1980 (10) TMI 27 - HC - Income Tax

Summary

Issues Involved:
1. Justification of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Assessment of deemed income under Section 69A of the Income-tax Act, 1961.
3. Reasonable opportunity of being heard under Section 274(1) of the Income-tax Act, 1961.
4. Burden of proof regarding concealment of income.

Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c):
The primary issue was whether the Tribunal was justified in confirming the penalty order of Rs. 99,000 imposed by the Inspecting Assistant Commissioner (IAC) under Section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1970-71. The Tribunal confirmed the penalty, and the High Court upheld this decision. The court noted that the Explanation to Section 271(1)(c) shifts the burden of proof to the assessee to demonstrate that the failure to return the correct income did not arise from any fraud, gross, or wilful neglect. The court found that the assessee failed to discharge this burden, and thus, the penalty was justified.

2. Assessment of Deemed Income under Section 69A:
The assessee contended that the deemed income under Section 69A could not be assessed in the financial year 1969-70, as the first finding regarding ownership was made on August 25, 1971. The court rejected this argument, stating that the relevant date is when the assessee is physically found to be in possession of the money, which was March 4, 1970, within the financial year 1969-70. Therefore, the income was rightly assessed in the assessment year 1970-71.

3. Reasonable Opportunity of Being Heard under Section 274(1):
The assessee argued that they were not given a reasonable opportunity of being heard as required by Section 274(1) of the Act. The court examined the sequence of events and found that the IAC had provided adequate opportunities for the assessee to present their case. The refusal to adjourn the case was not related to the hearing of the penalty proceeding. Therefore, the court concluded that there was no failure to provide a reasonable opportunity to the assessee.

4. Burden of Proof Regarding Concealment of Income:
The court discussed the burden of proof in the context of the Explanation to Section 271(1)(c). It noted that the Explanation creates a legal fiction that shifts the burden to the assessee to prove the absence of fraud or gross or wilful neglect. The court disagreed with the view that the department must provide additional proof of concealment beyond the falsity of the assessee's explanation. The court held that once the assessee fails to discharge their burden, the legal fiction takes care of establishing concealment. The court found that the assessee's explanations regarding the source of the cash and watches were not credible and thus failed to discharge the burden of proof.

Conclusion:
The High Court answered the reference in the affirmative, in favor of the department, confirming the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961. The court held that the assessee did not discharge the burden of proving that the failure to return the correct income was not due to any fraud or gross or wilful neglect.