V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated June 28, 1980, in respect of the assessment year 1975-76 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalty of Rs. 33,000 levied under Section 271(1)(c) of the Income-tax Act, 1961 ?"
(2.) THE brief facts of the case are that the assessee is a Hindu undivided family and is deriving income from plying buses and has shown loss of Rs. 13,036 in the return submitted to the Income-tax Officer. THE final assessment was made on the figure of Rs. 19,842, THEre was a difference of Rs. 32,875 and, besides this, in the course of the assessment proceedings, the Income-tax Officer found that the assessee had not maintained any log book for day-to-day running of the buses. No consumption register for fuel and spare parts was maintained on a day-to-day basis and no vouchers have been produced before the Income-tax Officer and only purchase and sale of tyres was shown by the assessee. THE vouchers for the sale of such tyres were also not produced and, therefore, the net profit rate of 20 per cent. subject to depreciation on total receipts of Rs. 1,69,462 was made resulting in an addition of Rs. 87,705. THE Income-tax Officer also observed that generally the rate applied is from 30 per cent. to 40 per cent. but since the assessee has plied the buses on kachha roads, the rate of profit of 20 per cent. was applied. THE Income-tax Officer initiated penalty proceedings under Section 271(1)(c) of the Income-tax Act read with the Explanation thereto. As the total income returned was less than 80 per cent. of the total income assessed, the assessee was deemed to be guilty of concealment of income or of furnishing of inaccurate particulars of such income, unless he proved that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. In the quantum appeal, the percentage of 20 per cent. applied was upheld, but the receipts were reduced to Rs. 1,31,000 resulting in the reduction of Rs. 7,692 and the said order was upheld by the Income-tax Appellate Tribunal and had become final. A notice was issued by the Income-tax Officer to the assessee to show cause, but the assessee failed to show any cogent reason and evidence to prove that he was not in the know of the things which were rather planned by him. A penalty of Rs. 38,890 was imposed being difference between the loss returned at Rs. 3,650 and assessed the income at Rs. 85,238 (sic). The penalty so imposed was confirmed by the Commissioner of Income-tax (Appeals) and it was observed that the Explanation to Section 271(1)(c) of the Act as it stood prior to April 1, 1976, is applicable. It was also observed that he has not been able to prove the personal and household expenses which were obviously being met from the concealed income. The penalty order was upheld. In second appeal before the Income-tax Appellate Tribunal, it was observed that the assessee had maintained the books of account and the receipts were shown on the basis of these books, which were accepted. The expenses claimed were of Rs. 1,44,004 which may not be fully vouched but that does not show that any part of the expenditure was bogus or that the assessee had attempted to suppress the true income by inflating the expenses. The only defect pointed out was that the expenses were not supported by vouchers. These might have been sufficient for resorting to estimate of income but had no connection with the concealment of income by the assessee. Relying on the decision of the apex court in Anwar Ali's case [1970] 76 ITR 696, the levy of penalty was set aside. An Explanation was introduced by the Finance Act, 1964, and in the provisions of Section 271(1)(c), the word "deliberately" was deleted, as a result of which, in a case where the total income of the assessee as shown in the return of income was less than 80 per cent. of the total income assessed then the onus was on such assessee to prove that the failure to file the correct return did not arise from, any fraud or gross and wilful neglect on his part and unless this burden is discharged by him, it will be deemed that he has concealed the particulars of income and furnished incorrect particulars so as to attract the provisions of Section 271(1)(c) of the Act. No doubt, the onus which has been shifted to the assessee has to be discharged by the assessee but once he is able to satisfy that there was no fraud or gross or wilful neglect on his part then the onus is shifted to the Revenue to establish the various ingredients of the section. The presumption raised by the Explanation to Section 271(1)(c), therefore, is a rebuttable presumption. From a perusal of the order of the Income-tax Appellate Tribunal, it is evident that the penalty has been set aside on the basis of the decision given by the apex court in the case of Anwar Ali [1970] 76 ITR 696 referred to above and it was observed that even if additions which were made in the assessment order have been upheld in appeal, unless it is established that the additions made represented the assessee's own income earned in the relevant previous year which was suppressed in order to defraud the Revenue, penalty cannot be levied. An observation has also been made that the difference between the income declared and the income assessed was not due to any fraud or gross or wilful neglect. The Income-tax Officer has found in the assessment order that the assessee failed to produce any voucher for sale of tyres. Motor parts were sold to Shri Abdul Sattar, to whom two buses were sold, but the identity or the particulars of the motor parts sold were not given and the drawings for personal use and expenditure of family had not been shown. The contention of the assessee was that the additions have been made on account of disallowance of expenses and application of the gross profit rate. As observed above, the initial burden was on the assessee to be discharged on the basis of admissible evidence. In the penalty proceedings, even fresh material could have been brought, which the assessee has failed to produce in the assessment proceedings or may discharge the burden on the basis of the material already existing on record. The only thing required by the said Explanation is that he has to prove that there was no fraud or gross or any wilful neglect. A reasonable explanation which may be based on preponderance of probabilities and evidence is sufficient to shift the burden to the Revenue. In the assessment there could be different circumstances on which the income has been increased. The assessment thus which is known as a best judgment assessment or an assessment on the basis of the estimates of the Income-tax Officer is as good as the assessment which has been framed on the basis of the books and the Explanation does not make any difference in its applicability as to in what manner the assessment has been framed. The only requirement under law is that the income returned is less than 80 per cent. of the total income assessed, and the initial burden in such a case has to be discharged by the assessee. Once the burden is discharged, then the question of applicability of the decision of Anwar Ali's case [1970] 76 ITR 696 (SC) arises and not at the initial stage. According to this decision of the apex court, the Department has to establish that the assessee was guilty of concealment of income and has furnished inaccurate particulars of income. If there is no explanation or if the explanation submitted by the assessee is not found to be satisfactory with regard to discharge of his burden that there was no fraud or any gross or wilful neglect on his part to return the correct income, then the Income-tax Officer is under no obligation to prove the burden which was contemplated in Anwar Ali's case [1970] 76 ITR 696 (SC). The burden on the Income-tax Officer comes only if the initial burden of the assessee is discharged.
