1979 (6) TMI 21 - HC - Income Tax

High Court affirms cancellation of penalty under Income-tax Act due to lack of proof

The High Court upheld the Tribunal's decision to cancel the penalty of Rs. 6,750 imposed under section 271(1)(c) of the Income-tax Act, 1961. The Court ... Burden Of Proof, Cash Credits, Income Tax Act, Levy Of Penalty Issues Involved:1. Whether the Tribunal was correct in cancelling the penalty of Rs. 6,750 imposed under section 271(1)(c) of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Tribunal's Cancellation of Penalty:The main issue addressed in this judgment is whether the Tribunal was correct in cancelling the penalty of Rs. 6,750 imposed under section 271(1)(c) of the Income-tax Act, 1961. The relevant facts are that the assessee, a Hindu Undivided Family (HUF), filed a return showing an income of Rs. 5,560 for the assessment year 1963-64. However, the Income Tax Officer (ITO) computed the total income at Rs. 48,598, adding various cash credits and amounts for inadequate household expenses. Consequently, penalty proceedings were initiated under section 271(1)(c) and a penalty of Rs. 6,750 was imposed by the Inspecting Assistant Commissioner (IAC).2. Tribunal's Findings and Legal Propositions:The Tribunal, upon appeal, reduced the assessee's income to Rs. 21,584 and accepted some of the explanations provided by the assessee, deleting certain amounts from the taxable income. Regarding the penalty, the Tribunal accepted the assessee's submission that the penalty was not justified merely because the explanation was disbelieved. The Tribunal laid down two legal propositions:- The onus is on the department to establish that the income was consciously concealed.- Apart from the falsity of the explanation, the department must have cogent material evidence to infer that the assessee consciously concealed particulars of income or furnished inaccurate particulars.3. Revenue's Contention:The revenue argued that the Tribunal erred in law by placing the onus of proof squarely on the revenue authorities. According to the revenue, the initial onus was on the assessee, especially in view of the Explanation inserted in 1964 and the deletion of the word 'deliberate' from the original Act.4. Tribunal's Awareness of the Explanation:The Tribunal was aware of the Explanation inserted in 1964 in section 271(1)(c) and applied the correct legal principles to the facts of the case. The Tribunal noted that the non-acceptance of the assessee's explanation by the IAC was based on contradictions rather than the improbability of the explanation being true.5. Analysis of Specific Cash Credits:The judgment detailed the analysis of specific cash credits:- Rs. 4,081 in the name of the karta's son: The IAC noted contradictions in the explanation.- Rs. 10,500 in the name of the karta's brother: The IAC found the story too naive to believe.- Rs. 900 in the name of an employee: The IAC doubted the employee's ability to save and deposit the amount.6. Legal Principles on Onus and Proof:The judgment elaborated on the legal principles regarding the onus of proof in penalty proceedings. Before the insertion of the Explanation, the onus was wholly on the department, as established by the Supreme Court in CIT v. Anwar Ali. After the insertion of the Explanation, the assessee must prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect. The onus then shifts back to the revenue to prove fraud or gross or wilful neglect with cogent material evidence.7. Tribunal's Application of Legal Principles:The Tribunal applied these principles correctly, finding that the assessee had discharged the onus by providing probable explanations. The revenue failed to provide any positive evidence of active concealment or fraud. The Tribunal's decision to cancel the penalty was justified as the assessee's explanations were not found to be palpably false or deliberately misleading.8. Supporting Case Law:The judgment referenced several cases supporting the Tribunal's approach, including CIT v. Patna Timber Works, Addl. CIT v. Karnail Singh V. Kaleran, CIT v. Narang & Co., and Addl. CIT v. Chatur Singh Taragi. These cases established that the onus to prove fraud or gross or wilful neglect lies with the revenue once the assessee provides a plausible explanation.Conclusion:The High Court concluded that the Tribunal was correct in cancelling the penalty of Rs. 6,750. The Tribunal had correctly applied the legal principles and the provisions of the Explanation to section 271(1)(c). The revenue's contention that the Tribunal erred in law was not justified. The question referred to the court was answered in the affirmative, in favor of the assessee and against the department.