1978 (7) TMI 90 - HC - Income Tax

Burden of Proof Shift in Tax Penalty Cases: Assessee Must Show No Fraud

The High Court held that the burden of proof in penalty proceedings under section 271(1)(c) of the Income Tax Act shifted to the assessee post the 1964 ... Burden Of Proof, Income From Undisclosed Sources, Law Applicable To Assessment, Proof On Revenue, Unexplained Cash Credits Issues:Whether the penalty under section 271(1)(c) of the Income Tax Act, 1961 was exigible.Analysis:The case involved the assessment year 1964-65 where the assessee declared a total income of Rs. 3,700 but deposits totaling Rs. 9,400 were found in the account books without proper explanation or evidence. The Income Tax Officer (ITO) treated these deposits as income from undisclosed sources and assessed the total income at Rs. 15,000 under section 144 of the Income Tax Act, 1961. The assessee's appeals before the Appellate Authority and Tribunal were unsuccessful, leading to penalty proceedings initiated by the Income Tax Department. The Income Tax Appellate Tribunal quashed the penalty order, stating that the revenue must prove the charge of concealment or furnishing inaccurate particulars, citing the Supreme Court decision in Anwar Ali's case [1970] 76 ITR 696.The High Court discussed the burden of proof in penalty proceedings post the 1964 amendment to the Income Tax Act. The Explanation added in 1964 shifts the burden to the assessee to prove that the failure to return the correct income was not due to fraud or gross negligence. The court emphasized that the burden of proof that the concealed items constituted assessable income is no longer on the department if the returned income is less than 80% of the assessed income. In the present case, the Tribunal erred in placing the burden of proof on the revenue and not considering whether the assessee proved the failure to return correct income was not due to fraud or wilful neglect.The court held that the Tribunal's reliance on Anwar Ali's case was misplaced as the Explanation was not present in the statute at that time. The Tribunal should have assessed whether the assessee established that the failure to return the correct income was not due to fraud or wilful neglect. Consequently, the court answered the question in favor of the department, emphasizing the need for the assessee to prove the absence of fraud or wilful neglect. Since no one appeared on behalf of the assessee, no costs were awarded in the case.