JUDGMENT H.N. Seth, J.
1. The assessee, M/s. D. D. Lamba and Co., is a registered firm carrying on business as a building contractor under the MES. For each of the assessment years 1965-66, 1966-67 and 1968-69, the assessee returned an income of Rs. 37,630, Rs. 53,772 and Rs. 24,943, respectively. At the time of assessment the ITO, who examined the books of the assessee, found that the net receipts shown in assessee's books were supported by certificate of payments from the department concerned but no details in respect of cost of materials issued to the assessee by the department and the reduction made on account of security furnished by the assessee had been furnished. Accordingly, the ITO worked out the gross receipts by applying a formula of 20/13 to the receipts disclosed by the assessee. As in the opinion of the ITO the accounts had not been kept properly and the net profit disclosed by the assessee appeared to be low, he rejected the assessee's books of account and worked out its income by applying the net profit rate of 11 % on the gross receipts estimated for each of the three years. In the result, the ITO assessed the income of the assessee for each of the years 1965-66, 1966-67 and 1968-69 at Rs. 69,688, Rs. 1,63,471 and Rs. 33,418, respectively. The assessee filed appeals in respect of the years 1965-66 and 1966-67 and the Income-tax Appellate Tribunal, while upholding the rejection of the accounts of the assessee, reduced the gross receipts determined by the ITO to a certain extent and after applying the net rate of 10% for calculating the profit of the assessee, the Tribunal determined the income of the assessee for the assessment years 1965-66 and 1966-67 at Rs. 55,328 and Rs. 1,15,920, respectively. As the returned income for each of the assessment years fell short of 80% of the assessed income, the ITO was of opinion that penalty under the newly added Explanation to Section 271(l)(c) of the I.T. Act was attracted in these cases. However, as the minimum penalty imposable under that section exceeded Rs. 1,000/ in each of the three assessment years, the cases were referred by the ITO to the IAC under Section 274(2) of the Act. In reply to the notice issued by the IAC, the assessee submitted that the Explanation to Section 271(1)(c) inserted by the Finance Act of 1964 with effect from 1st June, 1964, was not applicable in its case and even if it was so applicable, the onus, after the introduction of that Explanation, was on the revenue to prove that there had been concealment on the part of the assessee. The IAC repelled the submission made on behalf of the assessee and eventually imposed a penalty of Rs. 5,000, Rs. 13,000, and Rs. 9,000, respectively, for each of the assessment years mentioned above. The assessee then took up the matter in appeal before the Income-tax Appellate Tribunal. The Tribunal made the following observations:
"We have carefully considered the submissions made by the parties and we are of the opinion that the contentions of the revenue are not well founded. It is true that the Explanation has created a legal fiction of deemed concealment in those cases where the returned income fell short of 80% of the assessed income, but in our opinion the assessee has discharged the negative burden by showing that the income returned was on the basis of books kept in the regular course of business and the difference between the assessed income and the returned income in excess of 20% is dueonly to the addition of extra profit in the trading account on the basis of estimate. In a very recent case of CIT v. Sankarsons and Co. [1972] 85 ITR 627, the Kerala High Court has held that penalty under the Explanation to section 271(1)(c) is not exigible when the difference between the returned income and the assessed income in excess of 20% is due to addition of extra profit in the trading account on the basis of estimate. Respectfully following the decision of the Kerala High Court in the case of Sankarsons and Co. [1972] 85 ITR 627 referred to above, we hold that penalty under the Explanation to section 271(1)(c) is not attracted in any of the three years under appeal. Penalties are cancelled."
and allowed the appeals filed by the assessee.
2. At the instance of the revenue this court called upon the Tribunal to state the cases and to refer the following questions for the various assessment years for its opinion.
Assessment year 1965-66:
(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in cancelling the penalty of Rs. 5,000 imposed upon the assessee under Section 271(1)(c) of the Income-tax Act, 1961, read with its Explanation ?
