1995 (11) TMI 37 - HC - Income Tax

Assessed Income, Best Judgment Assessment, Burden Of Proof, Income Returned, Returned Income Less Than 80 Per Cent

Summary

Issues Involved:
1. Justification of the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961.
2. Correctness of the Tribunal's finding regarding the absence of evidence for concealment of income.

Detailed Analysis:

Issue 1: Justification of the Penalty Imposed under Section 271(1)(c)
The first issue revolves around whether the Appellate Tribunal was right in law in holding that the penalty of Rs. 92,894 imposed by the Inspecting Assistant Commissioner under section 271(1)(c) could not be justified. The facts of the case reveal that the Income-tax Officer rejected the books of account maintained by the assessee, as it was deemed impossible to arrive at a correct result of the business. Consequently, the income was assessed by estimating the gross profit at 15% on estimated sales of Rs. 8,75,000, leading to additions of Rs. 93,000. This was modified by the Tribunal, which reduced the gross profit rate to 12% and estimated sales to Rs. 8,00,000, thus reducing the additions to Rs. 57,644.

During the assessment proceedings, penalty proceedings under section 271(1)(c) were initiated. The assessee argued that there was no gross or willful neglect in submitting the return of income. However, the Inspecting Assistant Commissioner imposed a penalty of Rs. 92,894, relying on the Explanation to section 271(1)(c), which allowed the Assessing Officer to presume concealment if the returned income was less than 80% of the assessed income.

The Tribunal, however, deleted the penalty, stating that the Revenue must show evidence of concealment before imposing a penalty. The court agreed with the Tribunal, noting that the burden on the assessee is akin to that in civil litigation, dependent on the preponderance of probabilities. The court emphasized that the presumption raised in favor of the Revenue can be rebutted if it can be shown that the failure to return the total assessed income did not arise from fraud or gross or willful neglect. The court cited the case of CIT v. S. P. Bhatt [1974] 97 ITR 440, reinforcing that the legal fiction can be displaced if the assessee proves the absence of fraud or gross or willful neglect.

The court concluded that the facts of the present case, involving a best judgment assessment based on estimated figures, did not indicate any deliberate attempt by the assessee to maintain false books. Thus, the failure to return the total assessed income was not due to fraud or gross or willful neglect. The Tribunal's decision to delete the penalty was upheld, and question No. 1 was answered in the affirmative, in favor of the assessee and against the Revenue.

Issue 2: Correctness of the Tribunal's Finding Regarding the Absence of Evidence for Concealment of Income
The second issue concerns whether the Tribunal was correct in law in finding that, despite the rejection of the assessee's book results, there was no evidence to conclude a positive finding of concealment, thus invalidating the penalty under section 271(1)(c).

The court noted that the presumption under the Explanation to section 271(1)(c) is rebuttable and operates in favor of the Revenue unless rebutted by the assessee. Once rebutted, the Revenue must provide independent evidence of concealment. In this case, the Tribunal found that the assessee had successfully rebutted the presumption, and there was no evidence of deliberate concealment of income. The court agreed, emphasizing that the assessment was based on estimated figures and there was no material indicating deliberate falsification by the assessee.

The court reiterated the principle from S. P. Bhatt [1974] 97 ITR 440, stating that in cases of estimated assessments, it is difficult to attribute failure to return the assessed income to fraud or gross or willful neglect. The Tribunal's finding was thus upheld, and question No. 2 was answered in favor of the assessee and against the Revenue.

Conclusion
The court concluded that the penalty imposed under section 271(1)(c) was not justified, as the assessee successfully rebutted the presumption of concealment. The Tribunal's findings were upheld, and both questions were answered in favor of the assessee. There was no order as to costs.