SUPREME COURT OF INDIA
T.Ashok Pai
Vs
Commissioner of Income Tax, Bangalore
C.A.No. 2747 of 2007
(Markandeya Katju and S.B.Sinha,JJ.,)
18.05.2007
JUDGMENT
S.B.Sinha,J.,
1. Leave granted.
2. The assessee is in appeal before us aggrieved by and dissatisfied with a
judgment dated 29.9.2005, passed by a Division Bench of the Karnataka High
Court in ITRC No.492 of 1998 whereby and whereunder answer to the following
question was rendered in the negative.
"Whether, on the facts and in the circumstances of the case, the Tribunal
was right in holding that penalty u/s.271(1)(C) was not exigible in the present
case?"
3. Shorn of all unnecessary details the fact of the matter is as under :
Appellant is an individual. He is an engineering graduate. Apart from his
income by way of salary, he was having shares of profit of a number of firms
besides income from proprietorship business. He has also earned income from
dividend and interest. The banker of the assessee was the Syndicate Bank. A
power of attorney was given by the appellant in its favour. The shares of the
companies which the appellant owned were lodged with and in custody of the said
Bank. Under his instructions, the Bank used to purchase shares of various
companies and kept with it the physical possession thereof. It has also sold
the shares of the appellant and delivered the same to the brokers or the
parties and also used to pay or receive the sale proceeds and deposit the same
in the bank account. The said arrangement continued for a number of years in
the past. Tax matters of the appellant were being looked after for a number of
years by the Law Agency Division of the Syndicate Bank, Manipal, which was
authorised to file the returns of income before the tax authorities
representing the assessee herein. For the assessment year 1985-86 the return of
income on behalf of the appellant was filed on 13.2.1989. Respondent, however,
being not satisfied with the return, called for better particulars of
investments made by the appellant, whereupon a revised return was filed on
12.1.1990 furnishing all the requisite particulars to the Department. An
application was filed by him before the Settlement Commission on or about
17.1.1990 for settlement of the taxes due which was, however, rejected by an
order dated 26.9.1990. Appellant, thereafter, filed a second revised return,
upon which assessment was made by the Assessing Officer. The said revised
return was accepted by the Assessing Officer. However, a proceedings for
imposition of penalty in terms of Section 271(1)(C) of the Income Tax Act,
1961was initiated. In the cause shown by the appellant a contention was raised
that he had acted bona fide as the tax affairs were being looked after by the
professional group working with the Syndicate Bank. The said contention was not
accepted by the Assessing Authority.
4. The Income Tax Appellate Tribunal, however, considered the entire materials
brought on records and inter alia opined:
“(1) When on discovery, some omission or some wrong statement in the original
return is found, a penalty proceeding for concealment of any particulars of
income or furnishing inaccurate particulars of such income as contemplated
under Section 271(1)(C) of the Income Tax Act, 1961may not be attracted.
(2) The revised return having been accepted by the Department and the penalty
having not been imposed with reference to the original return filed by
assessee, he cannot be considered to be guilty of concealment of income.
(3) The fault, if any, was with his tax counsel and even the said tax counsel
viz. the Syndicate Bank, cannot be said to have acted in a mala fide manner in
preparing the return of income of the assessee wrongly. The bona fides of the
assessee are proved by the facts and circumstances of the case.”
5. A reference was made to the High Court at the instance of the revenue in
respect of the following question :
"Whether on the facts and in the circumstances of the case, the Tribunal
was right in holding that penalty u/s. 271(1)(C) was not exigible in the
present case?"
6. The High Court compared the returns filed by the appellant under the Income
Tax Act, 1961and the Wealth Tax Act, and 1957and arrived at the
following decision:
"The principal is responsible for all the act done by the agent. That
apart, in the case on hand there is no material to show that the agent has
acted in excess of his authority or in disobedience of the authority given by
the principal. The stand taken by the Bank manifestly makes it clear to us that
they prepared the return of income on the basis of information furnished by the
assessee. The assessee is an engineer and a tax payee for a number of years
cannot contend that he signed the return of income by believing his power of
attorney holder. This contention of the assessee cannot be believed for the
reason that in his revised return dated 12.1.1990 again declared a loss of
Rs.1, 04, 531/- and did not admit the capital gains and other income. The first
appellate authority rightly holds that if the explanation of assessee is
accepted then every tax evader could take shelter by shifting the blame on his
clerk and accountants who invariably prepare the return for them. The
contention of the assessee that because of the negligence on the part of the Bank
the mistake of concealment has crept in is not acceptable."
