Addl. Commissioner of Income Tax vs South Gobindpur Colliery Co.

S.P. Sinha, J.—Under the direction of this court the Income Tax Appellate Tribunal, Patna Bench, Patna, has stated a case u/s 256(2) of the I.T. Act, 1961 (hereinafter to be referred to as "the Act"), on the under-mentioned question of law :

"Whether, on the facts and in the circumstances of the case, the order of the Tribunal deleting the penalty imposed upon the assessee was in accordance with law as engrafted in Section 271(1)(c) of the Income Tax Act, 1961, and the Explanation appended thereto."

The above direction of the High Court was in respect of two assessment years, namely, assessment years 1965-66 and 1966-67. Since the facts and circumstances, as also the question of law arising in these two assessment years are the same, this judgment will govern both the cases.

The relevant facts are that the assessee is a partnership firm deriving income from coal mining business. For the assessment year 1965-66, the income returned was Rs. 56,504, which has been finally assessed by the AAC at Rs. 1,31,210. Similarly, the income returned for the assessment year 1966-67, was Rs. 42,250 which was assessed by the ITO at Rs. 66,350. It appears that the income as assessed has not been appealed against.

The proceedings for levy of penalty in terms of Section 271(1)(c) of the Act were initiated in respect of both the assessment years. The IAC got seisin over the penalty matters, penalty to be imposed being above Rs. 1,000. The assessee was heard by him but the explanation offered by the assessee regarding the alleged concealment of income and the particulars thereof were not accepted. Consequently, a penalty at the rate of 20 per cent. of the tax sought to be evaded was levied for each of the assessment years. For the assessment year 1965-66, such amount of penalty worked out to Rs. 8,220 and for the assessment year 1966-67, it worked out to Rs. 2,580. The IAC in imposing penalty u/s 271(1)(c) of the Act applied the Expln. to Section 271(1)(c) of the Act to the assessee''s case for the respective assessment years. On appeal preferred against the penalties levied, the Income Tax Appellate Tribunal cancelled the order of penalty on the ground that the additions made to the assessee''s returned income "were made just on estimate, no positive evidence was brought on record to justify that these additions were actually in fact earned and/or were not incurred for the purpose of the business and thereby either the assessee concealed the income or disclosed inaccurate particulars thereof". In other words, according to the Tribunal, even though the penalties had been imposed by reference to the Expln. to Section 271(1)(c) it was for the department to prove by cogent evidence that the disparity between the income returned and the income assessed was due to wilful neglect or fraud on the part of the assessee.

It is on these facts that the aforesaid question of law has arisen in both the assessment years.

Mr. Rajgarhia appearing for the Income Tax department has urged that the Tribunal went wrong in putting the onus of proof, even when the Expln. u/s 271(1)(c) of the Act was attracted to the case, upon the department. In support of his contention, besides relying on a decision of the Orissa High Court in the case of Commissioner of Income Tax Vs. K.C. Behera and Others, , has referred to a recent decision of this court in the case of Commissioner of Income Tax Vs. Parmanand Advani, .

Having gone through the said two decisions it cannot but be said that the contention raised on behalf of the department is valid and must prevail. This court in its aforesaid decision has clearly observed that when the Expln, to Section 271(1)(c) of the Act is attracted to a case, the onus lies primarily upon the assessee to prove that the disparity between the income returned and the income assessed, the former being less than 80 per cent. of the latter, did not arise from any fraud or any gross or wilful neglect on his part. It is not for the department in such a case to prove that the disparity was in fact occasioned by any fraud or any gross or wilful neglect on the part of the assessee. Such being the position in law the question must be answered in favour of the department, that is to say, that the order of the Tribunal deleting penalty imposed upon the assessee in terms of Section 271(1)(c) of the Act was not in accordance with law.

Since, however, the Tribunal has not dealt with the merits of the assessee''s appeals against the levy of penalty it may now do so. In the circumstances, there will be no order as to costs.

Vishwanath Mishra, J.

I agree.