1991 (6) TMI 36 - HC - Income Tax

Summary

Issues Involved:
1. Justification of penalty under section 271(1)(c) of the Income-tax Act.
2. Applicability and interpretation of the Explanation to section 271(1)(c).
3. Evaluation of the assessee's explanation regarding concealment of income.

Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c) of the Income-tax Act:
The primary issue was whether the Tribunal was justified in holding that no penalty could be levied under section 271(1)(c) read with the Explanation to that section. The assessee, a registered firm engaged in the jewellery business, had initially filed a return showing an income of Rs. 1,45,992, which was later revised to include an additional amount of Rs. 43,607 after the assessment was reopened. The assessing authority determined the escaped income at Rs. 52,093 and levied a penalty of Rs. 50,000, which was later overturned by the Tribunal. The Tribunal's decision was challenged by the Revenue, leading to this reference.

2. Applicability and Interpretation of the Explanation to Section 271(1)(c):
The Explanation to section 271(1)(c) shifts the burden of proof to the assessee when the returned income is less than 80% of the assessed income. The Tribunal initially failed to consider this Explanation, leading to a miscarriage of justice as noted by the High Court in an earlier judgment (CIT v. P. T. Antony and Sons [1985] 151 ITR 34). The Tribunal was directed to rehear the appeal and consider the applicability of the Explanation. Upon rehearing, the Tribunal concluded that the failure to show the correct income was not due to fraud or gross or wilful neglect on the part of the assessee.

3. Evaluation of the Assessee's Explanation Regarding Concealment of Income:
The Tribunal considered the circumstances under which the return was filed by Sri P. A. Jose, the son of the deceased managing partner. It was noted that the concealment of income related to the stock of gold, which was later admitted by the assessee during the assessment proceedings for the year 1972-73. The Tribunal found that Sri Jose was not aware of the manipulations in the accounts when he filed the return and that the management of the business had suddenly passed to the young and inexperienced sons of the deceased managing partner. The Tribunal accepted the explanation that the return was filed based on the available accounts and that there was no fraudulent or grossly negligent intent.

The High Court reviewed the Tribunal's findings and noted that the Tribunal had correctly applied the law by considering whether the assessee's conduct in filing the return ruled out fraud or gross negligence. The High Court emphasized that the burden of proof initially lies on the assessee to rebut the presumption of concealment raised by the Explanation. Once the assessee provides a plausible explanation, the onus shifts back to the Revenue to prove concealment.

The High Court concluded that the Tribunal had given valid reasons for accepting the assessee's explanation and that no question of law arose from the Tribunal's findings. The Tribunal's decision was based on a factual evaluation of the evidence and circumstances, and therefore, the High Court affirmed the Tribunal's decision that no penalty was leviable under section 271(1)(c).

Conclusion:
The High Court answered the reference in the affirmative, in favor of the assessee and against the Revenue, holding that the Tribunal was justified in its decision that no penalty could be levied under section 271(1)(c) read with the Explanation to that section. The Tribunal's conclusion that the failure to show the correct income was not due to fraud or gross or wilful neglect was upheld as a factual determination, not raising any question of law.