BHAGWATI, J. - (1.)THESE two references raise a short question as to the interpretation of the Explanation to section 271(1)(c) of the Income -tax Act, 1961. The assessee is a registered firm which carries on business as a retail dealer in medicinal drugs and preparations. The assessee showed in its return for the assessment year 1964 -65 total sales of Rs. 2,88,602 and gross profit of Rs. 16,400 which worked out at approximately five per cent of the total sales and net income of Rs. 14,738. Similarly, for the assessment year 1965 -66, the assessee showed in the return submitted by it, total sales of Rs. 3,34,000 and gross profit of Rs. 26,595 which worked out at approximately 7.9 per cent. of the total sales and net income of Rs. 19,434. The Income -tax Officer assessing the assessee to income -tax for the assessment years 1964 -65 and 1965 -66 found that though the books of account were maintained by the assessee according to the mercantile method of accounting, it was not possible to accept the figure of profit appearing from the books of account because, in the first place, no quantitative stock account was maintained by the assessee, secondly, a majority of the sales were not supported by vouchers and, thirdly, the gross profit disclosed by the books of account was low. The Income -tax Officer accordingly proceeded to make best judgment assessment under section 145(2) by estimating the total sales and applying a rate of 7 1/2 per cent. to the sales to doctors and a rate of 12 1/2 per cent. to the other sales for the purpose of arriving at the gross profit in each assessment year. The result was that for the assessment year 1964 -65 a sum of Rs. 20,420 was added to the returned income of Rs. 14,738 making a total assessed income of Rs. 35,158 and similarly for the assessment year 1965 -66, the returned income of Rs. 19,434 was augmented to Rs. 38,416, by the addition of a sum of Rs. 18,982. Since the income returned was less than eighty per cent. of the total income assessed in each assessment year, the Income -tax Officer was of the views that the Explanation to section 271(1)(c) was attracted and by reason of that Explanation, the assessee must be deemed to have concealed the particulars of its income so as to be liable for penalty under section 271(1)(c). The Income -tax Officer, accordingly, issued show -cause notices to the assessee and in view of the fact that the minimum penalty imposable exceeded a sum of rupees one thousand, he referred the case for each assessment year to the Inspecting Assistant Commissioner under section 234. The Inspecting Assistant Commissioner issued fresh notices to the assessee calling upon the assessee to show cause why penalty should not be imposed under section 271(1)(c) read with the Explanation. The assessee showed cause but the Inspecting Assistant Commissioner was not satisfied and taking the view that the assessee had not proved that the failure to return the correct income did not arise from any fraud or any gross or willful neglect on its part, he made a separate order for each assessment year imposing a penalty of Rs. 5,000 on the assessee. The assessee preferred appeals against the orders of penalty to the Tribunal. The Tribunal disagreed with the view taken by the Inspecting Assistant Commissioner and observing that :
'The difference between the income returned and the income assessed is mainly due to the fact that the profit has been estimated by the Income -tax Officer for both the years. On the facts of the case no finding of any fraud or any willful neglect on the part of the assessee can be recorded. The revenue authorities noted that the quantitative details were not available. They also noted that all the sales were to vouched. These cannot be sufficient reason to justify the finding of any gross or willful neglect on the part of the assessee. There is no other factor which could justify any finding in regard to fraud by the assessee. We must in the circumstances hold that the assessee cannot be deemed to have concealed the particulars of its income or furnished inaccurate particulars of such income within the meaning of section 271(1)(c).'
allowed the appeals and cancelled the orders of penalty. This view taken by the Tribunal is challenged in the present references at the instance of the revenue.
(2.)IN order to appreciate the question which arises for determination before us, it is necessary to examine the language of section 271(1)(c) with the Explanation and to construe its meaning and effect. Section 271(1)(c) provides - and here we are setting out the section as it stood during the relevant assessment years prior to its amendment by Finance Act, 1968 :
'271. (1) If the Income -tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person.... has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, - ... in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.'

Then there is the Explanation to section 271(1)(c), which reads as follows :

'Explanation. - 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 (reducted 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 gorss or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnihsed inaccurate particulars of such income for the purposes of clause (c) of this sub -section.'