(3.) THE additions which are made in the assessment order, which is final even on the basis of best judgment assessment, have to be made on certain principles and once that assessment order is upheld finally, then it was the duty of the assessee to have submitted his explanation that there was no fraud or any gross or wilful neglect on his part. THE word "neglect" refers to negligence, which should be of utter want of care and diligence. If a particular thing is required to be done then a case of negligence may arise if it is not done due to want of care or due to negligence. It is in the facts of each and every case in which it has to be examined as to whether there was any neglect on the part of the assessee or not. THE word "fraud" involves mens rea. THE words "gross and wilful neglect" also have the same character. THE circumstances leading to the framing of the assessment and the explanation which the assessee may give are relevant factors to come to this conclusion. Before applying the ratio of Anwar Ali's case [1970] 76 ITR 696 (SC), it was necessary for the Income-tax Appellate Tribunal to come to the conclusion that the initial burden which was on the assessee on account of the Explanation has been discharged and they are satisfied with that. THE Income-tax Tribunal has proceeded in the reverse gear and has held that penalty cannot be levied unless it is established that the additions made represented the assessee's own income earned in the relevant previous year which was suppressed in order to defraud the Revenue. THE income, which is based on estimation, is the assessee's own income and if there is a difference between the assessed income and the returned income of more than 20 per cent. in accordance with the Explanation, then the assessee has to explain and discharge its burden that the difference of the income is not on account of any fraud or any gross or wilful neglect on his part. THE interpretation of law which makes the subject as law abiding has to be taken rather than by which the assessee may be allowed just not to keep the hooks of account or proper vouchers and flout the law. In the case of the assessee, in the quantum appeal, it was held by the Tribunal that the assessee has not maintained proper accounts. This court in CIT v. Smt. Satnam Malih [1987] 167 ITR 764 has held that where the total income returned by the assessee is less than 80 per cent. of the total income assessed, the provisions of the Explanation to Section 271(1)(c) of the Act would at once be attracted and it will be presumed that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of Section 271(1) of the Act. In order to rebut this presumption it was observed that the assessee should prove and establish that failure to return the correct income does not arise from any fraud or gross or wilful neglect. The burden is on the assessee which may be discharged by leading evidence or by pointing out the material available on record in the assessment proceedings or in the penalty proceedings. The ratio of the decision of Anwar Ali's case [1970] 76 ITR 696 (SC) was held not applicable in a case where the provisions of the Explanation are attracted. In the present case, it would be seen that the assessee had not submitted any evidence in the penally proceedings and the explanation had come that it was on account of application of the gross profit rate. Simply, difference in the assessed income and returned income is because of application of gross profit/net profit rate may or may not be proper explanation. There may be cases where proper books of account are maintained or even if some defect is found therein, the difference between the returned income and the assessed income, it could be said that the application of gross profit rate is not on account of any fraud or gross or wilful neglect on the part of the assessee. The presumption which has been raised by the Explanation is rebuttable and the Explanation has only created a rule of evidence to discharge the burden which was earlier on the Department before the insertion of the Explanation. The proof for discharge of burden with regard to the Explanation or evidence could be as is required in a civil case, namely, based on a preponderance of probabilities or a reasonable explanation. The absence of an explanation or evidence makes the Explanation applicable. In the present case, the returned income was in the negative, i.e., it was a return of loss of Rs. 3,650. The provisions of Section 145 of the Act were invoked. In the quantum appeal, the Tribunal has observed that the assessee has not maintained any log book for day-to-day running of the buses. No consumption register for fuel and spare parts was being maintained on a day-to-day basis. The assessee also did not produce vouchers before the Income-tax Officer. The final figure arrived at in the assessment proceedings was upheld by the Tribunal by applying a profit rate of 20 per cent. Since the Tribunal has not taken into consideration the reply which was submitted by the assessee for discharging his initial burden and applied the decision of Anwar Ali's case [1970] 76 ITR 696 (SC), we are of the view that the said decision cannot be said to be in accordance with law. Even the last observation in the Tribunal's order that "before closing we may add that even if the Explanation to Section 271(1) had been applicable we would have held on the facts of this case that the difference between the income declared and the income assessed was not due to any fraud or gross or wilful neglect" is without any reasoning. It has not been examined by the Tribunal as to why the Explanation is not applicable and it has proceeded only on the presumption that even if it is applicable they would have so held that there was no fraud or gross or wilful neglect on the part of the assessee. The Explanation was clearly applicable and, therefore, the question that even if the Explanation had been applicable does not arise and in order to come to the conclusion that the initial burden which was on the assessee under the Explanation has been discharged, the Tribunal has to take into consideration the facts and discuss them and then to give a finding that the assessee has been able to discharge his burden that there was no fraud or gross or wilful neglect on his part. The question of discharge of burden by the assessee as contemplated by the Explanation has not at all been considered. ;