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Issues Involved:
1. Validity of the return filed on 20-10-1965 without a profit and loss account. 2. Legality of the penalty imposed for alleged concealment of income by the assessee. Summary: Issue 1: Validity of the Return Filed on 20-10-1965 The first question addressed was whether the return filed on 20-10-1965 could be considered invalid due to the absence of an accompanying profit and loss account. The court held that the return was valid despite this omission. The Tribunal's rejection of the assessee's contention that the return should be treated as invalid was upheld. The proceedings before the Income Tax Officer (ITO) were based on this return, confirming its validity. Issue 2: Legality of the Penalty for Concealment of Income The second question concerned whether the Income-tax Appellate Tribunal was correct in holding that there was concealment of income by the assessee and that the penalty was validly imposed. The court examined the circumstances under which the original return was filed, noting that it declared an income of Rs. 35,000 without any factual basis. The assessee later filed a revised return showing an income of Rs. 83,790 after the ITO issued a notice u/s 143(2). The court considered the explanation provided by the assessee, which included the death of a partner and the incomplete state of accounts at the time of the original return. The court found that the assessee had voluntarily filed a profit and loss account showing the higher income before the ITO discovered any discrepancies. This voluntary disclosure indicated that the failure to return the correct income was not due to fraud or gross or wilful neglect. The Tribunal's failure to consider these subsequent actions and circumstances vitiated its conclusion. The court emphasized that the obligation to file a correct return is solemn and should be undertaken sincerely. However, it also noted that all circumstances and developments until the assessment's completion should be considered before imposing a penalty. The court concluded that the assessee's conduct did not warrant a penalty, as the failure to return the correct income was not due to gross or wilful neglect. Conclusion: The court answered the first question in favor of the revenue, affirming the validity of the return filed on 20-10-1965. The second question was answered in the negative and in favor of the assessee, indicating that the penalty for concealment of income was not justified. No order as to costs was made. Separate Judgment: D. R. Khanna J. concurred with the conclusions but provided additional observations. He emphasized the importance of filing accurate returns and noted that the original return lacked any basis. He acknowledged the voluntary filing of the profit and loss account by the assessee and the mitigating circumstances, such as the death of a partner. He agreed with the final conclusion to quash the penalty, highlighting that the Explanation to s. 271(1)(c) of the Act places a burden on the assessee to prove the absence of fraud or gross neglect, which is akin to a civil case burden determined on the preponderance of probability.
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