COMMISSIONER OF INCOME TAX vs PREMIER BREWERIES LTD.

Pasayat, CJ.

Pursuant to the direction given by this court in an application u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as the ''the Act''), following question has been referred for opinion by the Tribunal, Cochin Bench:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the levy of penalty ?"

Factual position, as Set Out in statement of facts, is as follows : The assessee, a public limited company, is engaged in the manufacture and sale of beer. Assessment year involved in 1985-86, relevant previous year being the calendar year 1984. In the course of the assessment proceedings, the assessing officer noticed a sum of Rs. 9,89,200 under the head ''Machinery and electrical repairs''. Details were called for. The assessee supported its claim by producing 16 bills of various dates from 2-12-1984 to 31-12-1984 issued by one Elgi Equipments Ltd., Coimbatore. The assessing officer found that the said bills issued to the assessee did not figure in their ledger and the trade balance with the assessee was only Rs. 5,583.20 as on 31-12-1984 as against Rs. 9,98,200 appearing to their credit in the books of assessee. The assessee, by its letter dated 24-2-1988, contended that the bills are genuine and bona fide and that they have made payments to them only in discharge of those bills. The assessing officer called upon Elgi Equipments to explain its stand. According to them, Elgi Equipments did not do any repairs, but had supplied one new unit of pasteuriser to the assessee. The assessing officer had also obtained a statement from one Shri P.E. Menon, a labour contractor attached to Elgi Equipments, stating that the old pasteuriser was dismantled and after dismantling, the new unit was installed. The assessing officer also obtained a statement from the Production Engineer of Elgi Equipments in support of their stand. The assessing officer also collected gate passes from Elgi Equipments and referred to certain expenses claimed by Shri Menon, the labour contractor and also certificates filed by Elgi Equipments to the effect that new pasteurising unit supplied by it on 31-7-1985 was commissioned on 23-11-1987. From these f acts, the assessing officer concluded that no repair work was done as alleged by the assessee before 31-12-1984 and that there was a capital expenditure on a new plant incurred after the end of accounting year and that the assessee had tried to take undue advantage of tax benefit by setting up a claim of the revenue expenditure. The assessing officer, thus, disallowed the sum of Rs. 9,98,251. The assessee filed an appeal against the disallowance and contended that the assessee was not given reasonable opportunity to rebut the materials collected and that there was violation of principle of natural justice. The assessee also produced certain evidence in its defence. The Commissioner (Appeals) declined to admit the evidence on the remit the evidence on the ground that they were produced for the first time before him. He sustained the assessment on the basis of material gathered by the assessing officer holding that it is not necessary for him to decide the issue whether the assessee had purchased a new plant in the subsequent year. In second appeal, the Tribunal held that the Commissioner (Appeals) did not entertain some material which contained in the paper book filed in the course of appeal hearing, but the lapse on the part of the Commissioner (Appeals) was venial and did not go to the root of the matter. As for failure of natural justice in not providing copies of sworn statements and the result of the private enquiries made by the assessing officer, the Tribunal observed that we would like to state that in the depositions made by Sri Amuthalingam before the assessing officer, he had stated only that which was conveyed to the assessing officer in the earlier correspondence and this earlier correspondence was shown to Sri Venkataraman, Chief Executive of the assessee. In such circumstances, it is difficult to conceive how the assessee could claim that there had been violation of natural justice''. In addition, the Tribunal proceeded to take notice of a letter filed by Elgi Equipments in the course of penalty proceedings, in which it was alleged that the assessee wanted that party to make 16 bills to match exactly with the amount raised in the invoice. This letter was obtained in the course of penalty proceedings. This letter was not put to the assessee. Therefore, the assessee vehemently objected in the quantum appeal to the Tribunal considering that letter. But the objections were brushed aside. Thus, addition was sustained by the Tribunal. The Dy. Commissioner (Appeals) by letter dated 21-3-1988 called upon the assessee to show cause why penalty should not be levied for concealment of income or for having furnished inaccurate particulars of income. The assessee denied the allegation and contended that certain statements were taken behind its back and used against it and it had not been furnished with the copies of the same. Overruling the objection, the Dy. Commissioner (Appeals) levied penalty u/s 271(1)(c) of the Act. On appeal, the Commissioner (Appeals) after referring to its earlier findings, observed that the explanation offered by the assessee was false and the amount added to its income represented its concealed income and the levy of penalty was justified. The assessee went in appeal before the Tribunal.

