- (1.) Under Section 256(2) of the Income tax Act, 1961, the Tribunal has stated the following two questions : " (i) Whether, on the facts and in the circumstances of the case, there was material on record justifying the Tribunal's finding that the assessee has discharged the onus under the Explanation to Section 271(1)(c) of the Income-tax Act, 1961 ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in cancelling the penalty totally?"
(2.) The assessment year is 1969-70. The respondent-assessee is a parlnership firm engaged in excise business. It filed a return disclosing an income of Rs. 1,172. At the time of the hearing, it filed a revised return disclosing an income of Rs. 1,922. The Income-tax Officer, however, by his assessment order dated October 12, 1970, estimated the income at Rs. 1,15,930 and, after giving certain deductions, he arrived at the net taxable income of Rs. 95,200. He also issued a notice under Section 271(1)(c) of the Act to show cause why penalty be not levied. Since the penalty leviable exceeded Rs. 1,000, the matter was referred to the Inspecting Assistant Commissioner of Income-tax. When the Inspecting Assistant Commissioner gave a notice under Section 274(2), the assessee applied to him to stay the proceedings pending disposal of the quantum appeal by the Appellate Assistant Commissioner. One more opportunity was given by the Inspecting Assistant Commissioner but again the assessee repeated the same request. He also pleaded that his counsel was unwell. The Inspecting Assistant Commissioner did not wait further and imposed penalty in the sum of Rs. 1,06,930. On appeal, the Tribunal deleted the penalty. It is then that the Department obtained this reference. It may be stated that the quantum appeal filed by the assessee and the appeal filed by it against penalty were heard together by the Tribunal and disposed of under a common order. The income of the assessee was reduced to Rs. 39,000 in the quantum appeal. When it came to the penalty appeal, it was allowed on the following reasoning : "After the reduction granted by us as above, the total income of the assessee would stand much reduced. In any case, whatever addition now stands sustained, the same is on estimate basis. The assessee, as noted above, had to face peculiar difficulties in respect of Kotdwar contract. The possibility of error in good faith in the estimate of income cannot be entirely ruled out. We are, therefore, unable to hold that a conscious concealment of income had taken place. It is correct that the Explanation added to Section 271 with effect from April 1, 1964, is applicable to the present case. However, in a case of estimate and addition of a small amount, the charge of concealment cannot be said to be established. No fraud or gross or wilful neglect can either be attributed to the assessee. We, therefore, delete the penalty. This appeal shall be treated as allowed."
(3.) It is evident that two of the important considerations which induced the Tribunal to allow the appeal are unsustainable. Since the difference between the income returned and the income finally assessed by the Tribunal is too large, it is doubful whether, in such a situation, there is any room for "error in good faith". The difference in amount is not small ; it is very large. Moreover, the other observation of the Tribunal is that "no fraud or gross or wilful neglect can either be attributed to the assessee" is equally misplaced in law. The difference between the returned income and the assessed income is more than 20 per cent. of the assessed income. If so, the Explanation to Section 271(1)(c), then in force, gets attracted. Once the Explanation is attracted, the presumption of concealment arises and, as explained by the Supreme Court in CIT v. K. R. Sadayappan [1990] 185 ITR 49, the burden of rebutting the said presumption shifts to the assessee. It may also be noticed that, in this case, the assessee had filed no explanation whatsoever to the penalty notice. For the above reasons, we are of the opinion that the finding of the Tribunal on which it allowed the appeal is unsustainable. However, it must be said that the Tribunal did not have the benefit of the decision of the Supreme Court in Sadayappan's case [1990] 185 ITR 49. Evidently, it was still following the ratio of CIT v. Anwar Ali [1970] 76 ITR 696 (SC). In all the circumstances, it is a proper case where the Tribunal should be directed to rehear the penalty appeal and dispose of it according to law.;