GNANAMBIKA MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) FOR the assessment year 1949 -50, a penalty of Rs. 32, 000, as reduced by the Appellate Assistant Commissioner, with whom the Tribunal agreed, was levied on the assessee. The question directed to be referred to us under section 66(2) of the Income -tax Act, 1922, is whether, on the facts and in the circumstances of the case, the levy of penalty of Rs. 32, 000 on the assessee -company was lawful. In the assessment of the total profits of the assessee for that year, certain additions had been made referable to understatement of sales of yarn and waste which, as eventually found on appeals, amounted in the aggregate to Rs. 77, 641. In the penalty proceedings, it has been found by all the authorities including the Tribunal that the assessee bad concealed or kept back the profits to that extent but as regards the quantum of tax sought to be affected, the Appellate Assistant Commissioner, as reduced by him, found it to be Rs. 32, 098. Though one and a half times of that amount might be levied as penalty, he actually limited it to the sum we mentioned The facts and circumstances relating to the addition of profits aforesaid to the total profits chargeable to tax for the year have been set out by us in Tax Case No. 5 of 1964, which we heard along with this case and do not require an elaborate reiteration. The assessee during the relevant year was a company engaged in the manufacture and sale of yarn at Vallakkinar near Coimbatore and during the course of business had to buy cotton, spin it into yarn and sell the same in the open market. The price of yarn was under control, but there was decontrol between April 24 and July 31, 1948. The South Indian Mill Owners' Association, of which the assessee was a member, fixed however the prices of yarn of different counts by a circular dated April 22, 1948. Though this circular was expected to be followed by the assessee as a member of the association, it did not adhere to it. The assessee was said to have sold during this period about 468 bales of yarn worth Rs. 3, 53, 205 to its employees and certain villagers, about 57 in number, at the association rates. The assessee had stated that it made this gesture as its employees and villagers were helpful to the management during the strike period a few months earlier. In the assessment proceedings this explanation was not accepted and, on the materials available, a finding was reached that the alleged sales to employees and villagers were not proved but the sales were directly made to certain dealers at the market rate, which was higher, and not the circular rate and delivery of the bales of yarn was made by the mill to the dealers directly at the premises of the mill. Such evidence as the assessee produced in support of its explanation was disbelieved. It was accordingly held that the profits referable to the sales were not brought into the books of the assessee. It was in consequence of this finding that the additions were made to the assessee's chargeable profits for the year. In the penalty proceedings, both the Income -tax Officer as well as the Appellate Assistant Commissioner were of the view that the profits out of the sales were really made by the assessee, that no portion of the profits enured to the benefit of the mill labourers as claimed by the assessee, that the alleged sales to labourers were spurious transactions and that the profits referable to these transactions were suppressed from its books. The Tribunal was satisfied that the profits made on the transactions had been kept back from the books and considered that the assessee would, therefore, be liable to penalty under section 28(1)(c) of the Income -tax ActBefore us, the contention for the assessee is that section 28 being a penal provision, the burden entirely lay on the department to show that the assessee had concealed the particulars of its income or deliberately furnished inaccurate particulars of such income and that this burden has not been discharged. Learned counsel for the assessee adds that the conclusion in the assessment proceedings to make an addition to the profits was arrived at on balancing of the value of evidence and of the probability and that this will not suffice but a higher degree of proof is required in finding concealment. He says that concealment of particulars of income should be proved beyond doubt by the department which, according to him, it has failed to do here. We are not satisfied that, in the circumstances of this case, we can accept this argument That section 28 of the Income -tax Act is penal in character can admit of no doubt. Penalty is additional levy made to penalise concealment of particulars of income or deliberate furnishing of inaccurate particulars of such income. It is in addition to the taxes charged on the total income and is a multiple of the tax sought to be avoided by concealment or giving deliberately inaccurate particulars of such income. The object of this levy is not only to punish but also to discourage the particular vice which constitutes the mens rea. The section itself will be attracted only where the specified officer or Tribunal is satisfied that there is concealment or deliberate furnishing of inaccurate particulars of the income. The section also provides that no order thereunder shall be made unless the assessee has been heard or given a reasonable opportunity of being heard. A further provision it has made is that no prosecution for an offence against the Act can be instituted in respect of the same facts on which a penalty has been imposed under the section. Any proceeding under this section will only be with the previous approval of the Inspecting Assistant Commissioner. The quantum of penalty itself may extend to one and a half times the taxes sought to be avoided by concealment or deliberately giving inaccurate particulars of the income. These provisions in section 28 as well as the nature of the penalty clearly point to the proceedings thereunder being highly penal in character. There are numerous authorities in support of this view and it will suffice to refer to a recent judgment of this court in M. Hussain Ali and Sons v. Commissioner of Income -tax to which one of us was a partyThe penal character of the proceedings in section 28 necessarily implies a strict construction and unless the requisites of the levy are clearly established, there could obviously be no levy. The burden of proof is, therefore, naturally on the department to prove beyond doubt that there has been a concealment or deliberate furnishing of inaccurate particulars of the income. As pointed out by Lord Denning in Miller v. Minister of Pensions , proof beyond reasonable doubt does not mean proof beyond the shadow of a doubt. The Noble Lord observed

(2.) IT may be seen that proof beyond reasonable doubt means that there must be a higher degree of probability than what is implied in the discharge of burden of an issue in a civil case. In a civil case the evidence relating to a point at issue is assessed and balanced on broad lines and the decision rests on a reasonable degree of probability. That is where lies the dividing line between the extent of probability in a civil case and a criminal case. While in a civil case a reasonable degree of probability may support a decision, a higher degree of probability is required in a criminal case. The demarcation of the difference between a civil and a criminal case was accepted by this court as correct in P. K. Kalasami Nadar v. Commisioner of Income -tax and the principle was applied to the proceedings under section 28 of the Income -tax Act. The learned judges there said

(3.) WITH respect we accept that these observations express the correct view and, as observed by the learned judges themselves, there is ample authority in support of it, some of which the learned judges themselves referred to and which we do not propose to cover over again. But there is one point which has to be adverted to, namely, as to whether and as to how far an assessment order or reassessment order which made an addition to the taxable income can be taken as prima facie evidence in penalty proceedings. In P. K. Kalasami Nadar v. Commissioner of Income -tax Jagadisan and Srinivasan JJ., in the course of their judgment, observed