9911796707
TMI Blog1974 (8) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee was Rs. 80,586. The assessment was confirmed in appeal by the Appellate Assistant Commissioner. A copy of the assessment order of the Income-tax Officer is annexure " A " to the statement of the case. A proceeding under section 271(1)(c) of the Act was started against the assessee. The Inspecting Assistant Commissioner imposed a penalty of Rs. 6,000 by invoking the law engrafted in the Explanation appended to clause (c) of sub-section (1) of section 271 of the Act. A copy of the order of the Inspecting Assistant Commissioner is annexure " B ". The assessee took up the matter in further appeal before the Tribunal. The Tribunal took the view that, since the addition in the trading account was made mainly on the basis of estimate and on the application of flat gross profit rate, there was no animus which could be attributed to the assessee for attracting the penalty provision under section 271(1)(c) of the Act. The failure to return what the revenue had estimated as the correct income of the assessee is not as a result of any fraud or gross or wilful neglect on its part as the assessee had discharged the initial onus of proving what it was required to prove within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1960] 38 ITR 523 (Pat), Murlidhar Tejpal v. Commissioner of Income-tax [1961] 42 ITR 129 (Pat) and Commissioner of Income-tax v. Mohan Mallah [1964] 54 ITR 499 (Pat). In one case the Madras High Court and the Allahabad High Court in several cases took a different view which was more in favour of the department. A Bench of the Calcutta High Court in Commissioner of Income-tax v. Anwar Ali [1967] 65 ITR 95 (Cal) reviewed all the cases and agreed with the Bombay and the Patna views. This case went up to the Supreme Court and the law was laid down authoritatively in Commissioner of Income-tax v. Anwar Ali [1970] 76 ITR 696 (SC). The view taken by the Bombay, Gujarat and Patna High Courts was approved and that of the Allahabad High Court was not accepted to be correct. In that case it was held at page 701 : " It must be remembered that the proceedings under section 28 are of a penal nature and the burden is on the department to prove that a particular amount is a revenue receipt. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty proceeding has got to be concluded in accordance with law in favour of either the department or the assessee. If I were to apply the old law as originally engrafted in clause (c) of sub-section (1) of section 271 of the Act, there would have been absolutely no difficulty in answering the question in favour of the assessee and against the revenue. But in this case the period of assessment was 1966-67. The word deliberately " occurring in the second portion of clause (c) was deleted by the Finance Act of 1964, (Act 5 of 1964) with effect from April 1, 1964, and an Explanation was added to it, which reads as follows : " Where the total income returned by any, person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which 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 willful neglect on his part, be deeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. But in a case which is covered by the Explanation, the burden has been thrown on the assessee to prove absence of certain ingredients ; otherwise it will be permissible to draw the presumption of fact that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. In a case where there is a difference of more than 20 per cent. in the income returned by any person and the total income as assessed under the various provisions of the Act, the Explanation is attracted. While calculating the difference of 20 per cent. between the income returned and the income assessed, from the latter has got to be deducted the amount of expenditure incurred bona fide by the assessee for the purpose of making or earning income included in the total income but which has not been allowed as a revenue expense or a permissible deduction under any provision of the Act. As soon as it is found that there was a difference of more than 20 per cent. in the income returned and the income assessed, clause (c) comes into operation by the rule of presumption, in other words, by the rule of evidence engrafted in the Explanation, and it is for the assessee to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable as a revenue expense, was as a result of gross negligence ; that is to say, the act or omission was patently wrong in the eye of law and if the assessee would have taken some care and exercised some diligence, he would not have committed the act or the omission. In other words, the particulars furnished were inaccurate to the knowledge of the assessee at the time of return or must be deemed to be inaccurate to his knowledge in the eye of law, because the act was done with wilful or gross neglect. In my opinion, when a case is covered by the Explanation then, on the failure of the assessee to discharge the onus of proving absence of certain ingredients, the rule of presumption not only covers the matter of conscious concealment or furnishing of inaccurate particulars on the part of the assesee but, on a plain and grammatical meaning of the expression, it also ropes in the presumption of the assessed income being that of the assessee. It is difficult to bifurcate the rule of presumption into two and to say that it only affects the first part and not the second. As I have said above, if the Explanation is not attracted then the onus to prove all the ingredients which are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the fag end of the judgment. I would venture to suggest that the first portion occurring at page 1038 that the Explanation has no bearing on the first point to be proved by the department, does not seem to be correct ; the alternative view of the learned authors is commendable. Our attention has also been drawn to a decision of the Orissa High Court in Commissioner of Income-tax v. K. C. Behera [1976] 103 ITR 479 (Orissa). Although this concerned an earlier assessment year, since the penalty proceedings were started after the coming into force of the amended law, the said law was applied. It is not necessary for us to express any opinion in that regard in this case. But I would quote with approval a passage of the judgment at page 486 : " It is to be noted that the penalty proceeding continues to be penal in nature even after the introduction of the Explanation. The quantum of proof necessary to discharge the onus by the assessee would be as in a civil case, that is, by preponderance of probabilities. After applying the Explanation the taxing authorities would take into consideration all the facts and circumstances, pros and cons, and then determine whether the assessee has di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the gross profit to an extent which brought the case within the Explanation, the error by itself does give an inkling of some fraud or gross or wilful neglect on the part of the assessee. In such a case, therefore, the materials in the assessment order may not be sufficient to enable him to discharge the onus cast upon him under the Explanation. He may be under a necessity of placing some more materials or of adducing some more evidence to show that the error committed in totalling was just accidental or merely due to negligence ; it was neither a fraudulent act nor a result of gross or wilful neglect on his part. Coming to the facts of this case now, it would be noticed that in the assessment order the Income-tax Officer has disallowed two items of expenses, namely, Rs. 1,000 and Rs. 500. The disallowance was such as will bring the case within the ambit of the words in the second parenthesis in the Explanation. The main item is an addition in the trading account. The addition was made on the ground that the assessee had not maintained any day-to-day manufacturing account or stock account ; therefore, its performance was not at all amenable to verification. The Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Inspecting Assistant Commissioner--and none seems to have been placed before the Income-tax Officer--this was an order of record. The third reason given is that the books of account suffer from defects. The discussion of the order of the Income-tax Officer made above would show that this again is an error of record. No defect was found in the books of account maintained and produced by the assessee. Then the Inspecting Assistant Commissioner says that there was a good reason for presuming that the assessee preferred to keep all the cards close to its chest. It was a nice phrase to be used but the presumption was unwarranted. In the opinion of the Inspecting Assistant Commissioner, the assessee had failed to discharge the onus cast upon it within the meaning of the Explanation to section 271(1)(c) of the Act. On the same materials, when the case went up before the Tribunal, a different conclusion was drawn. The Tribunal may not be quite right in saying that penalty could be " imposed only if there is conscious and deliberate concealment on the part of the appellant ". It may not be quite correct to say that, in the absence of animus, the penal provision under section 271(1)(c) c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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