(2) Whether there is material on the record for the finding recorded by the Tribunal that in this case, the onus that lav on the assessee in view of the Explanation to section 271(1)(c) of the Income-tax Act, 1961, had been discharged ?"
Assessment year 1966-67:
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in cancelling the penalty of Rs. 13,000 imposed upon the assessee under Section 271(1)(c) of the Income-tax Act, 1961, read with its Explanation ?"
Assessment year 1968-69:
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in cancelling the penalty of Rs. 9,000 imposed upon the assessee under Section 271(1)(c) of the Income-tax Act, 1961, read with its Explanation ?"
(2) Whether there is material on the record for the finding recorded by the Tribunal that in this case the onus that lay on the assessee in view of the Explanation to section 271(1)(c) of the Income-tax Act, 1961, had been discharged ?"
3. The observation made by the Tribunal indicates that in its opinion in cases where the Explanation added to Section 271(1)(c) is attracted, no penalty under that section is attracted if the difference between the assessed income and the returned income in excess of 20% is due only to the addition of the extra profit in the trading account on the basis of an estimate.
4. In the case of Addl. CIT v. Swatantra Confectionery [1976] 104 ITR 291, 292 (All), the Tribunal observed thus:
".....in this case penalty had been imposed purely on the basis of an addition made to the returned income by estimating sales and applying a gross profit rate thereon on the sole ground that the book results were not amenable to verification. The question whether penalty can be levied in such circumstances had come up for frequent consideration by a number of Benches of the Tribunal which had uniformly held that penalty in such circumstances was not leviable."
and had set aside the order imposing penalty. This court disagreed with the Tribunal and observed thus (pp. 293, 294):
"We are unable to share the view of the Tribunal that in a case where the assessee's books are rejected and a best judgment assessment after estimating sales and after applying gross profit rate thereon is made no penalty under Section 271(1)(c) can be imposed. Section 143 of the Income-tax Act, 1961, read with section 145 of the Act, clearly contemplates that in a case where the assessee files a return of its income and the Income-tax Officer is either not satisfied that the method employed by the assessee in maintaining its account books is such that its income can be properly deduced therefrom or about the correctness or completeness of its accounts or where no method of account has been regularly employed by the assessee, it may make a best judgment assessment in the manner provided in section 144 of the Act. In the instant case, the Income-tax Officer did make a best judgment assessment in the manner provided under Section 145, because he found that the assessee had not maintained proper books. Explanation to section 271(1)(c), which provides that in a case where the total income returned by an assessee is less than 80% of its correct income assessed under Section 144 (a section which empowers the making of best judgment assessment) as reduced by certain expenditure, clearly indicates that an action for imposing penalty under Section 271(1)(c) can appropriately be taken even in a case where the assessee is assessed on best judgment basis. In the result we find that the Income-tax Appellate Tribunal was not justified in revoking the order of penalty on the ground that section 271(1)(c) did not apply to a case where the assessee had been assessed on the basis of additions made to its returned income by estimating its sales and applying a gross profit rate thereon."
5. The Bench then went on to observe that if the Tribunal came to the conclusion that the provisions of the Explanation to Section 271(1)(c) were attracted to the facts of the case it should proceed to dispose of the appeal after considering whether the assessee had discharged the burden placed upon it and had shown that in furnishing the particulars of its income, it had neither acted fraudulently nor was it guilty of any gross or wilful neglect.
