2001 (6) TMI 15 - HC - Income Tax

Unexplained cash credits treated as s.68 income and s.271(1)(c) penalty-concealment not proved, penalty deleted

Penalty under s.271(1)(c) based on unexplained cash credits treated as income under s.68 was in issue. The HC held that the Explanation to s.271(1)(c) ... Levy of penalty u/s 271(1)(c) - invoking the provisions of section 68 - nature and source of such credits is not found to be satisfactory - preponderance of probabilities - HELD THAT:- The Explanation provides that, in case there is a difference, as statutorily provided, between the total income returned by any person and assessed, such person shall have to prove that the failure to return the correct income was not due to any fraud or any gross or wilful neglect on his part. In the absence of such burden being discharged by the person concerned, it will be deemed that particulars of income have been concealed or inaccurate particulars of income have been furnished for the purposes of section 271(1)(c) of the Act. The nature of the Explanation has already been dealt with by the courts and the settled legal position is that it raises a rebuttable presumption and the burden which is cast on an assessee is akin to a civil burden which may be discharged on a preponderance of probabilities. It can be stated that on the basis of the assessee agreeing to have the credit entries in its books of account treated as its income, by virtue of the provisions of section 68 of the Act, the said sums shall be deemed to be income of the year under consideration. However, de hors the said provision, it is not possible to state with certainty that the said sums would be 'concealed income' of the assessee for the year under consideration. The Tribunal has found, as a matter of fact, that 'it was further necessary for the Department to prove that the amount in question was the assessee's income of the year under consideration. In that regard there is no material to prove the said fact.' Thereafter, the Tribunal has tested the levy of penalty by applying the provisions of the Explanation and recorded a finding of fact to the effect that there is no past history of the assessee to show that the assessee had been earning business income outside the books, nor is there in the books relating to the year under consideration any instance pointed out indicating any transaction outside the books. It is not possible for this court to take any other view of the matter in the light of the settled legal position, We, therefore, hold that the Tribunal was justified in law, on the facts and in the circumstances of the case, in holding that the penalty imposed by the Inspecting Assistant Commissioner under section 271(1)(c) of the Act could not be sustained. Issues involved: The judgment addresses the issue of whether the penalty imposed by the Inspecting Assistant Commissioner under section 271(1)(c) of the Income-tax Act was justified in law for the assessment year 1971-72.Summary:The High Court of Gujarat considered the appeal challenging the penalty imposed under section 271(1)(c) of the Income-tax Act. The Tribunal had earlier held that the penalty could not be sustained. The court analyzed the provisions of section 68 of the Act, emphasizing the burden on the assessee to explain credits in their books satisfactorily. It referred to a Supreme Court decision regarding the discretionary nature of such provisions. The court also discussed the Explanation under section 271(1)(c) which deals with concealing income or furnishing inaccurate particulars. It highlighted that the burden on the assessee is akin to a civil burden and may be discharged on a preponderance of probabilities.The court examined the facts of the case where certain sums were credited in the assessee's books, leading to an addition to their total income. The court noted that the assessee had conceded to treating these entries as income for assessment purposes. However, it emphasized that this does not automatically make the sums concealed income. Referring to a previous case, the court reiterated that the burden of proof lies with the Revenue to establish the nature of the income. The court found that there was no material to prove that the amounts in question were the assessee's income for the relevant year.Based on the findings and legal principles, the court held that the Tribunal was justified in concluding that the penalty imposed by the Inspecting Assistant Commissioner could not be sustained. The court answered the referred question in favor of the assessee and against the Revenue, disposing of the reference accordingly.