1990 (9) TMI 46 - HC - Income Tax

Summary

Issues:
- Interpretation of section 271(1)(c) of the Income-tax Act, 1961 regarding penalty imposition.
- Burden of proof on the assessee to show no fraud or wilful neglect in incorrect income reporting.
- Application of Explanation to section 271(1)(c) in determining penalty imposition.

Analysis:
The High Court of Patna addressed the issue of penalty imposition under section 271(1)(c) of the Income-tax Act, 1961 in a case involving an assessee with income from a timber business. The Income-tax Officer found a cash credit of Rs. 6,600 in the assessee's account, which remained unexplained by the assessee during assessment. The Inspecting Assistant Commissioner imposed a penalty under section 271(1)(c) due to the lack of evidence regarding the source of the cash credit. The Tribunal, however, set aside the penalty, stating that there was insufficient material to support it beyond the assessment order. The Revenue appealed this decision, leading to the reference to the High Court.

The High Court emphasized that the Explanation to section 271(1)(c) places the initial burden on the assessee to demonstrate that incorrect income reporting was not due to fraud or wilful neglect. Citing precedent cases, the court highlighted that the burden of proof lies with the assessee to rebut the presumption arising from the Explanation. In this case, the assessee failed to provide any explanation to discharge this burden, as the returned income was significantly lower than the assessed income. Consequently, the court found that the Tribunal erred in setting aside the penalty, as the presumption under the Explanation was not rebutted by the assessee.

In conclusion, the High Court ruled in favor of the Revenue, stating that the Tribunal's decision to cancel the penalty under section 271(1)(c) was incorrect. The court held that the assessee's failure to provide any explanation to counter the presumption of fraud or wilful neglect warranted the penalty imposition. The parties were directed to bear their own costs in the reference. The judgment was to be forwarded to the Income-tax Appellate Tribunal for further action.