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The Tax Publishers1998 TaxPub(DT) 1006 (Ker-HC) : (1998) 233 ITR 0344 : (1998) 144 CTR 0653 D. K. B. AND CO. v. COMMISSIONER OF INCOME-TAX (and vice versa) P. A. MOHAMMED and P. SHANMUGAM JJ. November 25, 1997. ITR Nos. 13 and 14 of 1995. P. Balachandran for the assessee. P. K. R. Menon and N. R. K. Nair for the Commissioner. JUDGMENT P. SHANMUGAM J.-L T. R. No. 13 of 1995. The following questions of law were referred to the High Court for its opinion : '1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the deposits in the name of R. Bharathan belong to the assessee-firm ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income accrued to the assesseefirm in the assessment year 1982-83 ?' The assessee is a partnership firm engaged in Abkari contract. There are 13 partners. One of the partners is Smt. G. Ponnamma. The original assessment of the firm was completed on January 13, 1983, on the net income of Rs. 1,20,430. Subsequently, the Department had conducted search operations in the office premises of the firm and the residential premises of the partners on February 14, 1984. On the basis of the materials collected at the time of the search, the Department found certain bank accounts amounting to Rs. 21,54,240. Additions were made in the reassessment based on the credits found in the bank account. The assessment was confirmed by the Commissioner in appeal and the Tribunal. The case of learned counsel for the petitioner is that the Abkar-1 contract was taken in the name of some of the partners and the benefit was shared by all the 13 partners and, therefore, the constitution of the partnership itself was invalid. The Tribunal negatived the said contention since that was a ground taken for the first time and that no basis was laid for the said contention. It was further found that it was a registered firm and the nature and status of the firm was accepted and, therefore, it could not be raised in the second appeal. It is submitted that Shri Bharathan is the person behind the control ling of business and, therefore, it is for him to explain the source of this credit. It is argued that since the firm existed only for two months in the accounting year ending on March 31, 1982, it was impossible in such a short time to raise a credit of Rs. 15 lakhs. The Tribunal negatived this contention also on the ground that simply because the period was short, it cannot be construed that the money could not have been raised. The substantial ground raised by learned counsel for the petitioner is that Shri Bharathan was a stranger and, therefore, his statement should not have been accepted in preference to the statement of the other partners The question before the Tribunal was whether the amount of Rs. 15 lakhs odd is traceable to the assessee or to someone else. From the evidence as assessed by the Tribunal and also argued before us, we could see that Shri Bharathan has accepted that the amount is traceable to the assessee-firm and that he was in full management of the business. The statement of Bharathan was corroborated by the admission of Shri Sukumaran, chief cashier, who had been writing the paying-in-slip as per the instructions of Shri Bharathan for deposits and the assistant cashier, one Shri Regunathan who deposed that the amounts were deposited by him. Shri Bharathan is the husband of Smt. Ponnamma who is admittedly a partner and was in management of the firm. In the course of the search, the Department had also come across the statement of division of profits both accounted and unaccounted in which it was shown that Shri Bharathan had 4/21st share in the profits. The said statement was signed by all the partners, thus showing that they have accepted Shri Bharathan as a partner, The decision of the Supreme Court in CIT v. Daulat Rani Raivatniull [t9731 87 ITR 349, was rightly distinguished by the Tribunal. The contention is that since the fixed deposits were utilised for raising a loan, it would show that the deposits were of Mr. Bharathan. But in the light of the overwhelming contra evidence, the fact of raising loan would not alter the situation or improve the case. From all the materials made available and the circumstances of the case, it is established beyond doubt that the deposits belong to the firm. From the statement of Mr. Bharathan himself coupled with the state ment of two bank employees and another partner by name Shri K. Damodaran, it is clear that there is positive evidence to prove that the deposits were made for the firm and belonged to the firm. There was a further addition of Rs. 1,66,788 made by the Income-tax Officer, but reduced by the Commissioner of Income-tax (Appeals) to Rs. 1,32.582. These deposits represented the sale proceeds and, therefore, the finding of the Tribunal that the addition of Rs. 1,27,658 is, therefore, justified in the facts and circumstances of the case does not call for any interference. For the reasons stated above, we hold that the deposits belong to the firm and the Tribunal was right in holding that the income accrued to the assessee-firm in the assessment year 1982-83. Consequently, we answer both the questions in favour of the Revenue and against the assessee. L T. R. No. 14 of 1995.-The following questions were referred for the opinion of the High Court : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee had not consciously concealed its income ? 2. Whether the Tribunal was justified in setting aside the penalty order ?' Both the questions were referred at the instance of the Revenue. The assessee is a registered firm dealing in Abkari business. There were 13 partners, One of the partners is Smt. G. Ponnamma. The Assessing Officer proceeded on the basis that Smt. Ponnamma is only a benami to her husband, Shri Bharathan. The original assessment was completed on January 13, 1983, on a net income of Rs. 1,20,430. Subsequently, the Department had conducted search operations in the office premises of the firm and the residential premises of the partners on February 14, 1984. On the basis of the materials collected at the time of the search, the Department found certain bank accounts. Additions to the tune of Rs. 21,54,240 were made in the reassessment based on the credits found in the bank account, The assessment orders were confirmed by the Commissioner of Income-tax in appeal. Thereafter, notice under section 271(l)(c) of the Income-tax Act was issued for penalty proceedings. Considering the explanation and the assessee's contention the Inspecting Assistant Commissioner found that the assessee had wilfully and deliberately suppressed its income and imposed a minimum penalty