7. Mr. G. Sarangan, learned senior counsel appearing on behalf of the
appellant, would submit that the Tribunal having arrived at a finding of fact
that the appellant was not guilty of deliberate concealment of his income and
thus, having no mens rea in this behalf, the impugned judgment cannot be
sustained. In any event, it was urged, no specific question having been
referred as to whether the findings of the Tribunal are perverse or not, the
High Court committed a manifest error in differing with the findings of fact
arrived at by the Tribubnal.
8. Mr. B. Datta, learned Additional Solicitor General appearing on behalf of
the respondent, on the other hand, would submit that the Assessing Authority as
also the Commissioner of Income Tax having arrived at a finding of fact that
the appellant was guilty of deliberate concealment of his income, the Tribunal
was not correct in interfering therewith.
9. Reference of the question to the High Court as noticed hereinbefore was
general in nature. No question was referred as to whether the finding of the
Tribunal was perverse or not. Existence of mens rea is essentially a question
of fact. The Tribunal alone, as the highest authority empowered to determine
the question of fact, would be entitled to go thereinto. We may, however,
hasten to add that the same would not mean that the High Court will have no
jurisdiction in this behalf. The High Court, it is well known, should not
ordinarily disturb the finding of fact arrived at by the Tribunal. Question of
law should generally arise only accepting the finding of fact to be correct.
10. In Commissioner of Income-Tax v. Mukundray K. Shah1,
this Court observed thus:
"The above two judgments indicate that the question as to whether payment
made by the company is for the benefit of the assessee is a question of fact.
In this case, the Tribunal has concluded that the payment routed through MKF
and MKI was for the benefit of the assessee. This was a finding of fact. It was
not perverse. Therefore, the High Court should not have interfered with the
said finding."
11. In K. Ravindranathan Nair v. Commissioner of Income-Tax2 , a three-Judge Bench
of this Court opined :
"The only jurisdiction of the High Court in a reference application is to
answer the questions of law that are placed before it. It is only when a
finding of the Tribunal on fact is challenged as being perverse, in the sense
set out above, that a question of law can be said to arise."
12. Yet again in Century Flour Mills Ltd. v. Commissioner of Income- Tax3,
it was observed by this Court :
"We have perused the order of the High Court and heard learned counsel and
are in no doubt that the High Court was right. The Appellate Tribunal having
arrived at the finding of concealment of income on the basis of the material on
record, no question of law arose, reference of which could be called for."
13. It is, therefore, trite that if an explanation given by the assessee with
regard to the mistake committed by him has been treated to be bona fide and it
has been found as of fact that he had acted on the basis of wrong legal advice,
the question of his failure to discharge his burden in terms of explanation
appended to Section 271(1)(C) of the Income Tax Act, 1961would not arise.
14. In Dilip N. Shroff v. Joint Commissioner of Income-Tax4, Mumbai (Civil Appeal
Arising out of SLP (C) No.26831/2004) delivered today, this Court observed.
"The expression "conceal" is of great importance. According to
Law Lexicon, the word "conceal" means: "to hide or keep secret.
The word "conceal" is con plus celare which implies to hide. It means
to hide or withdraw from observation; to cover or keep from sight; to prevent the
discovery of; to withhold knowledge of. The offence of concealment is, thus, a
direct attempt to hide an item of income or a portion thereof from the
knowledge of the income tax authorities." In Webster's Dictionary,
"inaccurate" has been defined as: "not accurate, not exact or correct;
not according to truth; erroneous; as an inaccurate statement, copy or
transcript."
