1986 (1) TMI 65 - HC - Income Tax

Tribunal cancels penalty, High Court emphasizes burden of proof shift & legal presumptions

The Tribunal cancelled the penalty imposed by the Inspecting Assistant Commissioner under section 271(1)(c) of the Income-tax Act, 1961, citing lack of ... Burden Of Proof, Penalty Issues:1. Assessment of penalty under section 271(1)(c) of the Income-tax Act, 1961.2. Validity of penalty cancellation by the Tribunal.3. Applicability of law post-amendment in 1964.4. Interpretation of the Explanation added to section 271(1)(c) of the Act.5. Burden of proof in penalty proceedings.Analysis:1. The case involved the assessment of a penalty under section 271(1)(c) of the Income-tax Act, 1961, on an assessee who had declared an income of Rs. 8,350 after a search at his residence revealed a significant amount of Indian currency notes. The Income-tax Officer treated the recovered amount as undisclosed income, leading to penalty proceedings.2. The Appellate Assistant Commissioner upheld the addition of Rs. 88,000 to the assessee's income, and both parties appealed to the Tribunal. The Tribunal sustained the addition but cancelled the penalty of Rs. 1,76,000 imposed by the Inspecting Assistant Commissioner, citing lack of evidence and reliance on previous decisions.3. The High Court highlighted the applicability of the law post-amendment in 1964, emphasizing the need to consider the amended provisions and the Explanation added to section 271(1)(c) of the Act. The court noted the shift in the burden of proof from the Department to the assessee after the Full Bench decision in Vishwakarma Industries' case.4. The court discussed the interpretation of the Explanation in section 271(1)(c), which creates legal presumptions against the assessee regarding assessed income, fraud, and neglect. These presumptions are rebuttable, and the burden of proof lies initially on the assessee, similar to the burden in civil proceedings.5. Regarding the burden of proof in penalty proceedings, the court emphasized the need for both parties to present evidence, with the Department having the opportunity to disprove the evidence produced by the assessee. The court directed the Tribunal to re-decide the appeal in light of the Full Bench judgment, allowing the parties to present their case accordingly.