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Title : Kishan Lal v Income Tax Officer
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Number of documents delivered: 1

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Income Tax Appellate Tribunal

DELHI-C BENCH

7 May 1990

Kishan Lal

Income Tax Officer

Case No :

Bench : V. P. ETHENCE, V. P. ELHENCE, A. KALYANASUNDHARAM

Citation : 1990 Indlaw ITAT 146, [1990] 34 ITD 152

Summary : Income Tax & Direct Taxes - Income Tax Act,1961, s.271(1)(c) - Levy of penalty -
Legality of - Assessee filed return of his income in his individual capacity - In revised, income was
said to belong to Hindu undivided family - Income Tax Officer(ITO) held that since assessee had
filed HUF returns, assessments were completed on substantive basis in hands of individual
whereas assessments in case of the HUF were completed on protective basis - In appeal, ACC
directed deletion of property income from assessment of individual - Tribunal reversed order of
AAC - With reference to additions made and sustained in hands of assessee as an individual, ITO
levied penalty u/s.271(1)(c) on assessee - CIT(A) reduced amount of penalty levied - Hence,
instant Appeal - Whether in regard to the income from house property, it can be said that
penalties were leviable u/s.271(1)(c) of the Act.

Held, finding in the assessment proceedings was that claim of assessee was false and explanation
remained unsubstantiated, presumption of concealment was raised thereby. It was for assessee to
rebut presumption by showing that such explanation was bona fide and that all facts relating to
same and material to computation of his total income had been disclosed by him. Explanation
offered by assessee in penalty proceedings could be said to be bona fide in terms of
Explanation1(B) to s.271(1)(c) of the Act as operative for assessment years in question since
claim regarding throwing of property in question to hotchpot of his HUF was a contestable one and
which could not be said to be false. Since claim had been raised on basis of material, though that
material was not considered sufficient on assessment side, explanation could not be said to be
false nor could it be said to be other than bona fide. This is not a case where assessee can be said
to have suppressed or concealed his income simpliciter. Assessee was only raising the claim that
instead of the income being assessed in his individual hands, same was assessable in the hands of
his HUF. Returns had been filed in both the capacities. Therefore, no penalties were leviable on
assessee u/s.271(1)(c) of the Act for any of the assessment years in question. Appeals allowed.
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Ratio - Mere rejection of claim will not be enough to initiate penalty proceeding.

