GULATI,J. - (1.) IN respect of the asst. yr. 1966-67 the assessee filed a return disclosing an income of Rs. 47,773. The ITO did not accept the return and computed the total income at Rs. 85,995. On appeal the assessee's income was reduced by Rs. 11,120. The ITO initiated proceedings for the levy of penalty under S. 271(1)(c) read with the Explanation. The IAC to whom the matter was transferred in accordance with S. 274(2) of the Act, levied a penalty of Rs. 5,180. The assessee appealed to the Tribunal. The Tribunal has cancelled the penalty. The Department is aggrieved and at its instance the Tribunal has referred the following question : "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was not guilty of gross of wilful neglect within the meaning of S. 271(1)(c) of the IT Act, 1961 ?"
(2.) THE penalty under S. 271(1)(c) of the Act can be levied, if the assessee conceals his income or furnishes in accurate particulars thereof. Thus to attract the penal provision, the onus lies on the Department to prove the concealment or deliberate furnishing of inadequate particulars by the assessee. The mere enhancement of income by the ITO is no ground for levying a penalty. However, under the Explanation, if the income returned is less that 80 per cent of the income assessed, after deducting certain expenditure bonafide claimed by the assessee and disallowed by the ITO, it shall be deemed to be a concealment of income, unless the assessee proves that the disparity in the income returned and assessed was not due to fraud or gross or wilful neglect on his part. When the Explanation applies, the onus leis upon the assessee to prove that the difference in the income returned and assessed is not due to fraud or gross or wilful neglect on his part. The IAC held that even if the assessee could not be held guilty of any fraud, he was definitely guilty of gross or wilful neglect. The Tribunal has not agreed with this view and has held that the assessee was not guilty of any gross or wilful neglect.
(3.) NOW , it is true that the onus lay upon the assessee, but the onus can be discharged by direct or circumstantial evidence. It appears that during the previous year one of the partners died and the assessee submitted two returns, one relating to the period before the death of the partner and the other after the death of the partner. (The rate of profit disclosed in the two returns were 5.4 per cent and 6.8 per cent respectively). The IAC noticed that the assessee had in the immediately preceding year disclosed a profit of 8.5 per cent. From this he inferred that the assessee had not accounted for in the books of accounts the entire transactions and this, in his opinion amounted to fraud. This inference drawn by the IAC is wholly erroneous. It is a matter of common knowledge that rate of profit is not a constant factor. It keeps on varying from year to year depending on the trade conditions.;