(3.)IT is clear on a plain grammatical construction of the language used by the legislature that the condition which attracts the applicability of section 271(1)(c) is that the income -tax authority should be satisfied in the course of any proceeding under the Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. It may be pointed out that, prior to its amendment by the Finance Act, 1964, section 271(1)(c) required that the assessee should have concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, but the word 'deliberately' was omitted from the section by the Finance Act, 1964. What is the effect of this omission does not fall for determination in this case because the assessee is sought to be brought within section 271(1)(c) not on the application of its own terms but by resort to the deeming fiction contained in the Explanation. The Explanation which was not originally there when section 271(1)(c) was enacted but which was introduced by the Finance Act, 1964, provides that where the total income returned is less than eighty per cent, of the total income assessed, the assessee 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 within the meaning of section 271(1)(c). It is an Explanation enacted in the context of a highly penal provision and there can, therefore, be no doubt that it must be construed fairly and reasonably. This, of course, does not mean that if a case falls fairly and squarely within the language of the Explanation, we should refuse to give effect to the mandate of the legislature as disclosed in the Explanation. But what is necessary to be borne in mind is that when we are construing the true meaning and effect of the Explanation, we must not forget that it is the Explanation which adds to the rigour of a highly penal provision and we must not, therefore, be over anxious to enlarge the scope and ambit of the Explanation by making an effort to bring every possible case within it, but we should instead construe the Explanation and apply it in a fair and reasonable way with a view to achieving the purposes of the main provision, namely, that an assessee who has concealed the particulars of his income or furnished inaccurate particulars of such income should not escape penalty. The Explanation creates a legal fiction if the condition of its applicability is satisfied. The condition is an objective condition, namely, that the total income returned by the assessee should be less than eighty per cent. of the total income assessed subject to a certain reduction which is not material for our purpose. What the condition contemplates is merely a matter of arithmetical calculation. The income -tax authority is required to take the total income returned by the assessee and the total income as assessed by the revenue authorities and if the former is less than eighty per cent. of the latter, the condition for the applicability of the Explanation is satisfied. The Explanation then says that the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income within the meaning of section 271(1)(c). The Explanation raises a legal fiction and the assessee is straightaway brought within the ambit of section 271(1)(c). It is then not necessary for the revenue to show affirmatively by producing the material that the assessee has in fact concealed the particulars of his income or furnished inaccurate particulars of such income. The fact of the total returned income being less than eighty per cent. of the total income assessed is sufficient to bring the assessee within the penal provision enacted in section 271(1)(c). That is achieved by the legal fiction enacted in the Explanation. But, this legal fiction can be displaced if the assessee proves that the failure to return the correct income, that is the total income assessed, did not arise from any fraud or gross or wilful neglect on his part. If the assessee wants to repel the legal fiction and throw the burden of bringing the case within section 271(1)(c) again on the revenue, as it would be in the absence of the Explanation, the assessee has to show - and tis burden is upon him - that his failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. Now, this burden is not of the same nature as the burden which rests on the prosecution in a criminal case where the prosecution has to establish the guilt of the accused beyond reasonable doubt nor is it of the same nature as the burden which lies upon the revenue in establishing that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. It is a burden akin to that in a civil case where the determination is made on preponderance of probabilities. It is also not necessary that any positive material should be produced by the assessee in order to discharge this burden which rests upon him. The assessee may claim to have discharged the burden by relying on the material which is on record in the penalty proceedings, irrespective of whether it is produced by him or by the revenue. The only question to which the income -tax authority has to address itself is, whether on the material on record in the penalty proceedings, can it be said on a preponderance of probabilities that the failure to return the total assessed income has not arisen on account of any fraud or any gross or wilful neglect on the part of the assessee. If the answer to the question is in the affirmative, the legal fiction enacted in the Explanation cannot arise and the revenue must fail in its attempt to impose penalty on the assessee. If the material on record in the penalty proceedings fairly and reasonably leads to the inference that there was no fraud or gross or wilful neglect on the part of the assessee in not returning the total assessed income, it would almost be impossible for the revenue to contend that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income so as to attract the applicability of section 271(1)(c) on its own terms independently of the Explanation. But that is not a matter on which we wish to express any final opinion because, in the present case, the attempt to levy penalty on the assessee is founded only on the Explanation and it is the applicability of the Explanation alone which requires to be considered by us in the present references.
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