The Judgment was delivered by V. P. ETHENCE, JUDICIAL MEMBER

Per Ethence, Judicial Member These 11 appeals filed by the assessee arise out of the orders
dated 26-6-1986 (assessment years 1970-71 to 1979-80) and 11-11-1986 (for assessment
year 1981-82) of the learned Commissioner of Income-tax(Appeals), Bareilly 2. The assessee
is an individual who carried on business in furniture under the name and style of M/s. Jagat
Furniture House, Bareilly in his individual capacity. Returns were filed by the assessee for the
assessment years 1970-71 to 1973-74 originally on 26-12-1977. For the assessment years
1974-75 to 1977-78 original returns were filed on 7-11-1977. For assessment year 1978-79,
the return was filed on 31-3-1979, and for the assessment year 1979-80, it was filed on 30-8-
1979. So far as the assessment year 1981-82 is concerned, return was filed on 19-11-1981. In
the original returns filed for the assessment years 1970-71 to 1977-78, income had been
returned from house property No. 87-B, Civil Lines, Bareilly. However, in the revised returns
filed for all these years on 29-1-1979, the said income was said to belong to the Hindu
undivided family of the assessee consisting of himself, his wife and his four daughters. The
cese of the assessee was that on 31-3-1968, he had thrown the said property into the
hotchpot of the HUF, for which purpose a declaration had been filed to this effect, attested by
a Notary Public one Shri R.P. Tayal. The affidavit purported to have been written on 31-3-
1968, was typed on two stamp papers of Rs. 2 and 25 Ps denominations respectively. On the
first page of the affidavit two Notarial stamps of Rs. 3 and Ps 50 were affixed. The affidavit
was purported to have been verified by Sh. R.P. Tayal Distt. Notary on 31-3-1968 itself.
However, the genuineness of the execution and the attestation of this affidavit on 31-3-1968
was doubted by the ITO. The statement of Sh. Tayal was recorded before the ITO and the ITO
obtained the report dated 26-3-1980 of the Senior Scientific Officer (documents)-cum-Asstt.
Chemical Examiner to the Government of India (Central Forensic Science Laboratory). The
Notary while verifying the document had fixed two seals on the first page and two seals on the
second page of the affidavit. Out of them, one seal was quite bright while the other was a faint
one. On the brighter seal, telephone No. 3082 was written while on the fainter seal, telephone
No. 5108 was mentioned. Similarly on the first and second pages where "Pramanit" is written,
telephone No. 5108 was mentioned. The report of the Senior Scientific Officer, referred to
above, was that it was not possible to opine as to which of the seal impressions was affixed
earlier and that it was also not possible to determine the absolute,  age of the  inks used in
the writings and signature. Enquiries in regard to the telephone numbers of Sh. Tayal were
also made by the ITO from the Posts & Telegraphs Department. In their written reply, the P &
T Department intimated that telephone No. 3082 was installed in the house of Shri Tayal till
22-11-1974 and that from 23-11-1974 it was changed to 5108. Examination with regard to
the non-judicial stamp papers and Notarial stamps were also made by the ITO by sending the
documents to India Security Press, Nasik Road, Nasik and enquiries were also made from the
Senior Treasury Officer, Bareilly. The, Notary as well as the assessee resided within the
jurisdiction of Bareilly Treasury. The Senior Treasury Officer, Bareilly certified in his letter
dated 17-2-1982 that though Notarial stamps of the denomination of Rs. 3 were in circulation
from before, stamps of the denomination of 50 ps. came to Bareilly Treasury for the first time
on 31-7-1970 and were sent to Notaries for being sold on 11-8-1970 for the first time. The
statement of Shri Tayal, the Distt. Notary was that the declaration was presented before him
on 31-3-1968 on which date itself, he attested the same although he could not say whether
the Notarial stamps had been purchased by the assessee from outside or they had been given
by him. On the basis of this evidence, the ITO took the view that neither the stamp vendor nor
the Notary Sh. Tayal was in a position to have Notarial stamp of 50 ps. on 31-3-1968 ; and
that on 31-3-1968 Shri Tayal could not have affixed the seal containing the telephone No.
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5108 which had got changed only from 23-11-1974. He took the view that the document in
question had been anti-dated and that, therefore, the affidavit was not at all written or verified
on 31-3-1968, the date on which it was purported to have been made. He further held that it
had been thrown up by the assessee with the pure and simple intention of diverting the
income from individual status to HUF status and as such, throwing of the individual property
by the assessee into common hotchpot was held not proved. Since the assessee had filed HUF
returns on 29-11979, the assessments were completed on a substantive basis in the hands of
the individual whereas the assessments in the case of the HUF were completed on a protective
basis

3. The incomes declared by the assessee in the individual and Hindu undivided family returns
were the following

Asst. Year Individual HUF

Rs. Rs

1970-71 9, 880 3, 170

1971-72 8, 970 3, 190

1972-73 9, 270 1, 420

1973-74 9, 570 1, 390

1974-75 11, 480 10, 850

1975-76 9, 570 15, 700

1976-77 11, 000 14, 930

1977-78 14, 240 16, 850

1978-79 15, 760 16, 000

1979-80 18, 770 16, 220

1981-82 16, 650 --

4. Against the said assessment orders, the assessee came up in appeal to the learned A.A.C.
who, vide his consolidated order dated 31-3-1983 for assessment years 1970-71 to 1979-80,
held that the assessee had made an unequivocal declaration of his intention of throwing the
immovable property into common hotchpot of the HUF. According to him, so long as there
were two seals of the Notary in one of which the old telephone number was mentioned, it
could not be said that the declaration was signed by the Notary after 23-11-1974. He also
gave weight to the assessee's contention that it could also be possible that 50 ps. stamp was
procured by the Notary Shri Tayal from some other Treasury as it was only in Bareilly Treasury
that this stamp was released for sale w.e.f. 11-8-1970. He was also influenced by the fact that
a lease deed had been executed on 15-9-1973 on behalf of HUF in respect of this property in
favour of M/s Kashi Nath Seth Jewellers, Bara Bazar, Bareilly w.e.f. 14-1973. He, therefore,
directed the deletion of the property income from the assessment of the individual

