TaxTMI 
TaxTMI 
1973 (3) TMI 39
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....h the books of account were maintained by the assessee according to the mercantile method of accounting, it was not possible to accept the figure of profit appearing from the books of account because, in the first place, no quantitative stock account was maintained by the assessee, secondly, a majority of the sales were not supported by vouchers and, thirdly, the gross profit disclosed by the books of account was low. The Income-tax Officer accordingly proceeded to make best judgment assessment under section 145(2) by estimating the total sales and applying a rate of 7 1/2 per cent. to the sales to doctors and a rate of 12 1/2 per cent. to the other sales for the purpose of arriving at the gross profit in each assessment year. The result was that for the assessment year 1964-65 a sum of Rs. 20,420 was added to the returned income of Rs. 14,738 making a total assessed income of Rs. 35,158 and similarly for the assessment year 1965-66, the returned income of Rs. 19,434 was augmented to Rs. 38,416, by the addition of a sum of Rs. 18,982. Since the income returned was less than eighty per cent. of the total income assessed in each assessment year, the Income-tax Officer was of the view....
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....with the Explanation and to construe its meaning and effect. Section 271(1)(c) provides and here we are setting out the section as it stood during the relevant assessment years prior to its amendment by Finance Act, 1968: "271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person ..... has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,---... in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income." Then there is the Explanation to section 271(1)(c), which reads as follows : "Explanation.-Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (redu....
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....ind is that when we are construing the true meaning and effect of the Explanation, we must not forget that it is the Explanation which adds to the rigour of a highly penal provision and we must not, therefore, be over anxious to enlarge the scope and ambit of the Explanation by making an effort to bring every possible case within it, but we should instead construe the Explanation and apply it in a fair and reasonable way with a view to achieving the purposes of the main provision, namely, that an assessee who has concealed the particulars of his income or furnished inaccurate particulars of such income should not escape penalty. The Explanation creates a legal fiction if the condition of its applicability is satisfied. The condition is an objective condition, namely, that the total income returned by the assessee should be less than eighty per cent. of the total income assessed subject to to a certain reduction which is not material for our purpose. What the condition contemplates is merely a matter of arithmetical calculation. The income-tax authority is required to take the total income returned by the assessee and the total income as assessed by the revenue authorities and if th....
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.... is, whether on the material on record in the penalty proceedings, can it be said on a preponderance of probabilities that the failure to return the total assessed income has not arisen on account of any fraud or any gross or wilful neglect on the part of the assessee. If the answer to the question is in the affirmative, the legal fiction enacted in the Explanation cannot arise and the revenue must fail in its attempt to impose penalty on the assessee. If the material on record in the penalty proceedings fairly and reasonably leads to the inference that there was no fraud or gross or wilful neglect on the part of the assessee in not returning the total assessed income, it would almost be impossible for the revenue to contend that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income so as to attract the applicability of section 271(1)(c) on its own terms independently, of the Explanation. But that is not a matter on which we wish to express any final opinion because, in the present case, the attempt to levy penalty on the assessee is founded only on the Explanation and it is the applicability of the Explanation alone which requi....
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....ibunal meant was that there was no fraud or gross or wilful neglect on the part of the assessee. We are, therefore, of the view that the charge made by the revenue against the Tribunal that it misconceived the correct position in regard to burden of proof cannot be sustained. We must, however, observe that it would have been better if the Tribunal had phrased its order properly so as to leave no scope for doubt that what it was holding was that the assessee had discharged the burden of showing that there was no fraud or gross or wilful neglect on its part in failing to return the total income assessed. The wording of the order, as it stands, does give rise to scope for misunderstanding. We hope and trust that the Tribunal will in future use language which is plain and unambiguous and disclose clearly that what it is considering is the question whether the assessee has discharged the burden of proof which lies upon him. So far as the facts of the present case are concerned, there is no doubt that the finding reached by the Tribunal that there was no fraud or gross or wilful neglect on the part of the assessee is correct in law. Here it is significant to note that the difference b....
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....asis as in the past year. This, according to the revenue, constituted gross or wilful neglect on the part of the assessee and it was on account of such gross or wilful neglect that the assessee failed to return the total income assessed and the case, therefore, fell fairly and squarely within the language of the Explanation. This argument, plausible though it may seem, is, in our opinion, wholly fallacious. It proceeds on the assumption that if accounts had been properly maintained by the assessee, they would have disclosed the total income as assessed and in that event there would have been no failure on the part of the assessee to return the total assessed income. This assumption is not well-founded. It is clear law that neglect postulates breach of duty to take care and there is clearly no duty on the assessee to maintain books of account, he runs the risk of best judgment assessment and in a best judgment assessment, it is quite possible that the total income assessed by the Income-tax Officer may be more than the income earned by the assessee. But, apart from this risk of enhanced assessment which the assessee runs, there is nothing in the law of income-tax which says that boo....