15. It signifies a deliberate act of omission on the part of the assessee. Such
deliberate act must be either for the purpose of concealment of income or
furnishing of inaccurate particulars.
16. The term 'inaccurate particulars' is not defined. Furnishing of an
assessment of value of the property may not by itself be furnishing of
inaccurate particulars. Even if the explanations are taken recourse to, a
finding has to be arrived at having regard clause (a) of Explanation 1 that the
Assessing Officer is required to arrive at a finding that the explanation
offered by an assessee, in the event, he offers one was false. He must be found
to have failed to prove that such explanation is not only not bonafide but all
the facts relating to the same and material to the income were not disclosed by
him. Thus, apart from his explanation being not bona fide, it should be found
as of fact that he has not disclosed all the facts which was material to the
computation of his income.
17. The explanation having regard to the decision of this Court must be
preceded by a finding as to how and as to in what manner he furnished the
particulars of his income. It is beyond any doubt or dispute that for the said
purpose the Income Tax Officer must arrive at its satisfaction in this behalf.
[See Commissioner of Income Tax v. Ram Commercial Enterprises Ltd5., and Diwan Enterprises v. Commissioner of Income
Tax6,.
18. The order imposing penalty is quasi-criminal in nature and, thus, burden
lies on the department to establish that the assessee had concealed his income.
Since burden of proof in penalty proceedings varies from that in the assessment
proceeding, a finding in an assessment proceeding that a particular receipt is
income cannot automatically be adopted, though a finding in the assessment
proceeding constitute good evidence in the penalty proceeding. In the penalty
proceedings, thus, the authorities must consider the matter afresh as the
question has to be considered from a different angle.
19. It is now a well-settled principle of law that the more is the stringent
law, more strict construction thereof would be necessary. Even when the burden
is required to be discharged by an assessee, it would not be as heavy as the
prosecution. [See P.N. Krishna Lal and Others v. Govt. of Kerala and
Another7,
20. The omission of the word "deliberate", thus, may not be of much
significance.
21. Section 271(1)(c) remains a penal statute. Rule of strict construction
shall apply thereto. Ingredients of imposing penalty remains the same. The
purpose of the legislature that it is meant to be deterrent to tax evasion is
evidenced by the increase in the quantum of penalty, from 20% under the 1922
Act to 300% in 1985.
22. 'Concealment of income' and 'furnishing of inaccurate particulars' carry
different connotations. Concealment refers to deliberate act on the part of the
assessee. A mere omission or negligence would not constitute a deliberate act
of suppressio veri or suggestio falsi.
23. We may notice that in Commissioner of Income-Tax v. Jeevan Lal Sah8 ,
this Court dealt with the amendment of Section 271(1)(C) made in the year 1964
to hold :
"Even after the amendment of 1964, the penalty proceedings, it is evident,
continue to be penal proceedings. Similarly, the question whether the assessee
has concealed the particulars of his income or has furnished inaccurate
particulars of his income continues to remain a question of fact. Whether the
Explanation has made a difference is while deciding the said question of fact
the presumption created by it has to be applied, which has the effect of
shifting the burden of proof. The entire material on record has to be
considered keeping in mind the said presumption and a finding recorded."
24. The question came for consideration of this Court yet again in K.C.
Builders and Anr v. Assistant Commissioner of Income-Tax9,
wherein it was held:
"One of the amendments made to the abovementioned provisions is the
omission of the word 'deliberately' from the expression 'deliberately furnished
inaccurate particulars of such income'. It is implicit in the word 'concealed'
that there has been a deliberate act on the part of the assessee. The meaning
of the word 'concealment' as found in Shorter Oxfort English Dictionary, third
edition, Volume I, is as follows : 'In law, the intentional suppression of
truth or fact known, to the injury or prejudice of another.' The word
'concealment' inherently carried with it the element of mens rea. Therefore,
the mere fact that some figure or some particulars have been disclosed by
itself, even if it takes out the case from the purview of non-disclosure, it
cannot by itself, even if it takes out the case from the purview of
non-disclosure, it cannot by itself take out the case from the purview of
non-disclosure, it cannot by itself take out the case from the purview of
furnishing inaccurate particulars. Mere omission from the return of an item of
receipt does neither amount to concealment nor deliberate furnishing of
inaccurate particulars of income unless and until there is some evidence to
show or some circumstances found from which it can be gathered that the
omission was attributable to an intention or desire on the part of the assessee
to hide or conceal the income so as to avoid the imposition of tax thereon. In
order that a penalty under Section 271(1)(iii) may be imposed, it has to be
proved that the assessee has consciously made the concealment or furnished
inaccurate particulars of his income."