5. In further appeal, the Appellate Tribunal, vide its order dated 29-1-1985 in I.T.A. Nos. 2889
to 2898, 2782 to 2786 and C.O. Nos. 237 to 246 held that the document in question was not
executed on 31-3-1968 and had not been executed on any date prior to 23-11-1974.
According to the Tribunal, the original seal which had been affixed by the Notary Sh. Tayal,
showed that it had been affixed some times after 23-11-1974, when Sh. Tayal was allotted the
telephone No. 5108. The Tribunal took the view that the super imposition of the seal by
another seal bearing the old telephone No. of the Notary was done in order to show that the
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document had been genuinely executed on 31-3-1968. It was held that the attempt of the
assessee in anti-dating the document stood completely frustrated. It also took the view that
on the basis of the report of the Sr. Treasury Officer, Bareilly, the document could not be said
to have been executed on any date prior to 23-11-1974. The cumulative impression taken
from the abovementioned facts and the fact that the verification of the document was not
signed by the Notary was that the document was neither valid nor genuine. The Tribunal also
held that the fact that in the assessment years 1968-69 and 1969-70, the assessee had shown
the income from the property in question as his own individual income indicated the fact that
as on 31-3-1968 there had been no blending of property or its having been thrown into the
common stock of the HUF by the assessee individual. The lease agreement dated 15-9-1973,
according to the Tribunal was only indicative of the assessee's intention to throw the property
into the common hotchpot and not to show that the document dated 31-3-1968 was a genuine
one. In any case, the Tribunal held that even if it was to be accepted that as on 15-9-1973,
the assessee was the karta of his HUF as far as the ownership of the property in question was
concerned, this date fell after the outside date of 31-12-1969 as mentioned in section 64(ii)
and, therefore, the income from the said property was assessable only in the hands of the
individual. One more fact which occurred was that for the assessment years 1970-71 and
1975-76, the Appellate Tribunal vide its order dated 18-12-1982 in wealth-tax appeal Nos.
1642 to 1644/Del/81, had deleted the inclusion of the value of the property in question in the
net wealth of the assessee individual. However, in the order dated 29-1-1985, the Tribunal
took the view that the earlier decision dated 18-12-1982 on the wealth-tax side had been
given by the Tribunal without taking into account the results of investigations made into the
genuineness of the document dated 31-3-1968. It held that the assessee had unsuccessfully
attempted to throw his self-acquired property into the common stock of the family which
continued to remain his self-acquired property. With these observations, the order of the
learned AAC was reversed

6. After this order, the assessee had moved an application dated 27-5-1985 u/s 254(2) for
recall of the Tribunal's order on the ground that the appeals had been decided in an ex parte
manner without hearing the assessee. However, the Appellate Tribunal vide its order dated 13-
8-1985 (M.A. No. 160/Del/85), rejected the said application

7. With reference to the additions made and sustained in the hands of the assessee as an
individual, the ITO initiated penalty proceedings u/s. 271(1)(c) for all these years. On the
basis of the findings on the assessment side, the ITO took the view that the motive behind
showing the date of declaration as 31-3-1968 was to get over the provisions of section 64(ii).
It was held that the assessee had taken all possible steps to defraud the Government of its
legitimate share of revenue. Therefore, after considering the assessee's explanation, the ITO
considered it a fit case for levy of penalty u/s 271(1)(c). According to the ITO this was rarest
of rare cases where the quantum of penalty was required to be levied at the maximum rate of
200% of the tax sought to be evaded. He, therefore, levied penalties, according to the
following table

Asst.year Tax on assessed Penalty imposed

income after appeal at the rate of 200 per cent

Rs. Rs

1970-71 7, 986 15, 268

1971-72 8, 338 15, 802

1972-73 7, 397 13, 854

1973-74 7, 991 14, 976

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1974-75 10, 472 19, 290

1975-76 11, 759 22, 576

1976-77 11, 577 22, 032

1977-78 9, 438 16, 816

1978-79 13, 409 24, 088

1979-80 13, 041 22, 098

1981-82 13, 145 26, 290

8. When the matter came up in appeal before the learned C.I.T.(Appeals), he held that
although imposition of penalty was justified in respect of the income from the property at 87-
B, Civil Lines, Bareilly, it was not justified with regard to the enhancement in the income from
furniture business. He noticed that with regard to the furniture business, the accounts were
rejected and the additions to the declared income were made only on account of the
application of a certain rate of profit rather than due to the discovery of any specific detection
of concealed income. He also noticed that the estimate of sales were considerably reduced by
the AAC in appeal which was confirmed by the Tribunal. He, therefore, held that the additions
in the furniture business be kept outside the purview of the imposition of the penalty. So far as
quantum of penalty is concerned, he held that it required to be reduced to 150% of the tax on
concealed income. Therefore, he found that after excluding the additions in the furniture
business, the tax on the concealed income and the penalty had to be computed as
followsAsst.year Tax on concealed Penalties @

