- (1.) AS directed by this court under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act), the Income-tax Appellate Tribunal, 'B' Bench, Patna, has referred the following question of law to this court for its opinion : "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in cancelling the penalty imposed under Section 271(1)(c) ?"
(2.) THE material facts giving rise to this reference, briefly, are as follows : THE assessee was assessed in the status of a Hindu undivided family and derived income from timber business. For the assessment year 1968-69, the assessee filed a return disclosing income of Rs. 6,912. THE Income-tax Officer, however, computed the total income of the assessee at Rs. 32,170. While framing the assessment, the Income-tax Officer also found that there was a cash credit of Rs. 6,600 in the name of one Shri Ratan Lal Chandak. THE assessee was called upon to explain the genuineness of this deposit but no explanation was offered by the assessee. THE Income-tax Officer, accordingly, passed the order of assessment. On appeal, the Appellate Assistant Commissioner upheld the addition of Rs. 6,600 with regard to cash credit but reduced the amount of income computed by the Income-tax Officer to Rs. 29,270 by deleting certain additions made by the Income-tax Officer. THE Income-tax Officer also issued a notice to the assessee to show cause why penalty be not imposed under Section 271(1)(c) of the Act and referred the matter to the Inspecting Assistant Commissioner under Section 274(2) of the Act. THE assessee did not show any cause and did not even appear before the Inspecting Assistant Commissioner. THE Inspecting Assistant Commissioner held that as the assessee could not adduce any evidence regarding the source of the cash credit, the assessee was liable to pay penalty under Section 271(1)(c) of the Act, in view of the Explanation to Section 271(1)(c), which, in the opinion of the Inspecting Assistant Commissioner, was attracted in the circumstances of the case. THE Inspecting Assistant Commissioner thus imposed a penalty of Rs. 6,600. Aggrieved by the order passed by the Inspecting Assistant Commissioner, the assessee preferred an appeal before the Tribunal. THE Tribunal held that the order of the Inspecting Assistant Commissioner showed that he had merely proceeded on the basis of the order of assessment and that there should have been something more on record to sustain the order of penalty. THE Tribunal held that as no such material was on the record, the order of penalty was liable to be set aside. Aggrieved by the order passed by the Tribunal, the Revenue sought reference. As the application submitted by the Revenue in that behalf was rejected by the Tribunal, the Revenue made an application before this court under Section 256(2) of the Act, which was allowed and the Tribunal was directed to refer the aforesaid question of law to this court for its opinion and to state the case. At the time of hearing, none appeared on behalf of the assessee. Having heard learned counsel for the Revenue, Shri S.K. Sharan, we have come to the conclusion that this reference must be answered in the negative and in favour of the Revenue. The Tribunal failed to appreciate that, by virtue of the Explanation to Section 271(1)(c) of the Act, the initial burden was on the assessee to show that the failure to return the correct income was not on account of any fraud or any gross or wilful neglect on the part of the assessee. No explanation whatsoever was given by the assessee to discharge that burden. In CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, the Supreme Court approved the decision of this court in CIT v. Nathulal Agarwala and Sons [1985] 153 ITR 292 [FB], where this court had held that the onus to discharge the presumption arising by virtue of the Explanation to Section 271(1)(c) of the Act was on the assessee and it was for him to prove that the failure to return the correct income was not due to any fraud or any gross or wilful neglect on his part. In the instant case, as already observed, no explanation whatsoever was given by the assessee. The total income returned by the assessee was less than 80% of the total income as assessed. The presumption arising by virtue of the Explanation to Section 271(1)(c) of the Act was not rebutted by the assessee. Under the circumstances, therefore, the Tribunal, in our opinion, erred in setting aside the order of penalty passed under Section 271(1)(c) of the Act. Our answer to the question referred to this court by the Tribunal is, therefore, in the negative and in favour of the Revenue. In the circumstances of the case, the parties shall bear their own costs of this reference. Let a copy of this judgment be sent by the Registry of this court to the Assistant Registrar, Income-tax Appellate Tribunal, 'B' Bench, Patna.;