for concealment of the income to the tune of Rs. 15 lakhs as deposits. On appeal, the Commissioner of Income-tax, after a nominal reduction of penalty, allowed the appeal against the penalty and the Revenue has come up with the reference. The main submission of learned senior standing counsel is that the Tribunal has cast the burden erroneously on the Revenue to prove that the assessee had not consciously concealed its income. Secondly, it is submitted that the Tribunal has not appreciated the applicability of Explanation 1 to section 271(l)(c) of the Income-tax Act and has not considered the relevant materials before holding that the proviso to section 271(l)(c) could be invoked and the facts of the case would justify the scrapping of the penalty. From the order of the Tribunal, we could see that the burden has been wrongly cast on the Revenue when the Tribunal stated as follows : 'We have ourselves accepted that the evidence is sufficient for making an assessment. But an evidence which will be sufficient for the purpose of assessment will not be enough for the purpose of levying penalty.' It is further stated in paragraph 26 of the order as follows 'No evidence has been brought on record to show that the opening cash balance of the assessee was such that the lender for soiled notes could not have come out of cash balance.' From there, it could be seen that the Tribunal was proceeding on the basis that it is for the Revenue to furnish evidence sufficient for the purpose of levying penalty. The Tribunal noted and extracted the passage from the decision of this court in CIT v. Shri Pawan Kumar Dalinia [19871 168 ITR 1, wherein it has been held as follows (headnote) : 'The entire material available should be considered afresh ... the initial burden of proof is cast on the assessee to displace the presumption.' There is hardly any new material or reassessment or closer scrutiny of the existing facts or data available. On the contrary, the Tribunal's view 'there is no positive finding of falsity of the explanation that the deposits belonged to Shri Bharathan. Some materials have also been furnished to substantiate the assessee's standpoint'-is all that has been the consideration by the Tribunal. This in our view to say the least is not satisfactory, The Supreme Court in CIT (Addl.) v. Jeevanlal Sah [1994] 205 ITR 244, has held that the rule regarding the burden of proof enunciated in CIT v. Anwar Ali [1970] 76 ITR 696 (SC), is no longer valid. The Erplanation to section 271(l)(c) shifts the burden to the assessee and if he fails to establish the same, the presumption will become a finding and it would be open to the authority to levy the penalty. In CIT v. Shri Pawan Kumar Dalmia [1987] 168 ITR 1, a Division Bench of this court held that the presumption under the Explanation to section 271(l)(c) can be displaced by the assessee proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect and the quantum of proof necessary would be that required in a civil case, namely, preponderance of probabilities. The original assessment was completed on January 13, 1983, on a net income of Rs. 1,20,430. On the basis of the search and seizures, reassessment was made fixing a total income of Rs. 21,54,240. The Income-tax Officer found that there was clinching evidence that the fixed deposits made by Shri Bharathan came out of the income of the assessee-firm. It is further seen that but for the materials and evidence disclosed from the raid conducted, the assessment would have been grossly an underassessment of a total income of Rs. 1,20,430 as against Rs. 21,54,240 assessed. The only explanation for the notice under section 271(l)(c) by the assessee was that the deposits were in the name -of Shri Bharathan and they were out of Bharathan's own pocket and not out of the firm. While considering this explanation, we find that the Tribunal has not appreciated the Explanation to section 271(l)(c) and the requisites that would be needed for its application, The Tribunal found that neither the explanation given by the petitioner was false nor was it unsubstantiated. According to the Tribunal, neither of the two had happened and, therefore, the Explanation would not be applicable to the facts of the case. We are unable to deduce any logical conclusions from these observations of the Tribunal. The explanation as it could be seen from the Inspecting Assistant Commissioner's order dated August 15, 1988, was a mere statement to the effect that the deposits were out of Bharathan's own. In the light of Bliarathan's own admission and corroborated by other evidence, this was found to be false. Therefore, the question of invoking clause (B) of Explanation I does not arise and consequently the proviso to Explanation 1 is not attracted. The case of learned counsel appearing on behalf of the respondent is that the finding of the Tribunal is purely a question of fact and would not call for interference. It is further submitted that the notice calling for penalty itself is invalid since the notice did not invoke the Explanation to section 271(l)(c) of the Act. In the penalty proceedings under section 271(l)(c) the burden is on the assessee to establish that there is no concealment and the burden had been wrongly placed on the Revenue. Besides, even while invoking the proviso to section 271(l)(c), Explanation 1, we find there are no materials existing or additional materials furnished warranting the conclusion that there is bona fide action on the part of the assessee. However, we are of the view that the applicant must be given another opportunity before the Tribunal to place materials for consideration, If the assessee was aggrieved about the validity of the notice, he should have made a reference application. The assessee having not raised an issue on that point, he is not entitled to raise it now. In CIT v. Damodaran [19801 121 ITR 572, the Supreme Court had taken the view that it is not open to the respondent on an application filed by the Department, to raise a question which was neither raised before the authorities below nor was it considered. If the assessee was really aggrieved, he should have asked for a reference on that question. For all these reasons, we hold that the Tribunal is not right in allowing the appeal holding that the assessee had not consciously concealed its income. Consequently, we decline to answer the questions. The matter is remanded back to the Tribunal to give a fresh finding on the question of penalty in accordance with law. A copy of this judgment with the seal of this court and the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal, Cochin Bench. OPEN SUBSCRIBE FOR FULL CONTENT

