature and that
the burden lay on the department to show that the amount concealed was of a
revenue nature and was assessable as income and that the onus was not
discharged in the present case by merely showing that the assessee's
explanation was not accepted in the assessment proceedings.
The High Court agreed with the Tribunal.
In appeal to this Court,
HELD. (1) Penalty proceedings are included in
the expression "assessment" and the true nature of a penalty is the
imposition of an additional tax. But, one of the principal objects of s. 28 is
to provide a deterrent against recurrence of default on the part of the
assessee. There- fore, the section is a penal provision and the proceedings
were of a penal nature. [450 B-C] C. A. Abraham v. Income-tax officer, 41
I.T.R. 425 (S.C.), explained. Commissioner of Income-tax, Ahmedabad v. Gokuldas
Harivallabhdas 34 I.T.R. 98, Commissioner of Income-tax Gujarat v. L. H.
Vora, 56 I.T.R. 126 and Commissioner of
Income Tax Bihar and Orissa v. Mohan Mallah, 54 I.T.R. 499, approved.
Moman Rain Ram Kumar v. Commissioner of
Income-tax, U.P., 59 I.T.R. 135 and Lal Chand Gopal Das v. Commissioner of
Income-tax, U.P., 48 I.T.R. 324, not approved.
Hindustan Steel Ltd. v. State of Orissa,
C.As. Nos. 883- 892/66 dt. 4-8-1969 and Fattorini (Thomas) (Lanchashire) Ltd.
v. Inland Revenue Commissioner, (1943) (11) I.T.R.
Supp. 50, referred to.
(2)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 therefore,
the department must 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 has been found to be false, if does not follow that the
receipt constitutes his taxable income. [450 E-G] 447 Commissioner of,
Income-tax, Ahmedabad v.Gokuldas Harivallabhdas, 34 I.T.R. 98, approved.
(3)'Since the proceedings under s. 28 are of
a penal nature and the burden is on the department to prove that a particular
amount is a revenue receipt, the finding given in the assessment proceedings
that the assessee's explanation is false and that the disputed amount
represents income is evidence but is not conclusive. Before penalty could be
imposed the, entirety of circumstances must reasonably point to the conclusion
that the disputed amount represented income and that the assesses , had
consciously. concealed the particulars of his income or had deliberately
furnished inaccurate particulars. [450-451 A-C]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 2560 of 1966.
Appeal from the judgment and order dated May
11, 1966 of the Calcutta High Court in Income-tax Matter No. 98 of 1962.
S. T. Desai, G. C. Sharma and R. N. Sachthey,
for the appellants.
D. K. De, A. N. Sinha, Rathin Das for P. K.
Mukherjee, for respondent.
The Judgment of the Court was delivered by
Grover, J. This is an appeal by special leave from a judg- ment of the Calcutta
High Court answering the following question which was referred to it by the
Tribunal in the negative and in favour of the assessee.
"Whether on the facts and in the
circumstances of the case, the Income-tax authorities were justified in
imposing a penalty on the assessee under Section, 28 (1) (c) of the Income-tax
Act ?" The assessee during the assessment year 1947-48, the corresponding-
previous year being the financial year ending on March 31, 947 was a partner in
the firm of M/s. Haji Sk. Md. Hussain Md. Jan of Calcutta. The Income-tax
Officer while making the assessment discovered an undisclosed bank account of
the assessee with the Central Bank of India Ltd.
Bettiah, Bihar. It was found that a
cash-deposit of Rs. 87,000 had been made by the assessee on November 21, 1946
in that Bank. He was asked to explain the source, of the amount of deposit.
According to his explanation all his relations got panicky during the communal
riots in Bihar in the year 1946 and entrusted him with whatever cash amounts
they had with them at that time for safe custody.
448 It was stated that a sum of Rs. 87,000
had been received in the following manner Zahir Hussain alias Md. Zahir
(Cousin)Rs. 18,500/- Mohammad Jan (deceased father)Rs. 1,000 Mohd. Haniff
(cousin) Rs.1,750 Khairunnessa Bibi (mother)Rs.23,000 Safihan Bibi (Sister)
Rs.13,000 Fatema Bibi (Wife) Rs.15,750 Hasuia Bibi (Brother's wife)Rs.12,000
___________ Rs.87,000 ____________ These amounts which were received by the
assessee from his relations were deposited by him in a fixed deposit account in
the joint name of himself and his minor sons in the Bank at Bettiah. The
Income-tax Officer did not accept the explanation of the assessee and held that
the sum of Rs. 87,000 represented income from undisclosed sources. He added the
amount to the total income of the assessee in his personal assessment. This
addition was maintained by the Appellate Assistant Commissioner in appeal. The
Appellate Tribunal also agreed with the decision of ,the Income-tax Officer and
the Appellate Assistant Commissioner.
Penalty proceedings were initiated after the
assessment and in due course the Income-tax Officer imposed a penalty amounting
to Rs. 66,000 on the assessee under S. 28 (1) (c) for concealing income and
deliberately furnishing inaccurate particulars. The Appellate Assistant
Commissioner in appeal held that the case clearly called for a penal action but
he reduced the amount of penalty by Rs. 22,000. Subsequently he rectified his
order under S. 35 and confirmed the penalty of Rs. 66,000 imposed by the
Income-tax Officer. The assessee went up to the Appellate Tribunal in appeal.
The Tribunal took the view that penalty proceedings were of a criminal nature.
