1980 (7) TMI 55 - HC - Income Tax

Summary

Issues Involved:
1. Concealment of income.
2. Applicability of Explanation to Section 271(1)(c).
3. Burden of proof under Explanation to Section 271(1)(c).
4. Procedural fairness in penalty proceedings.

Summary:

1. Concealment of Income:
The assessee, a partnership firm dealing in medicines, filed a return of income for the assessment year 1969-70. During the assessment, the ITO discovered an excess cash of Rs. 3,500 due to a totalling mistake in the cash book. The assessee's explanation of a totalling error was found untrue as the cash balance had fallen below Rs. 3,500 on three occasions. The alternative explanation of a loan from Hathilal Amarchand was also rejected as Hathilal denied the loan. Consequently, the ITO concluded that the assessee had introduced income from undisclosed sources and concealed income of Rs. 3,500.

2. Applicability of Explanation to Section 271(1)(c):
The IAC and the Tribunal invoked the Explanation to Section 271(1)(c), which states that if the returned income is less than 80% of the assessed income, the assessee is deemed to have concealed income unless proven otherwise. The Tribunal found that the assessee's explanations were untrue and concluded that the assessee had manipulated accounts, thereby failing to prove that the failure to return the correct income did not arise from fraud or gross or wilful neglect.

3. Burden of Proof under Explanation to Section 271(1)(c):
The Tribunal held that the burden was on the assessee to disprove the presumption of concealment under the Explanation. The assessee's explanations were found to be untrue, and no other plausible explanation was provided. The Tribunal concluded that the assessee's failure to return the correct income was motivated by the desire to defraud the revenue.

4. Procedural Fairness in Penalty Proceedings:
The assessee contended that the show-cause notice was for concealment of income, but the IAC's conclusion was based on furnishing inaccurate particulars. The court found that the IAC's order, when read as a whole, was based on concealment of income. The assessee also argued that the Explanation was not referred to in the show-cause notice. The court held that the Explanation is a rule of evidence and can be invoked during penalty proceedings. The assessee did not raise any contention of material prejudice before the Tribunal.

Conclusion:
The Tribunal was right in law in confirming the levy of penalty of Rs. 3,500 u/s 271(1)(c) of the Income-tax Act, 1961. The question referred was answered in the affirmative, in favor of the revenue and against the assessee. The assessee was ordered to pay the costs of the reference to the revenue.