6. Similar question came up for consideration before this court in the case of CIT v. Kedar Nath Ram Nath[1977] 106 ITR 172, wherein thiscourt expressed the view that the Explanation to Section 271(1)(c) very clearly covers a case where a best judgment assessment is made under Section 144 of the I.T. Act and it is found that the income returned by an 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 any gross or wilful neglect is upon the assessee. Accordingly, in a case where the income returned by the assessee was less than 80% of the income assessed as reduced in the manner specified in the Explanation to Section 271(1)(c) of the Act, law would deem it that the assessee had concealed or furnished incorrect particulars unless the assessee is able to bring something on record to show that failure on his part to return the correct income was not on account of fraud, etc. The type of material to be indicated by the assessee for discharging the burden placed upon him will depend upon the facts and circumstances of each case. Similar view was taken by yet another Division Bench of this court in the case of Addl. CIT v. Ram Prakash [1981] 128 ITR 559 (All). It thus appears that the consistent view of this court has been that penalty under Section 271(l)(c) is attracted with the help of the Explanation to Section 271(l)(c) even in cases where the assessee has returned its income on the basis of books kept by him in the regular course of business, but then those books are rejected and the difference between the assessed income and the returned income in excess of 20% is due to the addition of extra profit in the trading account on the basis of estimates. Accordingly, the view of the Tribunal that the negative burden which lies on the assessee to show that there has been no. concealment or fraud or negligence on its part so as to take its case out of the ambit of the Explanation to Section 271(1)(c) stands discharged merely by showing that the income returned was on the basis of the books kept in the regular course of business and the addition had been made on the basis of estimate, is not in consonance with the views expressed in various Division Bench cases of this court. It does not appear that in these cases the Tribunal at all applied its mind to the question whether or not the failure on the part of the assessee to return the aggregate income correctly did not arise from any fraud or gross or wilful neglect on its part and whether there was material on the basis of which it could, in the circumstances of the case, proceed on the basis that there had been no fraud or wilful neglect on the part of the assessee in returning the aggregate income. The Tribunal could not, without recording a finding on the aforementioned question, cancel the penalty imposed upon the assessee merely on the ground that the addition to the income had been made on the basis of estimates and that the burden that lies on the assessee is discharged the moment the assessee shows that the addition has been made on such estimate.
7. Before parting with the case we may point out that the burden which lies on the assessee under Section 271(1)(c) to prove that the failure on its part to return the aggregate income did not arise from any fraud or gross or wilful neglect on its part, is not a burden of the nature which lies on the prosecution in a criminal case to prove beyond all shadow of doubt that the accused has committed the crime with which he has been charged. The negative burden placed upon the assessee by the Explanation is discharged if the assessee offers some explanation for its failure to return the income as assessed which is consistent with its not being fraudulent or wilfully negligent and the Tribunal on the basis of materials on the record and as a prudent person considers it to be reasonably probable. In the circumstances, the Tribunal will have to consider this aspect of the case before finally determining whether the assessee is or is not liable to be visited with penalty under Section 271(1)(c) of the I.T. Act.
8. In the result we answer the questions referred to us thus :
For the assessment year 1965-66:
Q. 1.--Subject to the observations made by us in this judgment the Tribunal was not correct in cancelling the penalty of Rs. 5,000 imposed upon the assessee under Section 271(1)(c) of the I.T. Act, 1961, read with the Explanation.
Q. 2.--The Tribunal was, for the reasons mentioned by it in its judgment, not justified in holding that the onus that lay on the assessee in view of the Explanation to Section 271(1)(c) of the I.T. Act, 1961, had been discharged.
For the assessment year 1966-67:
Q. 1.--Subject to the observations made by us in this judgment the Tribunal was not correct in cancelling the penalty of Rs. 13,000 imposed upon the assessee under Section 271(1)(c) of the I.T. Act, 1961, read with the Explanation.
For the assessment year 1968-69:
Q. 1.--Subject to the observations made by us in this judgment the Tribunal was not correct in cancelling the penalty of Rs. 9,000 imposed upon the assessee under Section 271(1)(c) of the I.T. Act, 1961, read with the Explanation .
Q. 2.--The Tribunal was, for the reasons mentioned by it in its judgment, not justified in holding that the onus that lay on the assessee in view of the Explanation to Section 271(1)(c) of the I.T. Act, 1961, had been discharged.
9. As no one has appeared for the assessee, we direct the parties to bear their own costs.