1987 (1) TMI 1 - SC - Income Tax

Supreme Court affirms assessee rebutted presumption under Section 271(1)(c)

Commissioner of Income-Tax Versus Mussadilal Ram Bharose

The Supreme Court upheld the decisions of the Tribunal and High Court, affirming that the assessee had rebutted the presumption under the Explanation to ... If the returned income is less than assessed income, the presumption is raised against the assessee that the assessee is guilty of fraud as a result of which he has concealed the income but this presumption can be rebutted. The rebuttal must be on materials relevant - It is for the fact-finding body to judge the relevancy of the materials - If such a fact-finding body, comes to the conclusion that the assessee has discharged the onus; it becomes a conclusion of fact. No question of law arises. Issues Involved:1. Rejection of account books and estimation of income.2. Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961.3. Applicability of the Explanation to Section 271(1)(c).4. Tribunal's decision to cancel the penalty.5. High Court's refusal to refer the case under Section 256(2).Detailed Analysis:1. Rejection of Account Books and Estimation of Income:The Income-tax Officer (ITO) rejected the assessee's account books for the assessment year 1965-66 due to unverifiable sales and expenses and a low profit margin. The ITO estimated the sales at Rs. 7,60,000 and applied an 8% net profit rate, computing the total income at Rs. 60,936. The Appellate Assistant Commissioner confirmed this order. The Tribunal later revised the estimated sales and profit rates, determining the income at Rs. 50,750.2. Imposition of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:The ITO issued a notice under Section 274 read with Section 271 for default under Section 271(1)(c). The Inspecting Assistant Commissioner (IAC) imposed a penalty of Rs. 8,300, citing gross negligence by the assessee in maintaining defective account books, leading to unverifiable sales and expenses.3. Applicability of the Explanation to Section 271(1)(c):The Explanation to Section 271(1)(c) shifts the onus to the assessee to prove that the failure to return the correct income did not arise from fraud or gross or willful neglect. The Tribunal found that the assessee maintained account books in the regular course of business and that the difference in income arose mainly from estimates. Thus, the Tribunal concluded that the assessee was not grossly or willfully negligent.4. Tribunal's Decision to Cancel the Penalty:The Tribunal, after reviewing similar cases, held that the assessee had honestly believed that the account books were sufficient for profit ascertainment. The Tribunal found no gross or willful negligence, thus canceling the penalty imposed by the IAC. The Tribunal rejected the application for reference under Section 256(1), stating no question of law arose.5. High Court's Refusal to Refer the Case under Section 256(2):The Revenue sought a reference to the High Court under Section 256(2). The High Court dismissed the application, agreeing with the Tribunal's finding that the assessee acted honestly despite the defective account books. The High Court opined that this was a finding of fact, not a question of law.Conclusion:The Supreme Court upheld the Tribunal and High Court's decisions, emphasizing that the presumption under the Explanation to Section 271(1)(c) is rebuttable. The fact-finding bodies concluded that the assessee had discharged the onus of proving no fraud or gross neglect. The appeal was dismissed with costs, affirming that no question of law arose from the Tribunal's findings.