1981 (11) TMI 12 - HC - Income Tax

Court upholds Tribunal decision cancelling penalty under Income Tax Act for cash credit; Burden of proof on Department.

The High Court upheld the Income-tax Appellate Tribunal's decision to cancel the penalty imposed under section 271(1)(c) of the Income Tax Act for the ... Burden Of Proof, Penalty Issues involved: The correctness of a decision by the Income-tax Appellate Tribunal cancelling a penalty u/s 271(1)(c) of the I.T. Act, 1961 for the assessment year 1968-69.Summary:The assessee, a firm of three partners engaged in automobile spare parts business, disclosed an income of Rs. 26,740 for the assessment year 1968-69. The Income Tax Officer (ITO) found credit entries in the name of a partner's wife, Sundari Bai, totaling Rs. 8,000, with an additional interest credit of Rs. 1,200. The ITO, after rejecting Sundari Bai's affidavit as proof, added Rs. 9,200 to the firm's taxable income. Penalty proceedings u/s 271(1)(c) were initiated, and a penalty of Rs. 9,200 was levied by the Income-tax Appellate Tribunal. The Tribunal, however, cancelled the penalty, stating that the explanation provided by the assessee was supported by evidence and did not indicate concealment of income.The Department argued that the assessee's explanation was rightly rejected for both assessment and penalty purposes due to insufficient proof. The High Court held that while the assessing authority can treat a cash credit as taxable income if the explanation is unsatisfactory, this does not automatically warrant a penalty for concealment. The Court emphasized that the burden of proof lies with the Department to establish concealment, even if the assessee's explanation is rejected.Regarding the applicability of the Explanation to s. 271(1)(c), the Court clarified that it does not alter the substantive law on penalty for concealment but introduces a rule of evidence. The Court highlighted that the new Explanations introduced in 1975 do not apply to the present case, governed by the assessment year 1968-69. The Court upheld the Tribunal's decision, stating that there was no evidence of fraud or wilful neglect by the assessee in excluding the credits from the income return.The Court dismissed the argument that the partner's wife not being available for cross-examination was conclusive evidence of concealment, emphasizing the need for concrete evidence to establish the firm's income. The Court also noted that the firm's decision not to appeal the assessment does not indicate admission of the credits as income. Ultimately, the Court ruled in favor of the assessee, holding that the Explanation could not be relied upon to presume concealment, and awarded costs to the assessee.