The Tax Publishers1998 TaxPub(DT) 1006 (Ker-HC) : (1998) 233 ITR 0344 : (1998) 144 CTR 0653

D. K. B. AND CO. v. COMMISSIONER OF INCOME-TAX

(and vice versa)

P. A. MOHAMMED and P. SHANMUGAM JJ.

November 25, 1997.

ITR Nos. 13 and 14 of 1995.

P. Balachandran for the assessee.

P. K. R. Menon and N. R. K. Nair for the Commissioner.

JUDGMENT

P. SHANMUGAM J.-L T. R. No. 13 of 1995. The following questions of law were referred to the High Court for its opinion :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the deposits in the name of R. Bharathan belong to the assessee-firm ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income accrued to the assesseefirm in the assessment year 1982-83 ?'

The assessee is a partnership firm engaged in Abkari contract. There are 13 partners. One of the partners is Smt. G. Ponnamma. The original assessment of the firm was completed on January 13, 1983, on the net income of Rs. 1,20,430. Subsequently, the Department had conducted search operations in the office premises of the firm and the residential premises of the partners on February 14, 1984. On the basis of the materials collected at the time of the search, the Department found certain bank accounts amounting to Rs. 21,54,240. Additions were made in the reassessment based on the credits found in the bank account. The assessment was confirmed by the Commissioner in appeal and the Tribunal.

The case of learned counsel for the petitioner is that the Abkar-1 contract was taken in the name of some of the partners and the benefit was shared by all the 13 partners and, therefore, the constitution of the partnership itself was invalid. The Tribunal negatived the said contention since that was a ground taken for the first time and that no basis was laid for the said contention. It was further found that it was a registered firm and the nature and status of the firm was accepted and, therefore, it could not be raised in the second appeal.

