1970 (2) TMI 22 - HC - Income Tax

Allegation that returned income was lesser than the assessed income - Explanation to section 271(1) creates a presumption in certain circumstances to the effect that the assessee will be deemed to have concealed the particulars of his income - it cannot be said that said Explanation violates the article 14 of the Constitution - question about the validity of the SCN can be raised in the appeal permitted under the statute itself before the appellate authority

Issues Involved:
1. Vires of the provisions of the Explanation to section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of the show cause notice issued under section 274(2) read with section 271 of the Act.
3. Imposition of penalty for concealment of income.
4. Alleged violation of Article 14 of the Constitution of India.

Detailed Analysis:

1. Vires of the Provisions of the Explanation to Section 271(1)(c) of the Income-tax Act, 1961:
The petitioner challenged the vires of the Explanation to section 271(1)(c) on several grounds, asserting that it violated Article 14 of the Constitution. The court examined whether the Explanation, which creates a presumption of concealment if the returned income is less than 80% of the assessed income, was ultra vires the legislature. The court held that the Explanation only lays down a rule of evidence, allowing a rebuttable presumption to be raised under certain circumstances. It does not establish or negate any substantive right. The court referenced the case of Izhar Ahmad v. Union of India to emphasize that such rules of evidence are within the competence of the legislature. The court concluded that the Explanation does not violate Article 14 as it applies equally to all persons similarly placed and is based on a rational classification with a reasonable nexus to the object sought to be achieved, i.e., discouraging concealment of income.

2. Validity of the Show Cause Notice Issued Under Section 274(2) Read with Section 271 of the Act:
The petitioner contended that the show cause notice was vague, uncertain, and failed to disclose the alleged concealment of income. However, the court did not allow the petitioner to urge grounds other than those relating to the vires of the Explanation. The court noted that the validity of the show cause notice could be challenged in the appeal provided under the Act if the provisions were held to be intra vires.

3. Imposition of Penalty for Concealment of Income:
The court discussed the imposition of penalty under section 271(1)(c) where the Income-tax Officer had enhanced the petitioner's returned income from Rs. 23,968 to Rs. 52,017 and initiated penalty proceedings for concealment. The court explained that the Explanation to section 271(1)(c) creates a presumption of concealment if the returned income is less than 80% of the assessed income. The burden then shifts to the assessee to prove that the failure to return the correct income did not arise from any fraud or gross or willful neglect. The court upheld this provision as a rule of evidence, emphasizing that it does not violate any legal principles or constitutional rights.

4. Alleged Violation of Article 14 of the Constitution of India:
The petitioner argued that the Explanation to section 271(1)(c) violated Article 14 by casting the burden of proving innocence on the assessee and presuming an offense without proof. The court referred to several Supreme Court judgments, including A. S. Krishna v. State of Madras and C. I. Emden v. State of Uttar Pradesh, to demonstrate that similar presumptions in other laws had been upheld as constitutional. The court concluded that the Explanation does not violate Article 14 as it applies equally to all persons in similar circumstances, is based on rational classification, and has a reasonable nexus with the objective of discouraging income concealment.

Conclusion:
The court dismissed the petition, holding that the Explanation to section 271(1)(c) of the Income-tax Act is intra vires and does not violate Article 14 of the Constitution. The petitioner's challenge to the show cause notice and the imposition of penalty could be addressed in the statutory appeal process. The petition was dismissed with costs.

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