After adverting to facts and circumstances of the case and enquiries made by the assessing officer, it was observed by the Tribunal that there was failure of natural justice. It was also noticed that the Commissioner (Appeals) after calling for a remand report on materials furnished by the assessee in support of its stand did not advert to such materials in the course of his order in quantum appeal. The revenue had utilised before the Tribunal in quantum appeal a letter written by one Sri Amuthalingam addressed to the assessing officer in the course of the penalty proceedings and contents of that letter had not been put to the assessee. As such, the assessee was kept in total darkness. However, in course of quantum appeal, the Tribunal had taken notice of that letter in the course of its finding against the assessee. In penalty proceedings, there was gross failure of natural justice and penalty order was passed on enquiry reports and information gathered behind the back of the assessee though they were not put to the assessee. In the context of failure to comply with the principles of natural justice, levy of penalty is not maintainable. The Tribunal also referred to some other materials on record apart from grounds of failure of natural justice. One such material was the communication issued by the assessing officer in 46-008-CO-5848/lAC(A)TCR dated 1-6-1988 addressed to Elgi Equipments Ltd. The Tribunal observed that the assessing officer himself had admitted that the assessee had discharged the onus and shifted blame and burden of proving was put on Elgi Equipments Ltd. The Tribunal referred to the reply put in by Sri Amuthalingam in his letter dated 10-6-1988. On analysing the contents of communication from Sri Amuthalingam of Elgi Equipments Ltd. in his letter dated 10-6-1988, it was observed that there were inconsistencies and contradictions. The Tribunal was of the view that Elgi Equipments Ltd. which is a manufacturer of capital goods, did not even have a ''works order'' or ''job order'' for making a new pasteuriser for the assessee as alleged by it. Serious reservations were expressed by the Tribunal about the claim of Elgi Equipments Ltd. Ultimately it was held that explanation given by the assessee supported by 16 bills of repairs issued by Elgi Equipments Ltd. payments f or some of which have been specifically made against those repair bills, substantiated its explanation and that levy was unjustified.

The learned counsel for revenue submitted that the Tribunal''s conclusions are absolutely erroneous and untenable in law. Modus operandi adopted by the assessee to give a wrong picture has been fully established. Conclusion that there was non-observance of the principles of natural justice is clearly erroneous, and contrary and against materials on record. Onus to prove that there was no concealment or furnishing of required materials squarely lies on the assessee and it was not discharged. In other words, it is submitted that conclusions have been arrived at by ignoring relevant materials and relying on irrelevant materials. The learned counsel for the assessee, on the other hand, submitted that the Tribunal has arrived at a conclusion on the facts that there was no concealment, and as such, no question of law arises. It is submitted that though in the quantum appeal, certain conclusions have been arrived at, they are not conclusive and at the most may be persuasive. This is so because assessment proceedings and penalty proceedings are different, and nature of consideration is different.

First, we shall deal with the conclusions of the Tribunal vis-a-vis question relating to natural justice. On that aspect, it is necessary to take note of certain observations made by this court while dealing with reference relating to quantum of appeal. They are as follows:

" The contention that the assessing officer did not give an opportunity for cross-examination and materials were gathered behind the back of the assessee -without disclosing it to him can be considered first. Admittedly, assessee did not ask for cross-examining or summoning any person before the assessing officer. All the evidence put forward by the assessee was considered by the assessing officer. Entire contentions raised by the assessee were considered by the assessing officer. The assessee was asked to reconcile the difference in the trade balance with Elgi Equipments Ltd. and the number of bills based on which the charges were raised. The assessee was also asked to explain regarding the cost of machinery and why the cost of such machinery was put as revenue expenditure. The explanation offered by the assessee was considered by the assessing officer. The Tribunal considered the contention that 3fhe assessing officer has not relied on materials behind the back of the assessee and found as follows:

''The material collected was all placed before the assessee and the same was material for the enquiry.''

The Tribunal further held as follows

''We would like to state that in the deposition made by Mr. Amritalingam before the assessing officer in the earlier correspondence and this correspondence was shown to Shri Venkataraman, the chief executive of the assessee. In such circumstances, it is difficult to conceive how the assessee could claim that there has been violation of natural justice.

After perusing the records we also agree that there was no violation of the principles of natural justice by the assessing authority. No material was collected behind the back of the assessee and the assessee was aware of the materials and no opportunity was asked for by the assessee for cross examining any of the persons from Elgi Equipments Ltd., or production of any documents. Therefore, there is no basis for the contentions of the assessee that the assessing officer has violated the principles of natural justice.

