1993 (11) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Justification of the Tribunal in cancelling the penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Application of the Explanation to section 271(1)(c) of the Income-tax Act, 1961.
3. Interpretation and applicability of the Supreme Court decision in Anwar Ali's case [1970] 76 ITR 696 (SC).

Detailed Analysis:

1. Justification of the Tribunal in Cancelling the Penalty:
The Income-tax Appellate Tribunal cancelled the penalty of Rs. 33,000 levied under section 271(1)(c) of the Income-tax Act, 1961. The Tribunal observed that the assessee had maintained books of account, and the receipts were shown based on these books, which were accepted. Although the expenses claimed were not fully vouched, it did not indicate that any part of the expenditure was bogus or that the assessee attempted to suppress true income by inflating expenses. The Tribunal relied on the Supreme Court decision in Anwar Ali's case [1970] 76 ITR 696, concluding that the levy of penalty was not justified.

2. Application of the Explanation to Section 271(1)(c):
The Explanation to section 271(1)(c) was introduced by the Finance Act, 1964, and it shifted the onus to the assessee to prove that the failure to file the correct return did not arise from any fraud or gross and wilful neglect. The presumption raised by the Explanation is a rebuttable presumption. The Tribunal did not adequately consider whether the assessee had discharged this burden. The court noted that the Tribunal proceeded in the reverse gear by holding that penalty cannot be levied unless it is established that the additions made represented the assessee's own income earned in the relevant previous year, which was suppressed to defraud the Revenue.

3. Interpretation and Applicability of Anwar Ali's Case:
The Tribunal's reliance on Anwar Ali's case was deemed inappropriate by the court. The Supreme Court in Anwar Ali's case held that the Department must establish that the assessee was guilty of concealment of income and had furnished inaccurate particulars of income. However, the court clarified that this decision is applicable only after the initial burden on the assessee, as per the Explanation to section 271(1)(c), is discharged. The Tribunal failed to analyze whether the assessee had discharged this initial burden and directly applied the Anwar Ali decision.

Conclusion:
The court concluded that the Tribunal was not justified in cancelling the penalty of Rs. 33,000. The Tribunal did not properly consider the Explanation to section 271(1)(c) and failed to determine whether the assessee had discharged the initial burden of proving that there was no fraud or gross or wilful neglect. The reference was returned unanswered, and the Tribunal was directed to first consider the explanation of the assessee and then determine if the Department had discharged its burden. The Tribunal must provide a proper opportunity to both parties and reevaluate the case in light of the applicable Explanation.