25. The said principle has been reiterated in M/s Virtual Soft Systems Ltd.
v. Commissioner of Income Tax, Delhi10, where it was
held:
"24. Section 271 of the Act is a penal provision and there are well
established principles for the interpretation of such a penal provision. Such a
provision has to be construed strictly and narrowly and not widely or with the
object of advancing the object and intention of the legislature."
26. Referring to a large number of decisions, it was furthermore observed :
"27. Every statutory provision for imposition of penalty has two distinct
components:
(i) That which lays down the conditions for imposition of penalty.
(ii) That which provides for computation of the quantum of penalty.
Section 271(1)(c) and clause (iiii) relate to the conditions for imposition of
penalty, whereas, on the other hand , Explanation 4 to Section 271(1)(c)
relates to the computation of the quantum of penalty.
28. The provisions of Section 271(1)(c)(iii) prior to 1.4.1976, and after its
amendment by the Finance Act, 1975with effect from 1.4.1976, later
provisions being applicable to the assessment year in question, being
substantially the same except that in place of the word 'income' in sub clause
(iii) to sub clause (c) of Section 271 prior to its amendment by Finance
Act, 1975, the expression "amount of tax sought to be evaded" have
been substituted. Explanation 4 inserted for the purpose of clause (iii) where
the expression "the amount of tax sought to be evaded", was inserted
had in fact made no difference in so far as the main criteria, namely, absence
of tax continued to exist, prior to or after 1.4.1976, changing only the
measure or the scale as to the working of the penalty which earlier was with
reference to the 'income' and after the amendment related to the 'tax sought to
be evaded'. The sine qua non which was there prior or after the amendment on
1.4.1976 to the fact that there must be a positive income resulting in tax
before any penalty could be levied continued to exist. The penalty imposed was
in 'addition to any tax'. If there was no tax, no penalty could be levied. The
return filed declaring loss and assessment made at a reduced loss did not
warrant any levy of penalty within the meaning of Section 271(1)(c)(iii) with or
without Explanation 4."
27. In Commissioner of Income Tax, Indore v. Suresh Chandra Mital11, whereupon Mr. Datta, learned Additional Solicitor General relied, no
reason was assigned and only the order of the High Court was not interfered
with. Therein, it appears, the assessee pleaded that he had submitted the
revised return of income which was not found to be sufficient.
28. In M. Janardhana Rao v. Joint Commissioner of Income Tax12 whereupon again
reliance was placed by Mr. Datta, this Court was concerned with the meaning of
the substantial question of law as obtaining in Section 271A of the Income
Tax Act, 1961. We are not concerned with the said question in the present case.
29. It is not a case where penalty has been imposed for breach of contravention
of a commercial statute where lack of or intention to contravene or existence
of bona fie may not be of much importance. It is also not a case where penalty
is mandatorily impossible. It was, therefore, not a case where the enabling
provision should have been invoked.
30. For the reasons aforementioned the impugned judgment cannot be sustained
which is set aside accordingly. The appeal is allowed. However, in the facts
and circumstances of this case, there shall be no order as to costs.
Judgment Referred.
1(2007) 290 ITR 0433
2(2001) 247 ITR 0178
3(2001) 247 ITR 0276
4SLP(Civil)No.26831/2004
5246 ITR 0568
6246ITR 0571
7(1995) Supp. 2 SCC 0187
8(1994) 205 ITR 0244
9(2004) 5 SCC 0731
10(2007) 2 SCALE 0612
11(2003) 11 SCC 0729
12(2005) 2 SCC 0324