The Commissioner (Appeals) did not admit some of the documents filed in the appeal proceedings as they were not produced before the assessing authority. It cannot be called a violation of the principles of the natural justice. The assessee was having these documents before the assessing officer passed the order and nothing prevented the assessee from producing the same before the assessing authority. In any event, the Tribunal also considered these documents and found as follows:

The papers which formed part of the paper book giving the minutes of the various meetings held by the members of the top management do not throw any light which could go to decide the issue one way or the other. The other thing that is evident is that the management was aware that the repair and renovation cost could exceed the cost of a new plant. In the light of these discussions, it would appear that either the assessee or Elgi Equipments Ltd. have a lot to hide but if the materials as culled out above are properly marshalled, there could be no other inference except that payment to Elgi Equipments Ltd. was for erection of a new Pasteuriser plant and not for repairs and renovation.''

In any event, the deduction claimed as revenue expenditure for repairs and renovation, it was for the assessee to prove the same and the assessee did not prove the same. The Tribunal also has considered the entire matter and agreed with the assessing officer and the appellate authority and also further found that there was no violation of the principles of natural justice by these authorities. After holding that no repair work was carried out in support of the contentions, the Tribunal referred to the letter dated June 10, 1988 of Ell-i Equipments Ltd., filed in the course of the penalty proceedings. With regard to the letter, according to the Tribunal:`

".....once again clarified that the plant was completed and cleared from the central excise, dispatched to Premier Breweries Ltd., supported by a single sale Bill No. 1183. It was also alleged in the letter that the assessee wanted this party to make 16 bills to match exactly with the amount raised in their invoice. Elgi Equipments Ltd., it was claimed was closely advised and guided by the assessee in preparing the substitute sixteen bills'' and their accounts manager even specified the wordings to be incorporated in the sixteen bills. Though this letter was received by the assessing officer after the completion of the assessment its relevance cannot be lost sight of.''

But the finding was arrived at by the Tribunal on other materials itself. The Tribunal also pointed out that:

''We may further point out that the gate passes showing transportation of material were with the assessee and it is an admitted fact that along with the challans there was a copy of the invoice. Yet the assessee could not give any details regarding the materials that were brought into the assessee''s factory premises and why there was an invoice attached to the challans. We, in the circumstances, have no hesitation in rejecting the feeble explanation that Elgi Equipments Ltd., was under a warranty and that the materials brought in by the lorries probably was to replace some components which Elgi Equipments Ltd. was required to do during the warranty period. If it required seven lorries to transport materials to keep the plant functioning after it was set right as claimed by the assessee, there would be similar transportation of material when the repair and renovation work was carried out. The procedure followed the transportation of material necessary for alleged repair and renovation work had to be the same and in such circumstances, the transportation has to be supported by gate passes. No such passes were available with the assessee. At any rate, none was produced. Thus, it is evident that the assessee had no worthwhile material to support its claim. As has been rightly contended by the learned departmental representative, where a deduction is claimed, the onus is squarely on the assessee to prove its claim. Apart from the 16 bills which Elgi Equipments Ltd. claimed to be estimate or advance bills submitted at the request of the assessee and an entry in the store register showing issue of a conveyor chain, I here is no other evidence to support the claim.''

Therefore, the Tribunal independently considered the evidence and agreed with the findings of the earlier authorities that no repairing work was carried out by the assessee during the calendar year 1984 so as to claim deduction for the assessment year 1985-86. While arriving at the conclusions, the Tribunal has also considered all the points put forward by the assessee and the finding that no repairing work was carried out in the year 1984 is a finding of fact concurrently found by the assessing officer, the Commissioner (Appeals) and the Appellate Tribunal. We are not sitting in appeal in the advisory jurisdiction while answering the reference u/s 256(1). There is no violation of the principles of natural justice as contended by the assessee. The findings are not perverse and are not based on inadmissible evidence. There is also no denial of reasonable opportunity as contended by the assessee. Therefore, we are of the opinion that the order of the Tribunal is sustainable in law and there is no legal infirmity as contended by the assessee."

It is somewhat surprising that the Tribunal, while dealing with the penalty appeal, arrived at conclusions which are clearly and diametrically at variance with its earlier conclusions arrived at in the quantum appeal. True it is, assessment proceedings and penalty proceedings arc different. But it is not conceivable that diametrically opposite findings would be recorded on the same set of facts during the assessment proceedings and penalty proceedings. Criticism attached by the Tribunal to the conduct of Elgi Equipments Ltd. is somewhat confusing when one considers Tribunal''s views expressed in the quantum appeal, some of which have been extracted above, vis-a-vis those recorded in the penalty appeal.