The onus lay on the department to show by adequate evidence that the amount of
the cash stated to have been concealed by the assessee was of a revenue nature
and was assessable as income and that the assessee had concealed it or
deliberately furnished false particulars in regard thereto. This onus, in the
opinion of the Tribunal, was not ,discharged by the Income-tax authorities by
showing merely that the explanation given by the assessee in the assessment proceedings
was found to be unacceptable. The Income-tax Officer, according to the
Tribunal, must find some material apart from he falsity of the assessee's
explanation to support his finding that the receipt from undisclosed sources
was income. As no satisfactory evidence had been produced by the department to
establish 4 49 that the amount in question represented the income of the
assessee the Tribunal held that no penalty could be imposed.
Now penalty can be imposed under s. 28 (1)
(c) if the Income tax Officer, the Appellate Assistant Commissioner or the
Appellate Tribunal in the course of any proceedings under the Income-tax Act
1922 is satisfied that any person "has concealed the particulars of his
income or deliberately furnished inaccurate particulars of such income".
In the judgment under appeal reference has been made to the decisions of the
various High Courts on the true ambit and scope of this provision and the
burden in the matter of establishing concealment of particulars of income or
deliberately furnishing inaccurate particulars of such income. The majority of
High Courts, namely, Bombay in Commissioner of Income-tax, Ahmedabad v.
Gokuldas Harivallabhdas(1), Gujarat in Commissioner of Income-tax Gujarat v. L.
H. Vora (2 ) and Patna in Commissioner of Income-tax Bihar & Orissa v.
Mohan Mallah(3) had expressed the view that proceedings under s. 28 ( 1 ) (c)
were of a penal nature and it was for the department to establish that the
assessee was guilty of concealment of, the particulars of income. The mere fact
that the assessee had given a false explanation did not prove that the receipt
necessarily constituted income of the assessee. Allahabad High Court, however,
in Moman Rain Rant Kumar(1) v. Commissioner of Income-tax U.P. observed that
where the explanation offered by the assessee in respect of an item of income-
shown as capital receipt was deliberately false it was open to the Income-tax
authorities to impose a penalty under s. 2 8 (1) (c). In the earlier judgment
in Lal Chand Gopal Das v. Commissioner of Income-tax U.P.(5) the Allahabad
court had said that if a receipt was income but was disguised in the account or
in the return as a non-assessable receipt it was clearly a case of concealment
of the particulars or of furnishing inaccurate particulars of income and a
penalty under s. 2 8 (1) (c) should be imposed on the assessee.
The first point which falls 'for
determination is whether the imposition of penalty is in the nature of a penal
provision. The determination of the question of burden of proof will depend
largely on the penalty proceedings being penal in nature or being merely meant
for imposition of an additional tax,, the liability to pay such tax having been
designated as penalty under s. 28. One line of argument which has prevailed particularly
with the Allahabad High Court in Lal Chand Gopal Das(5) cage is that there was
no essential difference between tax and penalty because the liability for
payment of both was imposed as a part of the- (1) 34 I.T.R. 98. (2) 56 I.T.R. 126.
(3) 54 I.T.R. 499. (4) 59 ].T.
(5) 48 I.T.R. 324., 450 -machinery of
assessment and the penalty was merely an additional tax imposed in certain
circumstances on account of the assessee's conduct. The justification of this
view was founded on certain observations in C. A. Abraham v. Income-tax
Officer, Kottayam & Anr.(1). It is true that penalty proceedings under s.
28 are included in the expression "assessment" and the true nature of
penalty has been held to be additional tax. But one of the principal objects in
enacting S. 28 is to provide a deterrent against recurrence of default on the
part of the assessee. The section is penal in the sense that its consequences
are intended to be an effective deterrent which will put a Stop to practices
which the legislature considers to be against the public interest. It is
significant that in C. A. Abraham's(1) case this Court was not called upon to
determine whether penalty proceedings were penal or of quasi penal nature and
the observations made with regard to penalty being an additional tax were made
in a different context and for a different purpose. It appears to have been
taken as settled by now in the sales tax law that an order imposing penalty is
the result of a quasi criminal proceedings; (Hindustan Steel Ltd. v. The State
of Orissa(1). In England also it has never been doubted that such proceedings
are penal; Fattorini (Thomas) (Lanchashire) (Ltd., v. Inland Revenue
The next question is that when proceedings
under S. 28 are penal in character what would be the nature of the burden upon
the department for establishing that the assessee is liable to payment of
penalty. As has been rightly observed by Chagla C.J., in Commissioner of
Income-tax, Ahmedabad v, Gokuldas Harivallabhdas (4) the gist of the offence
under S. 2 8 ( 1 ) (c) is that the assessee has concealed the particulars of
his income or deliberately furnished inaccurate particulars of such income and
therefore the department must 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
Another point is whether a finding given in
the assessment proceedings that a particular receipt is income after rejecting
the explanation given by the assessee as false would prima facie be sufficient
for establishing in proceedings under S. 28 that the disputed amount was the
assessee's income. It must be remembered that the proceedings under S. 28 are
of a penal nature and the burden is on the department to prove that a
particular amount (1) 41 1. T.R. 425.
(3) 1943 (11) I.T.R. (Supp.)50.
(2) C.A.S. 883-392/66 dt. 4-8-1969.
(4) 34 I.T.R. 98.
451 is a revenue receipt. 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. In accurate
In the present case, it was neither suggested
before the High Court nor has it been contended before us that apart from the
falsity of the explanation given by the assessee there was cogent material or
evidence from which it could be inferred that the assessee had concealed the
particulars of his income or had deliberately furnished inaccurate particulars
in respect of the same and that the disputed amount was a revenue receipt. The
question was, therefore, rightly answered by the High Court.
The appeal fails and it is dismissed with
V.P.S. Appeal dismissed.