income 150%

Rs. Rs

1970-71 6, 426 9, 639

1971-72 6, 643 9, 965

1972-73 5, 727 8, 590

1973-74 5, 421 8, 130

1974-75 7, 713 11, 570

1975-76 9, 625 14, 437

1976-77 8, 558 12, 837

1977-78 6, 787 10, 180

1978-79 9, 097 13, 645

1979-80 8, 637 12, 956

1981-82 --- ---

9. The assessee has come up in appeals against the orders of the learned C.I.T.(Appeals). We
were given to understand that the department has not filed any appeals against the said order.
On behalf of the assessee Shri O.P. Sapra, the learned counsel for the assessee reiterated the
submissions made on behalf of the assessee before the Income-tax authorities. He submitted
that the declaration dated 31-3-1968 had been filed before the ITO on the first date of hearing
for the assessment year 1970-71. According to him, it was a genuine declaration on the
validity of which there was a difference of opinion between the assessing officer and the first
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appellate authority namely the AAC. He also pointed out that the returns had been voluntarily
filed by the assessee and had been voluntarily revised. The returns in the case of the HUF
were also said to be voluntary. Reliance in this connection was also placed by him on the fact
that on the wealth-tax side, the addition of the property from the net wealth of the assessee
had been deleted by the Appellate Tribunal vide its order dated 18-12-1982. He submitted that
the order dated 29-1-1985 of the Appellate Tribunal was an order passed actually ex parte
without giving adequate opportunity of hearing to the assessee and on account of which the
following three questions were referred by the Appellate Tribunal vide statement of the case
dated 22-9-1988 in R.A. Nos. 125 and 445 to 454/Del/85 in compliance of the directions of the
Hon'ble High Court u/s 256(2) :-- "1. Whether, on the facts and in the circumstances of the
case, the Tribunal was legally justified in disposing of the appeals in an ex parte manner by
hearing the Departmental Representative only on 16-1-1985 thereby denying the applicant's
valuable right of being heard ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified
in holding that the income from property No. 87, Civil Lines, Bareilly and the income from
furniture hiring etc. belong to and assessable in the hands of the applicant individual and not
in the hands of the applicant's HUF, particularly when the Notary had confirmed the execution
of declaration on 31-3-1968 and the Tribunal had in the wealth-tax cases of the applicant also
held that the property and the business were the ownership of applicant's HUF ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified
in upholding the estimates of sales made by the AAC and applications of net rate of 16%
thereon to arrive at the net income from applicant's business in the business of furniture
carried on under the name of M/s Jagat Furniture House in the assessment years ?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified
in rejecting the misc. application dated 27-5-1985 by refusing to recall its consolidated order
dated 29-1-1985 particularly when the assessee had proved reasonable cause for not
appearing, before the Hon'ble Tribunal on 16-1-1985 ?"

Shri Sapra referred to the following decisions in order to show that a finding given in an
assessment proceeding, though relevant, was not conclusive and that the finding in the
assessment proceedings would only be a piece of evidence in penalty proceedings1. CIT v.
Raja Mohd. Amir Ahmad Khan 1971 Indlaw ALL 115 (All.)

2. Anantharam Veerasinghaiah & Co. v. CIT 1980 Indlaw SC 144 (SC)

3. Ratanlal Ramprasad v. CIT 1980 Indlaw MP 121 (MP)

Regarding the proof and inference for blending a property as HUF property, he referred to the
following decisions

1. Pushpa Devi v. CIT 1977 Indlaw SC 97 (SC)

2. CIT v. Dilbagh Rai 1978 Indlaw PNH 60 (Punj. & Har.)

He submitted that both the assessee as well as the Notary had withstood their cross-
examinations well and that the assessee's claim was not false, nor there was any conscious,
concealment. Reference was also made by him to the following decisions regarding the
discharge of the onus of proof etc. and as to what was to be done if two views were possible

1. Smt. Laxmibai v. CIT 1982 Indlaw MP 121 (MP)

2. M. Radhakrishniah v. CIT 1983 Indlaw MAD 96 (Mad.)

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3. Addl. CIT v. Gokal Chand Jagan Nath 1984 Indlaw DEL 68 (Delhi)

