Ajit K.Sengupta, J. - (1.) In this reference under Section 256(2) of the Income-tax Act, 1961, at the instance of the Revenue, the Tribunal has referred the following question for the opinion of this court for the assessment year 1964-65 : "Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the Explanation to Section 271(1)(c) of the Income-tax Act, 1961, the Tribunal was justified in cancelling the order of penalty made by the Inspecting Assistant Commissioner ?" Shortly stated, the facts are that the assessee filed a return of its total income for the said year on January 7, 1965, declaring an assessable income of Rs. 1,07,703. The Income-tax Officer completed the assessment of the assessee for the said year on a total income of Rs. 2,42,371. In making the said assessment, the Income-tax Officer made, inter alia, an addition of Rs. 60,000 to the business income by rejecting the trading results of Vizianagaram and Barbin Branches. The Income-tax Officer found that the gross profit shown in respect of these two branches were very low and details of various expenses were not available. The books relating to raising operations were not produced and particulars regarding mining operations were not furnished. Furthermore, no evidence was produced in support of expenses debited by the assessee in its trading accounts of the said two branches. The Income-tax Officer further noticed three cash credits in the names of : Rs. (1) Sri Manikchand Chindalia 10,000 (2) Sri Subhkaran Chindalia 10,000 (3) Sri Ramlal Chindalia 20,000 The assessee neither filed any confirmation letters signed by the creditors nor produced any other evidence to prove the genuineness of the said loans. The Income-tax Officer, therefore, added the said sum of Rs. 40,000 as assessee's income from undisclosed sources.
(2.) Penalty proceedings were initiated under Section 271(1)(c) read with Section 274(2) of the said Act. The Inspecting Assistant Commissioner found that the assessee's case clearly fell within the meaning of the Explanation to Section 271(1)(c) inasmuch as the income returned by the assessee was far less than 80 per cent. of the assessed income. The Inspecting Assistant Commissioner further found that the assessee was under the Official Receiver of the High Court who did not make any compliance even when the notice was served upon him on March 3, 1971. In the absence of any material, the Inspecting Assistant Commissioner observed that the onus cast upon the assessee in terms of the Explanation to Section 271(1)(c) had not been discharged in this case and he, therefore, levied a penalty of Rs. 45,000 under Section 271(1)(c) read with Section 274(2) of the said Act. The Official Receiver, High Court, filed an appeal against the said order to the Income-tax Appellate Tribunal. Nobody appeared before the Tribunal on behalf of the assessee. The Tribunal, following the decision of the Supreme Court in Anwar Ali's case [19701 76 ITR 696, the decision of the Kerala High Court in CIT v. Sankarsons and Co. [1972] 85 ITR 627, and that of the Punjab and Haryana High Court in Addl. CIT v. Karnail Singh V. Kaleran [1974] 94 ITR 505, cancelled the penalty levied by the Inspecting Assistant Commissioner.
(3.) At the hearing before us, learned counsel appearing for the Revenue drew our attention to the Full Bench decision of the Punjab and Haryana High Court in Vishwakarma Industries v. CIT [1982] 135 ITR 652, as well as the two decisions of the Supreme Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 and in Chuharmal v. CIT [1988] 172 ITR 250. In the case of Vishwakarma Industries [1982] 135 ITR 652 [FB], the Punjab and Haryana High Court, overruling its earlier decision in Addl. CIT v. Karnail Singh V. Kaleran , clearly held that, in a case where the returned income is less than 80 per cent. of the assessed income, the Explanation to Section 271(1)(c) becomes clearly applicable. This Explanation shifts the burden to the assessee to show that the difference between the returned income and the assessed income was not owing to fraud or gross or wilful neglect on the part of the assessee. This onus is rebuttable. The burden of discharing the onus lies on the assessee and it can be discharged by a preponderance of evidence. The court further held that the intention of the Legislature in making the amendments to Section 271(1)(c) and in inserting the Explanation thereto was to bring about a change in the existing law. Consequently, the ratio of Anwar Ali's case [1970] 76 ITR 696, which had considered the earlier provision of Section 28(1)(c) of the 1922 Act is no longer attracted for the construction of Section 271(1)(c) as amended. This decision was approved by the Supreme Court in the latter two decisions referred to earlier.;