1984 (4) TMI 42 - HC - Income Tax

Summary

Issues:
Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 based on the Explanation appended thereto.

Analysis:
The case involved a reference under section 256(2) of the Income-tax Act, 1961 regarding the justification of imposing a penalty under section 271(1)(c) based on the Explanation appended to the Act. The assessee, a registered firm engaged in various businesses, had additions made to its income by the Income Tax Officer (ITO) based on seized documents. The ITO initiated penalty proceedings under section 271(1)(c), and the penalty was imposed by the Appellate Assistant Commissioner (AAC) before the quantum of assessment appeals were decided. However, on appeal, the total income was substantially reduced by the AAC and further by the Tribunal. The Tribunal considered the Explanation to section 271(1)(c) and held that penalty could not be imposed without establishing mens rea and concealment of income or inaccurate particulars by the assessee. The Tribunal found that the additions were based on estimates and disallowances, and there was no evidence of concealment or inaccurate reporting by the assessee.

The Revenue contended that once the Explanation to section 271(1)(c) is attracted, the onus shifts to the assessee to prove no concealment or wilful neglect. Referring to relevant case law, the court emphasized that the onus of proving a negative fact lies on the assessee in such cases. The court noted that the Tribunal was aware of the Explanation and considered the arguments presented by the assessee regarding the additions and disallowances being based on mere estimates without concrete evidence of concealment. The Tribunal found that the penalty was imposed on suspicion rather than evidence contradicting the assessee's claims. The court held that the Tribunal, by accepting the assessee's explanation and finding the preponderance of probabilities in favor of the assessee, acted in accordance with the law.

In conclusion, the court answered the reference question in favor of the assessee, stating that the imposition of penalty under section 271(1)(c) with the Explanation appended thereto was unjustified in this case. The court acknowledged the evolving nature of the interpretation of the Explanation at the time of the reference and made no order as to costs.