4. CIT v. G.D. Naidu 1985 Indlaw MAD 117 (Mad.)

5. CIT v. Calcutta Credit Corpn. 1986 Indlaw CAL 141 (Cal.)

6. CIT v. Hari Ram Sri Ram 1986 Indlaw ALL 140 (All.)

7. CIT v. Pawan Kumar Dalmia 1987 Indlaw KER 163 (Ker.)

8. CIT v. Devi Dayal Aluminium Industries (P.) Ltd. 1987 Indlaw ALL 96 (All.)

Shri Sapra pointed out that for the assessment years 1980-81 and 1983-84, similar penalties
imposed by the ITO had been deleted by the AAC vide his order dated 15-9-1988. He
submitted that in any case, penalty was not exigible at least from the assessment year 1973-
74 as there were no column in the return for the purpose. He further submitted that penalty @
150% was excessive and that at any rate the computation of income/penalty was not correct.
On the other hand, Shri Subhash Kumar, the learned Departmental Representative strongly
supported the orders of the learned CIT(Appeals). He argued that after the Tribunal's order
dated 29-1-1985, no new facts had been placed in the penalty proceedings and the Tribunal
had explained the earlier order dated 18-12-1982 on the wealth-tax side. He referred to the
decision of the Supreme Court in the case of Surjit Lal Chhabda v. CIT 1975 Indlaw SC 192 for
the proposition that the joint Hindu family with all its incidents is a creature of law and cannot
be created by act of parties except to the extent to which a stranger can be affiliated to the
family by adoption. He also referred to the decision of the Supreme Court in the case of CIT v.
Mussadilal Ram Bharose 1987 Indlaw SC 179 for the proposition that the burden placed upon
the assessee u/s 271(1)(c) is not discharged by any fantastic explanation nor is it the law that
any and every explanation by the assessee must be accepted. He pointed out that the
explanation had to be acceptable to the fact-finding body. Lastly, he referred to the decision of
Andhra Pradesh High Court in CIT v. Sait Khubchand Perumal 1987 Indlaw AP 201 for the
proposition that if there was no fresh evidence in the penalty proceedings, the onus could be
discharged by the assessee with the help of the material already on record

10. We have carefully considered the rival submissions as also the decisions referred to above.
The learned CIT(Appeals) has held in the impugned order that the additions in the furniture
business account have to be kept outside the purview of the imposition of penalty u/s 271(1)
(c). The department is not in appeal against the said orders. Therefore, the only question
which falls for consideration before us is whether in regard to the income from house property
No. 87, Civil Lines, Bareilly, it can be said that penalties were leviable for the assessment
years in question u/s 271(1)(c) and those too at the rate of 150% of the tax payable on the
income held concealed

11. It is an admitted case that all the returns for the assessment years in question (whether
original or revised) were filed after 1-4-1976. Therefore, leviability of penalty u/s 271(1)(c)
has to be seen with reference to the law as it stood w.e.f. 1-4-1976. In terms of that
explanation, since the finding in the assessment proceedings (including appeal) was that the
claim of the assessee was false and that the explanation remained unsubstantiated, the
presumption of concealment was raised thereby and it was for the assessee to rebut the said
presumption by showing that such explanation was bona fide and that all the facts relating to
the same and material to the computation of his total income had been disclosed by him

12. Before, we proceed to discuss the material on the record in the light of the above
explanation, it will be necessary to dispose of two other points which were raised during the
arguments. The first is that according to the assessee its case had been accepted by the
Tribunal vide its order dated 18-12-1982 in W.T.A. Nos. 1642 to 1644 for assessment years
1970-71 and 1975-76 in the case of the assessee. We find from a perusal of the order of the
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Tribunal that the plea of the assessee regarding the blending of the property in question from
individual to HUF had not been considered whereas the order of the AAC against which appeal
was being considered by the Tribunal had decided the case "without prejudice to the
investigation in respect of this deed which is in progress"

. It would, therefore, not help the assessee

13. Secondly the assessee had placed reliance on the order dated 15-9-1988 of the learned
AAC by which similar penalties levied by the ITO for the assessment years 1980-81 and 1983-
84 had been deleted. On behalf of the assessee Shri Sapra had, therefore, strongly relied upon
that fact. However, it appears that against that order of the learned AAC, the department had
filed I.T.A. Nos. 6743 and 6744/Del/88 on 8-12-1988 and which are still pending decision
before S.M.C. Bench 'A' of the Tribunal. Therefore, this point also would not assist the
assessee

