Gulati, J. - (1.) IN respect of the assessment year 1966-67 the as sessee filed a return disclosing an income of Rs. 47,773.00. The In come-tax Officer did not accept the return and computed the total income at Rs. 85,995.00. On appeal the assessee's income was reduced by Rs. 11,120.00. The Income-tax Officer initiated proceedings for the levy of penalty under Section 271 (1) (c) read with the Explanation. The Inspecting Assistant Commissioner of Income-tax, to whom the matter was transferred in accordance with Section 274 (2) of the Act, levied a penalty of Rs. 5,180.00. The assessee appealed to the Income-tax Appellate 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 circumstance of the case, the Tribunal was justified in holding that the assessee was not guilty of gross or willful neglect within the meaning of Section 271(1) (c) of the Income-tax Act, 1961 ?"
(2.) THE penalty under Section 271 (1) (c) of the Act can be levied, if the assessee conceals his income or furnishes inaccurate particu lars 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 Income-tax Officer is no ground for levying a penalty. However, under the Explanation, if the income returned is less than 80% of the income assessed, after deducting certain expenditure bona fide claimed by the assessee and disallowed by the Income-tax Officer, it shall be deemed to be concealment of income, unless the assessee proves that the disparity in the income returned and assess ed was not due to fraud or gross or willful neglect on his part. When the Explanation applies, the onus lies upon the assessee to prove that the difference in the income returned and assessed is not due to fraud or gross or willful neglect on his part. The Inspect ing Assistant Commissioner of Income-tax held that even if the as sessee could not be held guilty of any fraud, he was definitely guilty of gross or willful neglect. The Tribunal has not agreed with this view and has held that the assessee was not guilty of any gross or willful 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 asses see submitted two returns, one relating to the period before the death of the partner and the other after the death of the partner. The rates, of profits disclosed in the two returns were 5.4% and 6.8% res pectively. The Inspecting Assistant Commissioner of Income-tax noticed that the assessee had in the immediately proceeding year dis closed a profit of 8.5%. 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;