1973 (9) TMI 31 - HC - Income Tax

High Court clarifies penalty imposition under Income-tax Act, emphasizing date of satisfaction.

The High Court held that the Tribunal was not justified in canceling the penalty without applying the Explanation to section 271(1)(c) of the Income-tax ... Burden Of Proof, Change Of Law Issues Involved:1. Applicability of section 271(1)(c) read with the Explanation of the Income-tax Act, 1961, to penalty proceedings initiated after April 1, 1964.2. Justification of the Appellate Tribunal in cancelling the penalty imposed by the Inspecting Assistant Commissioner.Issue-wise Detailed Analysis:1. Applicability of Section 271(1)(c) Read with the Explanation:The primary question was whether section 271(1)(c) read with the Explanation, as amended from April 1, 1964, applies to penalty proceedings initiated on December 20, 1965, for the returns filed on August 23, 1965. The Tribunal had initially relied on the Supreme Court's decision in Commissioner of Income-tax v. Anwar Ali, which placed the burden of proving concealment on the department. However, the High Court clarified that the amended section 271(1)(c) with the Explanation was applicable because the penalty proceedings were initiated after the amendment came into force.The court emphasized that the date of the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner is crucial for the application of the relevant law. In this case, the satisfaction was reached on December 20, 1965, making the amended section 271(1)(c) with the Explanation applicable. The court referred to the Constitution Bench judgment in Jain Brothers v. Union of India, which established that the date of satisfaction for penalty imposition is the date of the completion of the assessment.The court also discussed the legislative changes, noting that the omission of the word 'deliberately' and the introduction of the Explanation aimed to address difficulties in proving concealment. The Explanation created a rebuttable presumption in favor of the revenue when the returned income was less than 80% of the assessed income, shifting the burden to the assessee to prove the absence of fraud or gross or willful neglect.2. Justification of the Appellate Tribunal in Cancelling the Penalty:The Tribunal had canceled the penalty based on the principles laid down in Anwar Ali's case, which was applicable under the old Act. The High Court found this approach erroneous because the amended section 271(1)(c) with the Explanation was applicable to the case. The Tribunal failed to consider the changes brought by the Explanation, which shifted the burden of proof to the assessee.The High Court noted that the penalty proceedings remain penal in nature even after the introduction of the Explanation. The quantum of proof required to discharge the onus by the assessee is by a preponderance of probabilities. The taxing authorities must consider all facts and circumstances to determine whether the assessee has discharged this onus.The court concluded that the Tribunal acted contrary to law by not applying the Explanation to the facts of the case. Therefore, the Tribunal was not justified in canceling the penalty without resorting to the Explanation.Conclusion:The High Court answered the question in the negative, stating that the Tribunal was not justified in law in canceling the penalty without applying the Explanation. The reference was allowed, but no order as to costs was made.Separate Judgment:S. K. Ray J. concurred with the judgment, agreeing with the analysis and conclusion.Final Decision:Question answered in the negative.