14. The first question which has to be seen is as to what is the relevant of the order passed in
the assessment proceedings, so far as penalty proceedings are concerned. So far as this point
is concerned, it is a settled proposition by now that no doubt the assessment proceedings may
be good items of evidence in penalty proceedings i.e., they may be admissible as well as
relevant but they are not conclusive and penalty cannot be levied solely on the basis of the
reasons given in the assessment proceedings. However that is not to say that some additional
material should always be forthcoming in addition to the material on which the assessment
was based

15. Next comes the question of plea or explanation. Even if a plea was not raised in the
assessment proceedings, it can be raised in the penalty proceedings. Mere omission does not
amount to concealment or deliberate furnishing of inaccurate particulars unless the omission is
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. The mere rejection of the assessee's explanation
is not sufficient to justify the imposition of penalty u/s 271(1)(c). The learned Departmental
Representative is no doubt correct in relying upon the decision of the Supreme Court in the
case of Mussadilal Ram Bharose for the proposition that the burden placed upon the assessee
is not discharged by any fantastic explanation nor is it the law that any and every explanation
by the assessee must be accepted. It has to be an explanation acceptable to the fact-finding
body. The explanation should be cogent and plausible. It may raise probabilities in favour of
the assessee or point out the circumstances which create doubts, the benefit of which ought to
go to the assessee. This has to be judged on the basis of the preponderance of probability and
evidence. There were two properties namely residential house situated at 18, Kucha Sita Ram,
Bareilly which belongs to the bigger HUF and land and building at 87, Civil Lines, Bareilly
measuring 797 sq. yds. which is the property in respect of the income of which the question of
concealment is under consideration. The land and building at 87, Civil Lines, Bareilly appears
to have been purchased on 18-8-1963 under a registered sale deed for Rs. 12, 400. According
to the statement of the assessee recorded before the ITO, the construction of this property
started in 1969 and when only part constructions had been completed, it was rented out to a
bank towards the end of 1969. Further statement of the assessee was that the constructions
were completed in 1973 and that w.e.f. 1-4-1973, this house property was let out to M/s Kashi
Nath Jewellers, Bara Bazar, Bareilly vide lease deed dated 15-9-1973 (copy on the paper
book). In this lease deed, the lessor was the assessee as karta of his HUF. We will come to this
aspect a little later

16. So far as the residential house belonging to the bigger HUF is concerned, we find from a
perusal of the original record of the department made available to us by the learned D.R. that
for the assessment years 1971-72 to 1977-78, in Part III, the following note was appended
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"Residential house belongs to bigger HUF."

This note obviously had reference to the residential house at 18, Kucha Sita Ram in a part of
which the assessee resides along with his wife and four daughters. The assessee's case is that
he made a declaration dated 31-3-1968 (sworn on a stamp paper before the Notary Sh. R.P.
Tayal) throwing his self-acquired house property No. 87-B, Civil Lines, Bareilly in the common
hotchpot of his HUF. We need not concern ourselves with the point whether the hotchpot of
the assessee's HUF was empty at that time or it had any other property because it is settled
law that even if the hotchpot of the HUF is empty, there is no bar to the throwing of a self-
acquired property into such an empty hotchpot of the HUF. The statement of the assessee is
that the stamp paper (containing 2 pages and being of the denominations of Rs. 2 and Ps. 25
respectively was purchased by him on 28-4-1965) from the stamp vendor one Sh. Ram Avtar.
He stated that though he did not know this stamp vendor, he could produce him after finding
out his address. In spite of these replies, the ITO did not pursue this lead any further.
Therefore, we have to take it as established that the assessee had purchased the stamp paper
for the declaration on 28-4-1965 in his name from the stamp vendor. This part of the
transaction was genuine beyond doubt

17. The next stage is of execution of the declaration. The statement of the assessee was that
the declaration was executed on 31-3-1968 and then it was produced on the same day before
Shri R.P. Tayal, Notary for being sworn.The statement of Shri R.P. Tayal, the Notary is also to
the same effect. Therefore, in the absence of anything to the contrary, it also stands
established that the declaration was duly executed by the assessee on 31-3-1968

18. Then comes the crucial stage of attestation of the declaration or its being sworn before the
Notary. The dispute really turns round the date of attestation of the said declaration by the
Notary Shri Tayal. The assessee as well as Shri Tayal, both state that this attestation took
place on 31-3-1968 itself. However, the following facts influenced the minds of the Income-tax
authorities ; namely

(1) How could the Ps. 50 Notarial stamp be there on 31-3-1968 when it was released to
Notaries for sale only on 11-8-1970, having been received in Bareilly Treasury for the first
time on 31-7-1970. (There was no dispute that the Notarial stamp of Rs. 3 denomination was
so available even on 31-3-1968.)

