1995 (11) TMI 37 - HC - Income Tax

Section 271(1)(c) penalty quashed as assessee rebutted statutory presumption; no independent finding of concealment or wilful neglect

HC held that penalty under section 271(1)(c) was not justified and the Tribunal correctly allowed the appeal. On the facts, variations between book ... Penalty proceedings under section 271(1)(c) - burden to prove - concealed the particulars of income or furnished inaccurate particulars of such income - rejection of the books of account - Whether the finding of the Appellate Tribunal that though book result of the assessee was rejected, since there was no evidence to conclude a positive finding that there was concealment, penalty cannot be sustained under section 271(1)(c) of the Income-tax Act, 1961, is correct in law ? - HELD THAT:- The facts reflect that, while the assessee in its books of account disclosed the total sales to be Rs. 7,75,000, the Income-tax Officer on rejection of books of account estimated the sales to be Rs. 8,75,000 which on appeal before the Tribunal were substituted by Rs. 8,00,000. So also, while the gross profit disclosed by the books of account of the assessee was five per cent., the Income-tax Officer estimated the gross profit rate at 15 per cent. which again was reduced by the Tribunal to 12 per cent. In this circumstance, in the absence of any other material which might reflect on the conduct of the assessee about deliberate attempt to maintain false books of account, on a preponderance of probabilities, no other conclusion can be reached but that the failure to return the total assessed income was not on account of any fraud or gross or wilful neglect on the part of the assessee. In the present case, the assessee has raised this contention. The material available on record in that regard was before the Revenue authorities and the Tribunal accepted those contentions of the assessee about invalidity of the levy of penalty under section 271(1)(c) of the Act merely by resorting to its Explanation. In this circumstance, we are unable to sustain the contentions of learned counsel for the Revenue that merely because the finding recorded by the Tribunal is not happily worded, the order of the Tribunal must be held to be erroneous, particularly when the Tribunal has recorded succinctly the contentions raised by the assessee in this regard and allowed its appeal. At best, it can be said to be an opinion unhappily worded on this aspect of the matter. The burden which lay upon the assessee must be taken in the present case to be discharged so as to repel the applicability of the legal fiction in the Explanation. There being no other ground the Tribunal was right in holding that penalty of Rs. 92,894 imposed by the Inspecting Assistant Commissioner under section 271(1)(c) of the Act was not justified. Thus, we answer question No. 1 in the affirmative, that is, in favour of the assessee and against the Revenue. It is to be noticed that so long as the presumption raised in favour of the Revenue under the Explanation to section 271(1)(c) stands unrebutted and is operative the Revenue need not lead any evidence to reach a positive finding that there was concealment of income of the previous year by the assessee but so soon as the presumption raised under the Explanation stands rebutted, the Revenue authorities must record a positive finding independent of presumption about concealment of income of the previous year which the assessee has concealed or particulars of which have been inaccurately furnished by him. As in the present case the assessee's burden to rebut the presumption raised by the Revenue stands discharged on the basis of the material available on record, the Tribunal was right to hold that penalty need not be sustained under section 271(1)(c) of the Act in the absence of any evidence to conclude a positive finding that there was concealment of the income. We accordingly, answer question No. 2 also in favour of the assessee and against the Revenue. Issues Involved:1. Justification of the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961.2. Correctness of the Tribunal's finding regarding the absence of evidence for concealment of income.Detailed Analysis:Issue 1: Justification of the Penalty Imposed under Section 271(1)(c)The first issue revolves around whether the Appellate Tribunal was right in law in holding that the penalty of Rs. 92,894 imposed by the Inspecting Assistant Commissioner under section 271(1)(c) could not be justified. The facts of the case reveal that the Income-tax Officer rejected the books of account maintained by the assessee, as it was deemed impossible to arrive at a correct result of the business. Consequently, the income was assessed by estimating the gross profit at 15% on estimated sales of Rs. 8,75,000, leading to additions of Rs. 93,000. This was modified by the Tribunal, which reduced the gross profit rate to 12% and estimated sales to Rs. 8,00,000, thus reducing the additions to Rs. 57,644.During the assessment proceedings, penalty proceedings under section 271(1)(c) were initiated. The assessee argued that there was no gross or willful neglect in submitting the return of income. However, the Inspecting Assistant Commissioner imposed a penalty of Rs. 92,894, relying on the Explanation to section 271(1)(c), which allowed the Assessing Officer to presume concealment if the returned income was less than 80% of the assessed income.The Tribunal, however, deleted the penalty, stating that the Revenue must show evidence of concealment before imposing a penalty. The court agreed with the Tribunal, noting that the burden on the assessee is akin to that in civil litigation, dependent on the preponderance of probabilities. The court emphasized that the presumption raised in favor of the Revenue can be rebutted if it can be shown that the failure to return the total assessed income did not arise from fraud or gross or willful neglect. The court cited the case of CIT v. S. P. Bhatt [1974] 97 ITR 440, reinforcing that the legal fiction can be displaced if the assessee proves the absence of fraud or gross or willful neglect.The court concluded that the facts of the present case, involving a best judgment assessment based on estimated figures, did not indicate any deliberate attempt by the assessee to maintain false books. Thus, the failure to return the total assessed income was not due to fraud or gross or willful neglect. The Tribunal's decision to delete the penalty was upheld, and question No. 1 was answered in the affirmative, in favor of the assessee and against the Revenue.Issue 2: Correctness of the Tribunal's Finding Regarding the Absence of Evidence for Concealment of IncomeThe second issue concerns whether the Tribunal was correct in law in finding that, despite the rejection of the assessee's book results, there was no evidence to conclude a positive finding of concealment, thus invalidating the penalty under section 271(1)(c).The court noted that the presumption under the Explanation to section 271(1)(c) is rebuttable and operates in favor of the Revenue unless rebutted by the assessee. Once rebutted, the Revenue must provide independent evidence of concealment. In this case, the Tribunal found that the assessee had successfully rebutted the presumption, and there was no evidence of deliberate concealment of income. The court agreed, emphasizing that the assessment was based on estimated figures and there was no material indicating deliberate falsification by the assessee.The court reiterated the principle from S. P. Bhatt [1974] 97 ITR 440, stating that in cases of estimated assessments, it is difficult to attribute failure to return the assessed income to fraud or gross or willful neglect. The Tribunal's finding was thus upheld, and question No. 2 was answered in favor of the assessee and against the Revenue.ConclusionThe court concluded that the penalty imposed under section 271(1)(c) was not justified, as the assessee successfully rebutted the presumption of concealment. The Tribunal's findings were upheld, and both questions were answered in favor of the assessee. There was no order as to costs.