It is submitted that Shri Bharathan is the person behind the control ling of business and, therefore, it is for him to explain the source of this credit. It is argued that since the firm existed only for two months in the accounting year ending on March 31, 1982, it was impossible in such a short time to raise a credit of Rs. 15 lakhs. The Tribunal negatived this contention also on the ground that simply because the period was short, it cannot be construed that the money could not have been raised. The substantial ground raised by learned counsel for the petitioner is that Shri Bharathan was a stranger and, therefore, his statement should not have been accepted in preference to the statement of the other partners The question before the Tribunal was whether the amount of Rs. 15 lakhs odd is traceable to the assessee or to someone else. From the evidence as assessed by the Tribunal and also argued before us, we could see that Shri Bharathan has accepted that the amount is traceable to the assessee-firm and that he was in full management of the business. The statement of Bharathan was corroborated by the admission of Shri Sukumaran, chief cashier, who had been writing the paying-in-slip as per the instructions of Shri Bharathan for deposits and the assistant cashier, one Shri Regunathan who deposed that the amounts were deposited by him. Shri Bharathan is the husband of Smt. Ponnamma who is admittedly a partner and was in management of the firm. In the course of the search, the Department had also come across the statement of division of profits both accounted and unaccounted in which it was shown that Shri Bharathan had 4/21st share in the profits. The said statement was signed by all the partners, thus showing that they have accepted Shri Bharathan as a partner,

The decision of the Supreme Court in CIT v. Daulat Rani Raivatniull [t9731 87 ITR 349, was rightly distinguished by the Tribunal. The contention is that since the fixed deposits were utilised for raising a loan, it would show that the deposits were of Mr. Bharathan. But in the light of the overwhelming contra evidence, the fact of raising loan would not alter the situation or improve the case.

From all the materials made available and the circumstances of the case, it is established beyond doubt that the deposits belong to the firm. From the statement of Mr. Bharathan himself coupled with the state ment of two bank employees and another partner by name Shri K. Damodaran, it is clear that there is positive evidence to prove that the deposits were made for the firm and belonged to the firm.

There was a further addition of Rs. 1,66,788 made by the Income-tax Officer, but reduced by the Commissioner of Income-tax (Appeals) to Rs. 1,32.582. These deposits represented the sale proceeds and, therefore, the finding of the Tribunal that the addition of Rs. 1,27,658 is, therefore, justified in the facts and circumstances of the case does not call for any interference.

For the reasons stated above, we hold that the deposits belong to the firm and the Tribunal was right in holding that the income accrued to the assessee-firm in the assessment year 1982-83. Consequently, we answer both the questions in favour of the Revenue and against the assessee.

L T. R. No. 14 of 1995.-The following questions were referred for the opinion of the High Court :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee had not consciously concealed its income ?

2. Whether the Tribunal was justified in setting aside the penalty order ?'

Both the questions were referred at the instance of the Revenue.

The assessee is a registered firm dealing in Abkari business. There were 13 partners, One of the partners is Smt. G. Ponnamma. The Assessing Officer proceeded on the basis that Smt. Ponnamma is only a benami to her husband, Shri Bharathan. The original assessment was completed on January 13, 1983, on a net income of Rs. 1,20,430. Subsequently, the Department had conducted search operations in the office premises of the firm and the residential premises of the partners on February 14, 1984. On the basis of the materials collected at the time of the search, the Department found certain bank accounts. Additions to the tune of Rs. 21,54,240 were made in the reassessment based on the credits found in the bank account, The assessment orders were confirmed by the Commissioner of Income-tax in appeal. Thereafter, notice under section 271(l)(c) of the Income-tax Act was issued for penalty proceedings. Considering the explanation and the assessee's contention the Inspecting Assistant Commissioner found that the assessee had wilfully and deliberately suppressed its income and imposed a minimum penalty for concealment of the income to the tune of Rs. 15 lakhs as deposits. On appeal, the Commissioner of Income-tax, after a nominal reduction of penalty, allowed the appeal against the penalty and the Revenue has come up with the reference.

The main submission of learned senior standing counsel is that the Tribunal has cast the burden erroneously on the Revenue to prove that the assessee had not consciously concealed its income. Secondly, it is submitted that the Tribunal has not appreciated the applicability of Explanation 1 to section 271(l)(c) of the Income-tax Act and has not considered the relevant materials before holding that the proviso to section 271(l)(c) could be invoked and the facts of the case would justify the scrapping of the penalty.

From the order of the Tribunal, we could see that the burden has been wrongly cast on the Revenue when the Tribunal stated as follows :

'We have ourselves accepted that the evidence is sufficient for making an assessment. But an evidence which will be sufficient for the purpose of assessment will not be enough for the purpose of levying penalty.'

It is further stated in paragraph 26 of the order as follows

'No evidence has been brought on record to show that the opening cash balance of the assessee was such that the lender for soiled notes could not have come out of cash balance.'