(2) How could the Distt. Notary seal containing telephone No. 5108 be affixed on the
declaration on 31-3-1968 when Shri Tayal had got that telephone number only w.e.f. 23-11-
1974

So far as the first point is concerned, it will be noticed that the statement of the assessee was
that the Notarial stamps had been affixed by the Notary himself. However, so far as Shri Tayal
is concerned, his statement was that he could not say whether he had put these stamps or
they were already there but he did state that Notaries also kept those stamps and stamp
vendors also sold these stamps. However, he could not produce the Notarial register before
the ITO because he was preserving registers only for the last three years. The statement of
the assessee and the Notary had been recorded on 16-11-1979 and 20-11-1979 respectively
whereas the report of the Senior Treasury Officer is dated 17-2-1982. We are pointing out
these dates only to show that in the light of the report of the Senior Treasury Officer, no
further cross-examination of the assessee or of the Notary was undertaken by the ITO before
drawing an adverse inference from the existence of 50 ps. Notarial stamp. This assumes
importance. Therefore, the possibility of 50 Ps. stamp having been secured from any Treasury
other than Bareilly Treasury either by the assessee or by the Notary could not be excludedSo
far as the second point is concerned, prima facie it does appear that if the attestation took
place on 31-3-1968 there could not be notary's seal, thereon, containing a telephone number
which the assessee got only w.e.f. 23-11-1974. In this connection, it may be mentioned that
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the first seal (which was fainter) had telephone No. 5108 mentioned thereon and thereon
another seal appears to have been super-imposed (which was brighter and in which the older
telephone No. 3082 was written). During his examination, Shri Tayal continued to insist that to
him what appeared to the ITO to be telephone No. 5108 was really telephone No 3082.
Therefore, the ITO had sent the declaration for the report of the Central Forensic Science
Laboratory, New Delhi. Their report dated 26 March, 1980 was to the effect that there were
two distinct seals one containing the telephone number 3082 and the other containing the
telephone number 5108, though it could not be said as to which of the seal impressions was
affixed earlier and as to what was the  age of the  inks used in writings and signature. Again,
after this report of the Central  Forensic Science Laboratory, the matter was not put to the
assessee or the notary Shri Tayal for any explanation which they sought to offer in the light
thereof. Obviously, the Notary was keeping with him two seals, one for the period prior to 23-
11-1974 when his telephone number was 3082 and the other after 23-11-1974 when that
telephone number got changed to 5108. The statements of the assessee and Shri Tayal are as
if there was only one seal containing one number namely 3082. However, if the attestation
took place on 31-3-1968, there could be only one seal of the Notary containing telephone No.
3082. If the declaration was attested after 31-3-1968, the assessee or the Notary could not be
expected to be so foolish as to exhibit an error on its face by having the Notary's new seal with
telephone No. 5108, affixed when the idea was to pass it on as a declaration executed on 31-
3-1968, itself. The only possibility could be that if the declaration was executed after 31-3-
1968, the seal with telephone No. 5108 was affixed in advertantly. It could also be that before
filing the declaration, the other seal may have been affixed, if the existing seal was not
appearing clear. In any case, as we have already observed above, no further enquiry or
investigation was made by the ITO and he proceeded on the basis as if it did not need any
further elucidation or explanation. For the purposes of imposition of penalty, it would not be
enough

