High Court reverses Tribunal's penalty cancellation decision under Income-tax Act, emphasizes burden of proof on assessee.

The High Court of Calcutta reversed the Tribunal's decision to cancel a penalty order under section 271(1)(c) of the Income-tax Act, 1961. The Court held that the burden of proof lies on the assessee to demonstrate the absence of fraud or wilful neglect. It emphasized that a confirmatory letter alone is insufficient to establish creditworthiness and that mere failure to return correct income does not automatically imply concealment. The case was remanded to the Tribunal for a fresh decision, allowing both parties an opportunity to present their case.

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Issues involved: Interpretation of Explanation to section 271(1)(c) of the Income-tax Act, 1961 regarding concealment of income and furnishing inaccurate particulars.

Summary:
The High Court of Calcutta considered a reference under section 256(1) of the Income-tax Act, 1961, regarding the correctness of the Tribunal's decision to cancel a penalty order under section 271(1)(c). The case involved a cash credit of Rs. 50,000 claimed as a loan from Berlia Cloth Stores, which the Income Tax Officer (ITO) deemed as not genuine. The ITO added this amount as the assessee's income from undisclosed sources, leading to penalty proceedings.

The Tribunal accepted the departmental representative's argument based on the Explanation to section 271(1)(c) that the assessee's failure to return correct income implied concealment. However, the Tribunal, citing the case of Anwar Ali, emphasized the need to prove fraud or wilful neglect for penalty imposition. The Tribunal found the confirmatory letter from the creditor insufficient to establish creditworthiness, leading to the cancellation of the penalty.

The High Court disagreed with the Tribunal's interpretation of the Explanation, stating that the burden lies on the assessee to prove the absence of fraud or wilful neglect. The Court highlighted that the Tribunal erred in considering a confirmatory letter as conclusive evidence of creditworthiness. The matter was remanded to the Tribunal for a fresh decision on penalty imposition after allowing both parties a reasonable opportunity to present their case.

The judgment was delivered by S. C. Deb and Sudhindra Mohan Guha, with the latter concurring.

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