1974 (8) TMI 10

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....not be worked out separately. 2. He, accordingly, rejected the book version of the assessee and as the gross profit shown in the books appeared to be on the lower side, estimated the sales of books and paper effected by the assessee at Rs. 6,90,000 and Rs. 35,000, respectively. He applied a gross profit rate of 18% in respect of the sale of books and 7 1/2 per cent. in respect of sale of paper and calculated that the gross profit earned by the assessee in two counts was Rs. 1,24,200 and Rs. 2,625, respectively (total Rs. 1,26,625). Accordingly, he added a sum of Rs. 23,079 as extra profits to the net profit of Rs. 54,623 disclosed by the assessee. He also added back a sum of Rs. 2,566 on account of certain expenses claimed and disallowed and assessed the total taxable income of the assessee at Rs. 80,263. As the assessee's returned income was less than 80% of its assessed income, the Income-tax Officer issued a notice under section 274/271(1)(c) of the Income-tax Act, and as the minimum amount of penalty imposable was to exceed Rs. 1,000 he referred the matter to the Inspecting Assistant Commissioner of Income-tax, Meerut. However, subsequently, in appeal the gross profit on....

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....to verification, the revenue authorities have determined the profit by making their own estimates of the turnover and the rate of profit. But the mere fact that the book version had not been accepted would not lead to any finding to the effect that there was any fraud or gross or wilful neglect on the part of the assessee. Since no good ground has been made out for holding that there was any fraud, gross or wilful neglect on the part of the assessee, the mere fact that the income returned is less than eighty per cent. of the income as finally assessed would not justify for the findings that there was concealment of income." and observed that " in the instant case the assessee had returned its income on the basis of the accounts maintained by it. The Income-tax Officer did not record any finding that the assessee had suppressed its sales or purchases. Mere rejection of accounts and estimation of income at a higher figure by itself could not mean that there was either fraud or gross or wilful neglect on the part of the assessee in returning its aggregate income. In cases where accounts had been maintained and the income returned was based on such accounts, the assessee would be consi....

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....and material appearing on the record for which such a charge can be made out ; but if the case is of the type enumerated in the Explanation it will be deemed that the assessee has concealed or furnished inaccurate particulars of his income unless he proves that failure to return the aggregate income did not arise from any fraud or gross or wilful neglect on his part. The order passed by the Inspecting Assistant Commissioner clearly indicates that he proceeded to impose the penalty as in his opinion the income of Rs. 54,623 returned by the assessee was less than 80% of Rs. 80,263, the total income assessed, and that the circumstances of the case clearly indicate that the assessee had been delinquent in maintaining his books in a manner so as not to reflect the correct quantum of his income and was thus guilty of gross and wilful neglect in the maintenance of accounts and the Explanation to section 271(1)(c) was clearly attracted. A plain reading of section 271(1)(c) read along with the Explanation thereto shows that the presumption stated therein, viz., that the assessee will be deemed to have concealed the particulars of his income, can arise only when the returned income falls sho....

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....ee's books it would not be possible to apply the provisions of the Explanation to section 271(1)(c), unless the department is able to bring material on the record from which an inference that the assessee was guilty of fraud or gross or wilful neglect could be drawn. This would mean that prima facie the burden is on the department to show that the assessee was guilty of fraud or wilful neglect. 10. In our opinion, the Tribunal has misconceived the real position. The Explanation very clearly covers a case where best judgment assessment is made under section 144 of the Income-tax Act and it is found that the income returned by the assessee falls short of 80% of the income so assessed as reduced by bona fide expenditure incurred by the assessee for the purpose of earning any income included in the assessee's total income. The Explanation clearly provides that in such a case unless the assessee proves that failure to return the aggregate income did not arise from any fraud or gross or wilful neglect on his part it will be deemed that he has concealed the particulars of his income. The burden of showing that failure to return the aggregate income correctly did not arise from ....