COMMISSIONER OF INCOME TAX Vs. IMPERIAL AUTOMOBILES

JUDGEMENT

(1.) THIS reference concerns the correctness of a decision by the Income-tax Appellate Tribunal cancelling a penalty levied in this case under s. 271(1)(c) of the I.T. Act, 1961. The question of law we are asked to consider is in the following terms :

(2.) THE assessee is a firm of three partners. THE firm carries on business in automatic spare parts. THE firm filed a return for the assessment year 1968-69 disclosing an income of Rs. 26,740. In the course of the examination of the firm's books of account the ITO found that there were credit entries on various dated amounting in all to Rs. 8,000 in the name of one Sundari Bai. She is the wife of a partner in the assessee-firm. THE account in her name not only showed the credits as borrowings of the firm, but also carried an entry crediting interest to her in the sum of Rs. 1,200. When the assessee was questioned about the nature and source of these credits entries, it was represented by the assessee that they were moneys advanced by that lady to the assessee-firm. THE ITO required proof for the genuineness of the credit entries. THE assessee filed with the officer an affidavit sworn to by Sundari Bai. Subsequently, the officer issued summons to that lady for appearing before him to be cross-examined on the contents of her affidavit. THE summons, however, was returned unserved by the postal authorities. No being able to examine Sundari Bai, the ITO apparently thought he must reject her affidavit. Having done so, the officer added the sum of Rs. 9,200 representing the credits in Sundari Bai's account as the assessee-firm's taxable income. THE assessee, for some reason or other, did not appeal against the assessment made in this manner.

(3.) MR. Rangaswami then argued that the rule in Anwar Ali [1970] 76 ITR 796 (SC), cannot be applied after the introduction, in s. 271(1)(c) of the Act, of the Explanation by the Finance Act, 1964. We do not think so. The Explanation has not the effect of altering the substantive law on the subject of penalty for concealment. It only introduced a special rule of evidence applicable to cases coming within a particular penalty bracket. The rule of evidence laid down by the Explanation might be regarded as an inversion of the initial burden of proof from the Department to the assessee under the rebuttable presumption. According to the Explanation in cases where an assessee's returned income is less than 80 per cent. of the income as ultimately assessed, he will be presumed to have concealed particulars of his income unless he establishes that the hiatus between his return and his assessment was not due to fraud or wilful neglect in the filing of the return. It is clear that this inverted burden of proof does not apply to cases where the gap between the returned income and the assessed income of less than 20 per cent. It is further clear that even in cases where the Explanation initially applies because the returned income is less than 80 per cent. of the assessed income, if the assessee established that this gap is not due to any fraud or wilful neglect on his part he would have established the initial burden laid on him by the Explanation and rebutted the presumption of concealment, and then the ball would be in the Department's court, as it were, and the onus would be on the Revenue to establish by cogent material that the assessee had concealed his income. Thus, Anwar Ali's case would govern the penalty proceedings even in such a case where the Explanation might be invoked. To start with, we do not, therefore, accept MR. Rangaswami's thesis that Anwar Ali has become out of date after the Explanation introduced by the Finance Act, 1964. We may refer to a recent Bench decision of this court in Addl. CIT v. V. Kanakammal [1979] 118 ITR 94, which has applied the law on the same lines as we have adopted in this case.