Penalty presumption under Income-tax law arises when returned income falls below the statutory threshold unless the assessee rebuts it satisfactorily.

Where returned income is less than eighty per cent of assessed income, Explanation 1 to section 271(1)(c) raises a presumption of concealment and shifts the burden to the assessee to rebut it with a satisfactory explanation showing absence of fraud or gross or wilful neglect. The enquiry must focus on whether the explanation is acceptable and whether it displaces the statutory presumption. The Tribunal erred by treating the case as turning on proof of deliberate defiance of law alone and by not examining the explanation in the manner required by the Explanation, so the penalty issue required reconsideration.

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Issues: Whether, for penalty under section 271(1)(c) of the Income-tax Act, 1961, the presumption under Explanation 1 arises when the returned income is less than eighty per cent of the assessed income and the burden shifts to the assessee to rebut it by a satisfactory explanation.

Analysis: Explanation 1 applies where the returned income is below eighty per cent of the assessed income, in which event a presumption arises that the case falls within section 271(1)(c) unless the assessee establishes that the failure to return the correct income was not due to fraud or gross or wilful neglect. The enquiry must therefore focus on whether the assessee's explanation is acceptable and whether it rebuts the statutory presumption. The Tribunal had proceeded on the footing that deliberate defiance of law or contumacious conduct had not been proved and had not examined the explanation in the manner required by the Explanation.

Conclusion: The legal position under Explanation 1 to section 271(1)(c) was answered in favour of the Revenue, and the assessee bears the burden of rebutting the presumption once returned income is less than eighty per cent of assessed income.

Final Conclusion: The matter required reconsideration by the Tribunal on the assessee's explanation and the statutory presumption under Explanation 1, and the penalty issue was not finally decided.

Ratio Decidendi: When returned income is less than eighty per cent of assessed income, Explanation 1 to section 271(1)(c) raises a presumption of concealment, and the assessee must rebut it by proving absence of fraud or gross or wilful neglect.

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