1982 (8) TMI 16 - HC - Income Tax

Tribunal Erred in Cancelling Penalty under Income Tax Act

The court held that the Tribunal erred in canceling the penalty imposed under Section 271(1)(c) of the Income Tax Act. The Explanation to Section ... Penalty Issues Involved:1. Whether the Tribunal was legally justified in cancelling the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.2. The applicability of the Explanation to Section 271(1)(c) in the context of additions made on the basis of estimates and unexplained credits.3. The burden of proof on the assessee under the Explanation to Section 271(1)(c) and the Tribunal's approach to this burden.Issue-wise Detailed Analysis:1. Justification of Cancelling the Penalty:The primary issue was whether the Tribunal was legally justified in cancelling the penalty imposed on the assessee under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal had found that the addition of Rs. 50,000 was based on an estimate, involving an element of guesswork, and thus, gave the assessee the benefit of doubt. Additionally, the Tribunal held that the unexplained credits did not constitute a case of no evidence or false evidence, merely unsatisfactory evidence, and thus, the assessee's conduct did not warrant a penalty under the Explanation to Section 271(1)(c).2. Applicability of Explanation to Section 271(1)(c):The Revenue argued that the Tribunal's view was erroneous as it failed to apply the Explanation to Section 271(1)(c), which mandates a presumption of concealment if the returned income is less than 80% of the assessed income. The Tribunal did not consider this presumption and wrongly concluded that the penalty could not be levied merely because the addition was based on an estimate. The court noted that the Explanation creates a rebuttable presumption that the assessee concealed income, which the assessee can rebut by proving the absence of fraud or gross or wilful neglect. The Tribunal's failure to apply this presumption was a legal error.3. Burden of Proof on the Assessee:The court emphasized that the burden of proof under the Explanation to Section 271(1)(c) is on the assessee to show that the failure to return the correct income was not due to fraud or gross or wilful neglect. The Tribunal's approach of giving the benefit of doubt due to the element of guesswork in the estimate was incorrect. The court clarified that even in cases of best judgment assessments, the Explanation applies, and the penalty is leviable unless the assessee discharges the onus of proving the absence of fraud or gross or wilful neglect. The Tribunal's finding that the unexplained credits did not constitute a case of no evidence was also incorrect as there were credits for which no explanation was offered by the assessee.Conclusion:The court concluded that the Tribunal erred in cancelling the penalty. The Explanation to Section 271(1)(c) was applicable, and the Tribunal's approach of giving the benefit of doubt was legally incorrect. The assessee failed to discharge the onus of proving that the failure to return the correct income was not due to fraud or gross or wilful neglect. Therefore, the question was answered in the negative, in favor of the Commissioner, and against the assessee. The Commissioner was entitled to costs assessed at Rs. 250.