Kandaswami Pillai (Decd.) (By L.R) vs Commissioner of Income Tax, Madras

Ramaswami, J.—The assessee in this case carries on business in money-lending. In the assessment year 1961-62, corresponding to the year

ending March 31, 1961, there were three cash credit entries in the books of account of the assessee in the names of Vaiyapuri Pillai, Vaira

Perumal and Marimuthu Gounder and the amounts that stood to their credit were Rs. 10,000, Rs. 10,000 and Rs. 5,000, respectively. Vaiyapuri

Pillai looks after the assessees lands. Vaira Perumal is a lessee of the assessee and Marimuthu Gounder is a lessee of certain lands belonging to the

assessees close relation. In the course of the Income Tax proceedings the assessee was asked to produce evidence as to the source and nature of

the above credits. The said three persons were examined by the Income Tax Officer. After considering their evidence, the Income Tax Officer

came to the conclusion that the amounts represented the assessees income from undisclosed sources. This finding was confirmed by the Appellate

Assistant Commissioner and the Tribunal. Penalty proceedings were initiated against the assessee by the Inspecting Assistant Commissioner. To

the notice issued in these proceedings, the assessee submitted his reply on June 6, 1967, in which he contended that those were the amounts which

were borrowed or deposited by the said three persons and they were not his undisclosed income. The Inspecting Assistant Commissioner

examined the three persons again in the penalty proceedings. These three witnesses confirmed the statement of the assessee that they had lent

money to the assessee. But the Inspecting Assistant Commissioner rejected their evidence holding that they were men of no means and that there

were inherent incompatibility in accepting their evidence. He, therefore, held that the assessees explanation was not acceptable and that the

amounts represented the undisclosed income of the assessee. He, accordingly, levied a penalty of Rs. 10,000. On a further appeal, the Tribunal

also held that the evidence of these three witness were not reliable, that the assessees statement in the circumstances was not acceptable and that

the facts and circumstances disclosed that a sum of Rs. 21,000 standing to the credit of the three persons represented the undisclosed or

concealed income of the assessee. But, all the same, the Tribunal considered that the penalty levied was excessive and reduced the penalty to Rs.

5,000.

At the instance of the assessee, the following question has been referred u/s 256 of the Act:

Whether, on the facts and in the circumstances of the case, the levy of penalty of Rs. 5,000 on the assessee for the assessment yea 1961-62 under

section271 of the Income Tax Act, 1961, is valid in law ?

The learned counsel for the assessee strenuously contended that there is no positive evidence in this case to come to the conclusion that the said

sum of Rs. 21, 000 represented the concealed income of the assessee. The only thing that could be said is that the Inspecting Assistant

Commissioner and the Tribunal chose to reject the explanation offered by the assessee and that on the law now well established such mere

rejection of the explanation alone is not enough for levying the penalty u/s 271.

We have carefully considered this argument of the learned counsel. It is true that a mere rejection of the explanation of the assessee that the

amount belonged to somebody else is not enough to hold that the amount represented the concealed income. But we are not prepared to accede

to the argument that this is a case of a mere rejection of the assessees explanation. We have the following facts. The three amounts amounting to

Rs. 21,000 are found accounted in the account books of the assessee. It has, therefore, to be taken that the amount was available with the

assessee. His explanation was that these amounts were deposited by the three individuals above referred to. It is seen from their evidence that in

the case of Vaira Perumal and Marimuthu Gounder, and it is also the case of the assessee, that they lent their money freely and for no interest. In

fact, Vaira Perumal said that out of the sum of Rs. 10,000 lent by him to the assessee, a sum of Rs. 5,000 was borrowed by him from a third

party. This evidence does not represent ordinary human conduct. These witnesses have not stated why they chose to lend money to the assessee

for no interest, nor is there an explanation by the assessee as to the reason which prompted them to lend money to him free of interest. The

evidence also disclosed that the three witnesses had no source of income worth the name, that they were all employees of the assessee and that

they could not have lent such large amounts. The evidence of these witnesses and the circumstances therefore, show that the statement of the

assessee that these were the amounts borrowed by him from these witnesses cannot be true. It is, therefore, not a mere case of disbelieving the

statement of the assessee. But it is really a case where the statement of the assessee has been proved to be false. Both the Inspecting Assistant

Commissioner and the Tribunal, therefore, came to the conclusion that the amount represented the concealed income of the assessee. We are

unable to see how this finding could be challenged. If really the amount is not the concealed income of the assessee, why should he give such false

explanation ? We may assume for the purpose of testing the argument of the learned counsel for the assessee that the amount really represented the

concealed income. In such a case, if the assessee gives an explanation to the effect that the amount belonged to a third party, what is expected of

the department to prove is only to show that the amount did not belong to that third party, which in effect would mean that the statement of the

assessee is false. u/s 271 of the Act, if the authority concerned is satisfied that any person has concealed the particulars of his income or furnished

inaccurate particulars of such income, penalty could be levied. When the Inspecting Assistant Commissioner and the Tribunal found that the

explanation given by the assessee was not merely not reliable but it was also false, then we are of the view that the provisions of section271 are

attracted.

The learned counsel for the assessee also contended that the facts disclosed by the evidence of the three witnesses do not lead to the inference

that the amount is a concealed income. On this aspect we have to state that though it is possible for the appellate court to take a different view and

come to a different conclusion on these facts, that itself is not enough to interfere with the finding of the Inspecting Assistant Commissioner and the

Tribunal. It cannot be said to be a perverse conclusion. Once if it can be said that the inference drawn by the Tribunal is also possible, the mere

fact that another inference is either more reasonable or possible, will not warrant this court to hold that the finding of the Tribunals not correct.

For the foregoing reasons, we answer the reference in the affirmative and against the assessee, with costs. Counsels fee Rs. 250.