19. There is another important aspect which cannot be lost sight of here. It would be one thing
to say that the entire declaration was executed and attested after 31-3-1968 with the intention
of passing it off as one executed on 31-3-1968. It would be quite another thing if the purchase
of the stamp paper on 28-4-1965 was genuine and the typing and execution of the declaration
on 31-3-1968 thereon was also genuine, and only its attestation took place after 31-3-1968
with the intention of making it appear that an attested declaration would command greater
credence and acceptability before the ITO. In other words, it would mean that though the
claim in regard to the blending of an individual property into HUF property was not a false one,
it was desired to be established by means of evidence about the genuineness of which there
was a prima facie doubt. These two things would be entirely distinct and separate and in the
latter case, it would not be feasible to impose penalty with reference thereto. Blending is a
unilateral act and all that is required is the declaration or expression of a clear and unequivocal
intention ; to abandon all claims upon the property and to voluntarily throw it in the common
hotchpot of the HUF. No formalities are necessary nor a declaration, if made in writing,
requires any attestantion before the notary or registration. It could also be by a course of
conduct. On behalf of the department, much sum was laid on the point that for the asst. years
1968-69 and 1969-70, no such claim was made by the assessee and that this was also a
circumstance which went against the assessee if the assessee had really executed a
declaration on 31-3-1968 as alleged. This question was put to the assessee in his statement
and he stated that he did not claim it. The explanation given by Shri O.P. Sapra at the time of
hearing was that the property income being only Rs. 100 much attention may not have been
paid to making the claim for the assessment year 1968-69 and 1969-70. Here it may be
noticed that so far as the assessment year 1968-69 is concerned, it already came to a close on
31-3-1968 itself and for the assessment year 1969-70, though the assessment was framed on
24-4-1970, the date of filing the return is not known. In any case, this circumstance though
relevant would not be conclusive and has to be considered alongwith the other circumstances.
21/07/2020 Delivery | Westlaw India Page  12

Though the assessee does not appear to have filed any covering letters while, filing the revised
returns for the assessment years in question on 29-1-1979, showing the reason for the
revision, the assessee had given an explanation vide letter dated 10-12-1979 which is quoted
in the assessment order dated 27-3-1982 for the assessment year 1970-71. The returns had
been filed by the assessee voluntarily, (original as well as the revised ones). The fact also
remains that the letting out of the house to M/s Kashi Nath Seth jewellers, Bara Bazar, Bareilly
vide lease deed dated 15-9-1973 did describe the lessor as karta of his HUF. The lease deed
was executed long before the present controversy arose. No doubt in the order sheet entry
dated 22-12-1977 for the assessment year 1974-75, the assessee had stated that the
property was constructed in the name of his wife Smt. Satya Bhama but that fact by itself
cannot go against the assessee as the constructions were commenced in 1969 and completed
in 1973 and it is admitted on all hands that the property did not belong to the assessee's wife
but to the assessee. No doubt the HUF did not file any returns till 29-1-1979 and that too for
the assessment years 1970-71 onwards but as already stated above, this fact by itself would
not be conclusive

20. In the Tribunal's order dated 29-1-1985 it has been mentioned that the appeal had been
heard partly on 2-1-1985 and thereafter it was adjourned to 16-1-1985 for further hearing on
which date only the Departmental Representative could be heard as none appeared on behalf
of the assessee. The assessee had raised this aspect in his misc. application referred to above
and as we have already seen, the Hon'ble High Court has been pleased to direct the reference
of that question by drawing up of a statement of the case u/s 256(2) with reference to that
controversy. The finding of the Tribunal in para 9 of its order dated 29-1-1985 referred to
above was in the following terms

"The cumulative impression that one gets from all the above mentioned facts and the fact that
the verification of the document was not signed by the Notary is that the document was
neither valid nor genuine."

This finding, in our view would not come in the way of the assessee in the penalty
proceedings, particularly in the light of the fact that the Hon'ble High Court has directed the
Tribunal to refer the questions and to draw up a statement of the case with reference to its
finding regarding the execution of the declaration dated 31-3-1968. Having regard to the
entirety of all the facts and circumstances of the case, the evidence on the record and the
probabilities, we are of the view that the explanation offered by the assessee in the penalty
proceedings could be said to be bona fide in terms of Explanation 1(B) to Sec. 271(1)(c) as
operative for the assessment years in question since the claim regarding the throwing of the
property in question to the hotchpot of his HUF was a contestable one and which could not be
said to be false. Since the claim had been raised on the basis of material, though that material
was not considered sufficient on the assessment side, the explanation could not be said to be
false nor could it be said to be other than bona fide. This is not a case where the assessee can
be said to have suppressed or concealed his income simpliciter. The assessee was only raising
the claim that instead of the income being assessed in his individual hands, the same was
assessable in the hands of his HUF. Returns had been filed in both the capacities. If the
assessee was to be visited with the peril of a penalty u/s 271(1)(c) in such circumstances, it
would be impossible for an assessee to raise a claim unless the merits of it had been
prejudged as it were before being placed before the income-tax authorities. This is not the
purpose of the penalty proceedings. Therefore, having regard to the above, we are of the view
that in the peculiar facts and circumstances of this case as discussed above, no penalties were
leviable on the assessee u/s 271(1)(c) for any of the assessment years in question

21. In the result, the appeals filed by the assessee are allowed
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