COMMISSIONER OF INCOME-TAX, MADRAS versus K.R. SADAYAPPAN

Citation: [1990] 3 S.C.R. 255 · Decided: 10-07-1990 · Supreme Court of India · Bench: SABYASACHI MUKHERJI · Disposal: Appeal(s) allowed

Judgment (excerpt)

COMMISSIONER OF INCOME-TAX, MADRAS 
v. 
K.R. SADAYAPPAN 
JULY 10, 1990 
A 
[SABYASACHI MUKHARJI. CJ AND K.N. SAIKIA, J.] 
B 
'y 
Income Tax Act, 1961: s. 271( l)(c)-Explanation (introduced by 
Finance Act, 1964)-Deemed concealment of income-Total income 
returned less than 80 per cent of the total income assessed-Rebut/able 
presumption raised against the assessee-Validity of. 
Under the Explanation added to s. 27l(l)(c) of the Income Tax 
Act 1961 by the Finance Act, 1964, the assessee, in a case where the 
total income returned was less than 80 per cent of the total income 
assessed, was to be deemed to have concealed the particulars of his 
income unless he proved that the failure to return the correct income 
did not arise from any fraud or gross or wilful neglect on his part. 
In his return of income for the assessment year 1966-67 the 
assessee-respondent declared certain loss. The wealth statements called 
for did not disclose investment in lands. Later it was found that he had 
purchased a plot in his son's name. In the assessment it was stated that 
c 
D 
the total consideration was Rs.80,000 out of which Rs.25,000 was the 
E 
payment in respect of the portion purchased for his son. The examina-
~ tion of the material and the document revealed that the total considera-
tion was Rs.1,40,000. The on-money payment made by him on behalfof 
his son was Rs.18, 750. 
Since the assessee could not adduce evidence to prove the nature 
F 
and source of investment the ITO treated the sum as the undisclosed 
income and initiated penalty proceedings under s. 271<l)(c) of the Act 
'~ 
for concealment of income and referred the case to IAC. The IAC 
imposed a penalty equal to the income concealed holding that the asses-
see had not discharged the burden cast upon him by the Explanation. 
In appeal, the Tribunal set aside the penalty on the ground that 
the assessee had at no time given any false or different particulars about 
this property in his return of income or at any time during the assess-
ment proceedings and, therefore, there could not be any question of his 
c:A 
having filed any incorrect particulars; that since the assessee had not 
G 
stated in the assessment proceedings that he had purchased the pro-
H 
255 
256 
SUPREME COURT REPORTS 
[1990] 3 S.C.R. 
A 
perty only for Rs.80,000, and during the exannnation and accepted that 
though there were two agreements but the real consideration was ~ 
Rs. l,40,000, it could not be said that he had been wilfully negligent or 
fraudulent in this regard; that as regards concealment, his explanation 
was that there was some cash available for purchase of the plot, and 
that no doubt the Income Tax Officer might be justified to say that not 
B 
only this explanation was not conviocing but false the rejection of expla-
nation even on the ground of falsity would not mean that the addition 
~ 
represented the assessee's income and more so of the concealed iocome. 
It also refused to refer to the High Court the questions of law preferred 
y 
by the revenue. 
c 
In the appeal by the Revenue under s. 256(2) of the Act the High 
Court found that there was no proof to show that the said sum of 
Rs.18, 750 represented the income of the relevant year and accordingly 
held that no question of law arose. 
-16 
Allowing the appeal by special leave, the Court, 
D 
HELD: I. The High Court was in error io not correctly applying 
the principles of law laid down by this Court io C.J. T. v. Mussadilal 
Ram Bharose, 165 ITR 14 to the facts of the case. The decision, there-
fore, was not sustainable. 1262F J 
E 
2. I. The presumption that could be raised agaiost the assessee 
'~ 
under s. 27I(l)(c) of the Act, as it stood at the relevant time, that he was 
guilty of fraud or gross or wilful neglect resulting io concealment of 
income was a rebuttable presumption and if there was cogent material 
• 
to rebut the evidence that was acceptable, the said presumption would 
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not stand. [261E; 262B) 
F 
2.2. In the iostant case, the falsity of the explanation given by the 
~ 
assessee had been accepted by the Tribunal io as much as it had stated 
that the Income Tax Officer was justified to say that not only the expla-
nation was not convincing but false because there was no cash available 
to the assessee for payment of the extra money paid. Therefore, no 
G 
explanation was forwarded as to where from the extra money came. If 
that was the position and the presumption was further that the assesse

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