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TMI Blog1986 (3) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... rm carrying on business in purchase and sale of tanned skins. For the assessment year 1967-68, the Income-tax Officer included a sum of Rs. 4,25,000 under the head " Other sources ". This sum represented the sum total of some cash credits appearing in the names of several persons which, according to the Income-tax Officer, were not properly explained. Before the completion of the assessment, the Income-tax Officer had also issued notice under section 274(2) of the Act requiring the assessee to show cause why penalty should not be levied for concealing the income or furnishing inaccurate particulars of such income. In appeal against the assessment, the Appellate Assistant Commissioner accepted the genuineness of credits of Rs. 3,50,000 and upheld the assessment to the extent of Rs. 75,000. This sum of Rs. 75,000 is made up of three cash credits of Rs. 25,000 each in the names of the three persons. In support of the plea that the cash credits were genuine, the assessee produced a confirmatory letter from one creditor. The other two creditors, in sworn statements before the Income-tax Officer admitted having lent the moneys to the assessee. The Income-tax Officer was of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee filed an appeal before the Tribunal. The Tribunal allowed the assessee's appeal holding that the assessee discharged the initial burden to prove within the meaning of the Explanation to section 271(1)(c) that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on its part. The Tribunal held that the evidence adduced by the assessee by the production of confirmatory letter and the sworn statements constituted material to come to the conclusion that the assessee had discharged the initial burden. The Tribunal held that as the Revenue has failed to rebut that evidence, no penalty could be levied by virtue of the Explanation to section 271(1)(c) of the Act. The Tribunal also held that there was much less any case for levying penalty under the main part of section 271(1)(c) of the Act without invoking the aid of the Explanation. In that view, the Tribunal cancelled the penalty levied by the Inspecting Assistant Commissioner. The Commissioner of Incometax required the Tribunal to refer the case under section 256(1) of the Act. According to the Commissioner's request, the Tribunal referred the following question of law for consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this subsection." It is not necessary for us to deal with the real effect of the Explanation in detail, as that was the subject-matter of consideration in a number of cases by several High Courts. In Addl. CIT v. B. China Krishnamurthy [1980] 121 ITR 326, this court had dealt with the scope of the Explanation in sufficient detail. Once the income returned is less than 80 per cent. of the assessed income, the Explanation becomes applicable. Then two presumptions will follow: They are: (a) The amount of the assessed income is the correct income and it is in fact the income of the assessee; (b) Failure of the assessee to return the correct assessed income was due to fraud or gross or wilful neglect on the assessee's part. From the factum of presumptions spelt out, the Explanation becomes a rule of evidence. Presumptions raised by the Explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lars of income or furnished inaccurate particulars of such income for the purpose of section 271(1)(c) of the Act, We are unable to agree with the submissions of the learned standing, counsel for the Revenue. In the first place, we may point out that the authority empowered to levy penalty must derive satisfaction that the evidence adduced by the assessee was such that within the terms of the Explanation to section 271(1)(c), it cannot be said that the assessee has discharged the initial burden. We have perused the order of the Inspecting Assistant Commissioner who levied the penalty in the present case. The Inspecting Assistant Commissioner refers to the confirmatory letter from one of the creditors and the sworn statements of the other two creditors. He further referred to the fact that in the assessment proceedings that evidence was rejected, as the capacity of the creditors to lend money was in doubt. From these facts, the Inspecting Assistant Commissioner records a finding that the monies really belonged to the assessee and the assessee had not discharged the statutory burden under the Explanation. It is clear that the Inspecting Assistant Commissioner did not apply his mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner did not point out any circumstance in his order which supports the plea that in spite of the above evidence, the assessee failed to prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. We are satisfied that the Revenue has failed to make out a case that penalty could be levied by invoking the Explanation to section 271(1)(c) in the present case. This is enough to dispose of the reference made by the Tribunal. We are still left with the purpose for which the reference was made by the Division Bench. While referring the matter to the Full Bench, the Division Bench observed that the decision in the case of Addl. CIT v. B. China Krishnamurthy [1980] 121 ITR 326 (AP), requires reconsideration. There is no indication in the reference as to what part of the judgment required reconsideration. However, learned standing counsel for the Revenue invited our attention to the observations of this court in the aforesaid judgment that even after the omission of the word " deliberately " by the Finance Act of 1964, the legal position that is applicable to penalty proceedings, as enunciated by the Supreme Court in Anwar A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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