It has to be borne in mind that the change in language of section 271(1)(c) brought in by amendment by the Finance Act, 1964 makes a lot of difference. Explanation to section 271(1)(c) of the Act introduced by the Finance Act as indicated above creates a presumption of law, which is no doubt, rebuttable, to the effect that where the total income returned by the assessee is less than 80 per cent of his total assessed income, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purpose of section 271(1)(c) unless he proves that failure to return the correct income did not arise from any fraud or any gross or willful neglect on his part. Explanation, thus, shifts the burden to the assessee in the situation covered by it. If he fails to establish the same, the presumption will become a finding and it would be open to the authority to levy penalty. But if the assessee establishes that his failure to return the correct income was not on account of any fraud or any gross or wilful neglect on his part, it is evident, no penalty can be levied. Even after amendment in 1964, penalty proceedings continue to be penal proceedings. Similarly, the question whether the assessee has concealed the particulars of his income continues to remain a question of fact. Where the explanation has made a difference is while deciding that question the presumption created by it has to be applied, which has the effect of shifting the burden of proof. The rule regarding burden of proof enunciated in Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, is no longer valid - Commissioner of Income Tax (Additional), Lucknow Vs. Jeevan Lal Sah, . Whether it is a case of undisclosed or unexplained cash deposit or any other concealment, the standard is the same. The principle enunciated in Anwar Ali''s case (supra) that mere rejection of explanation of the assessee is not sufficient for levying penalty no longer holds good and it is no longer necessary that the department must go further and establish that there was conscious concealment of particulars of income or a deliberate failure to furnish accurate particulars. The entire materials on record have to be considered keeping in mind the presumption in view of the explanation and finding recorded. As was observed in Commissioner of Income Tax Vs. Mussadilal Ram Bharose, , the position in law is to the effect that if returned income is less than 80 per cent of the total assessed income, presumption is that the assessee had concealed particulars of his income. However, this presumption can be rebutted. Rebuttal must be on relevant facts. It is for the fact-finding authority to see the relevancy and sufficiency of material and if such a fact-finding body, bearing the aforesaid principles in mind, comes to the conclusion that the assessee has discharged the onus, it becomes the conclusion of fact and no question of law arises. To similar effect is the decision in Commissioner of Income Tax, Madras Vs. K.R. Sadayappan, . In the aforesaid background, it has to be seen how far the assessee has discharged the onus and correctness of the Tribunal''s conclusions regarding discharge of such onus.

The Tribunal seems to have been swayed by certain aspects in coming to the conclusion that in many areas, the conduct of Elgi Equipments Ltd. was baffling. That question had also been dealt with in the quantum appeal. Whether Elgi Equipments Ltd. acted properly or not is to be decided in the appeal by the Tribunal. What was necessary to be adjudicated was whether the assessee''s stand was justifiable. Clear findings were recorded that the assessee had claimed certain expenditures which had not been incurred. The assessee''s claim was that the work carried out by Elgi Equipments Ltd. is purely in the nature of repair works and that materials described in 16 bills were used on or before 21-12-1984, and no sale of plant had been made as per Invoice No. 1188, dated 30-7-1985. This plea was clearly contrary to the materials placed by Elgi Equipments Ltd. it had stated that they have issued only one single invoice which accompanied lorry loads of new pasteuriser plant evidenced by gate pass in GPI 2176 issued by Central Excise department authorities on 30-7-1985. A new pasteuriser unit was fabricated in their factory -as per oral order issued and the same was delivered to the assessee in several lorry loads evidenced by duly attested transport documents as per Invoice No. LG I 188 dated 30-7-1985. The new pasteuriser unit supplied on 31-7-1985 was commissioned on 23-11-1987. It is not the case of the assessee that another unit has been received subsequently which was commissioned in November 1987. Certain documents, including one file containing documents relating to the new unit sent by Elgi Equipments Ltd. as per Invoice dated 30-7-1985, were also referred to in that connection. These documents were checked by sales tax authorities as would be evident from official seals. With reference to these documents, revenue authorities came to the conclusion that Invoice No. 1188 raised by Elgi Equipments Ltd. is the only document by which the entire pasteuriser unit had been documented. The Tribunal had not taken note of relevant materials and had based its conclusions on irrelevant materials, presumptions and surmises. That gives rise to a question of law relating to validity of the Tribunal''s judgment and conclusions contained therein. Though conclusions may have a colour of factual finding, but, in view of the inevitable conclusion that it has been arrived at without considering relevant materials, makes it unreasonable and perverse. That being so, conclusions of the Tribunal cannot be said to be in order.

Reference is, accordingly, answered in favour of the revenue and against the assessee.