From there, it could be seen that the Tribunal was proceeding on the basis that it is for the Revenue to furnish evidence sufficient for the purpose of levying penalty. The Tribunal noted and extracted the passage from the decision of this court in CIT v. Shri Pawan Kumar Dalinia [19871 168 ITR 1, wherein it has been held as follows (headnote) :

'The entire material available should be considered afresh ... the initial burden of proof is cast on the assessee to displace the presumption.'

There is hardly any new material or reassessment or closer scrutiny of the existing facts or data available. On the contrary, the Tribunal's view 'there is no positive finding of falsity of the explanation that the deposits belonged to Shri Bharathan. Some materials have also been furnished to substantiate the assessee's standpoint'-is all that has been the consideration by the Tribunal. This in our view to say the least is not satisfactory,

The Supreme Court in CIT (Addl.) v. Jeevanlal Sah [1994] 205 ITR 244, has held that the rule regarding the burden of proof enunciated in CIT v. Anwar Ali [1970] 76 ITR 696 (SC), is no longer valid. The Erplanation to section 271(l)(c) shifts the burden to the assessee and if he fails to establish the same, the presumption will become a finding and it would be open to the authority to levy the penalty.

In CIT v. Shri Pawan Kumar Dalmia [1987] 168 ITR 1, a Division Bench of this court held that the presumption under the Explanation to section 271(l)(c) can be displaced by the assessee proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect and the quantum of proof necessary would be that required in a civil case, namely, preponderance of probabilities.

The original assessment was completed on January 13, 1983, on a net income of Rs. 1,20,430. On the basis of the search and seizures, reassessment was made fixing a total income of Rs. 21,54,240. The Income-tax Officer found that there was clinching evidence that the fixed deposits made by Shri Bharathan came out of the income of the assessee-firm. It is further seen that but for the materials and evidence disclosed from the raid conducted, the assessment would have been grossly an underassessment of a total income of Rs. 1,20,430 as against Rs. 21,54,240 assessed. The only explanation for the notice under section 271(l)(c) by the assessee was that the deposits were in the name -of Shri Bharathan and they were out of Bharathan's own pocket and not out of the firm. While considering this explanation, we find that the Tribunal has not appreciated the Explanation to section 271(l)(c) and the requisites that would be needed for its application, The Tribunal found that neither the explanation given by the petitioner was false nor was it unsubstantiated. According to the Tribunal, neither of the two had happened and, therefore, the Explanation would not be applicable to the facts of the case. We are unable to deduce any logical conclusions from these observations of the Tribunal. The explanation as it could be seen from the Inspecting Assistant Commissioner's order dated August 15, 1988, was a mere statement to the effect that the deposits were out of Bharathan's own. In the light of Bliarathan's own admission and corroborated by other evidence, this was found to be false. Therefore, the question of invoking clause (B) of Explanation I does not arise and consequently the proviso to Explanation 1 is not attracted.

The case of learned counsel appearing on behalf of the respondent is that the finding of the Tribunal is purely a question of fact and would not call for interference. It is further submitted that the notice calling for penalty itself is invalid since the notice did not invoke the Explanation to section 271(l)(c) of the Act.

In the penalty proceedings under section 271(l)(c) the burden is on the assessee to establish that there is no concealment and the burden had been wrongly placed on the Revenue. Besides, even while invoking the proviso to section 271(l)(c), Explanation 1, we find there are no materials existing or additional materials furnished warranting the conclusion that there is bona fide action on the part of the assessee. However, we are of the view that the applicant must be given another opportunity before the Tribunal to place materials for consideration,

If the assessee was aggrieved about the validity of the notice, he should have made a reference application. The assessee having not raised an issue on that point, he is not entitled to raise it now. In CIT v. Damodaran [19801 121 ITR 572, the Supreme Court had taken the view that it is not open to the respondent on an application filed by the Department, to raise a question which was neither raised before the authorities below nor was it considered. If the assessee was really aggrieved, he should have asked for a reference on that question.

For all these reasons, we hold that the Tribunal is not right in allowing the appeal holding that the assessee had not consciously concealed its income. Consequently, we decline to answer the questions. The matter is remanded back to the Tribunal to give a fresh finding on the question of penalty in accordance with law.

A copy of this judgment with the seal of this court and the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal, Cochin Bench.

OPEN