JUDGMENT C. S. P. Singh, J. - The Income tax Appellate Tribunal, Allahabad Bench in compliance with our direction issued under section 256(2) of the Income tax Act, 1961 referred the following question for our answer :-
"Whether on the facts and in the circumstances of the case the Income-tax Appellate Tribunal applied the Explanation to s. 271(1)(c) correctly and its finding that the penalty imposed by the Inspecting Assistant Commissioner was not sustainable is right in law ?"
2. The facts leading to this reference are these. For the assessment year 1966-67, the Income-tax Officer rejected the amount book version of the assessee firm and estimated the sales at Rs. 2,50,000/- instead of the returned sale of Rs. 1,75,465/-. On the above sales, he applied a profit rate of 17.5%. As a result, an additional amount of Rs. 19,150/- was added as profit. The Income-tax Officer also added an amount of Rs. 16,000/- as income from undisclosed source. On appeal, the addition was reduced to Rs. 10.400/-. The inclusion of Rs. 15,000/- added by the Income-tax Officer was, however, upheld by the Appellate Assistant Commissioner.
3. The assessee had returned an income of Rs. 17,634/-, while even after appeal, the assessed income was more than 80% of the returned income, and as a consequence proceedings under section 271(1)(c) of the Act were initiated against the assessee. In as much as the penalty imposable was over Rs. 1,000/- the matter was referred by the Income tax Officer to the Inspecting Assistant Commissioner. In its explanation to the show cause notice, the assessee stated that the cash deposits in the assessees books in the name of the partners were shown in part F of the returns filed by the partners, and as such there was no concealment of this amount. It was also urged that there was no suppression of sales, and the account books had been rejected inter alia on the ground that the withdrawal of the partners for personal expenses were shown at a very low figure. A further ground was taken that no penalty proceedings could be taken where income had been estimated by reference to section 145(1) of the Act. The Inspecting Assistant Commissioner did not accept these contentions. He held that inasmuch as partners had no independent source of income of their own, and as the deposit appeared in the books of the firm, these had to be included as income of the firm in view of section 68 of the Act, as the partners had not been able to explain the source of the deposits. He accordingly imposed a penalty of Rs. 8,700/- by his order dated 12-11-1968.
4. An appeal was, therefore, taken up by the assessee to the Tribunal. The Tribunal held that the assessee had failed to prove the sales, only on account of the fact that the cash memos issued by him lacked certain details, the Department, however, was unable to point out any omission of sale in the course of proceedings relating to the penalty matter. It also held that the account book versions were rejected, inasmuch as the assessee had acted in a haphazard manner, and could not explain the facts properly. In view of these consideration, the Tribunal held that no penalty should have been imposed on the ground of addition of extra profits amounting to Rs. 19,160/- As regards the penalty on the basis that the assessee had concealed an amount of Rs. 16,000/-, the Tribunal found in the quantum appeal, no categorical finding had been recorded that the amount aforesaid represented the concealed income of the assessee. It also held that inasmuch as the partners had offered to include the deposits totalling Rs. 16,000/- in their won assessment, that itself was sufficient to outwit the allegation that the explanation given by the assessee was false.
5. The question raised by the reference essentially as to whether the penalty was rightly cancelled by the Tribunal. Section 271 in the relevant assessment year had an explanation added thereto, as a result of which if the income returned by a person was less 80% of the total income assessed minus certain deductions a presumption arose that the assessee had concealed particulars of his income or furnished inaccurate particulars. This presumption could be rebutted, in case the assessee proved that failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. The Inspecting Assistant Commissioner had imposed the penalty, firstly, on the ground that the real sale had been suppressed, by the assessee to the tune of nearly Rs. 2,50,000/- i.e. 1,75,465/- as disclosed by the assessee and the estimate of Rs. 2 lacs made by the Appellate Assistant Commissioner of these sales in the quantum appeal, and secondly, on the ground that the deposits of the partners showed in part F of the firm returns represented the undisclosed income of the assessee firm. In view of the applicability of the explanation, the assessee had to prove that the failure to return the correct income did not arise on account of any fraud or any gross or wilful neglect on part of the assessee. In respect of the addition made to the sale account, the Tribunal has recorded a categorical finding in the appeal that it had been proved that any item of sale had been omitted from the accounts, and that the account books had been rejected on account of the fact that the cash memos lacked complete particulars. The finding in essence is that the account books of the assessee and the cash memos were not properly maintained. This finding clearly indicates that the assessee could not be said to be guilty of any fraud or wilful neglect in the matter of filing of the returns. The returns filed by the assessee in which the sales were shown were supported by cash memos. These cash memos were rejected on the ground that certain particulars were not there. Omission to mention certain dates in the case memos is quite different from maintaining no cash memo at all. It may be that the assessee had neglected to maintain the cash memos in such a form as to enable the sales shown therein to be verifiable but it could not be said that the neglect was wilful, that is, purposive. It is also worthy of note that there was no material on the record to show that sales had been then suppressed. If such material had been there in that event on account of the fact that the cash memos were not properly made up, it could be said that the assessee was guilty of purposive neglect. On the finding recorded by the Tribunal, it is obvious that the low return submitted by the assessee was not on account of any fraud or wilful neglect on his part. This being so, it is clear that the assessee, on the finding recorded by the Tribunal had established facts which took his case out of the explanation. No act of concealment can also be brought on the door of the assessee in respect of the addition to the sale account in view of the above conclusion of the Tribunal.
6. Coming now to the penalty imposed on the basis that the sum of Rs. 16,000/- represented the concealed income of the firm this amount, as has been found by the Tribunal was shown in the capital account of the partners in Schedule F of the return. It was not a case where the amount was not shown at all. The partners offered to include the amount in their assessment. The sum was included in the assessees income on the ground that the explanation of the assessees firm that the amount aforesaid represented the parties income was disbelieved, as it was found that the partners did not have sufficient savings in the previous years to save the amount in question. The Tribunal has found that this explanation of the partners was rejected solely on the basis that no evidence had been led by the firm, that the intangible addition made in the earlier years were available to the assessee or the partners for introduction in the shape of credits. This means that the explanation itself had not been found to be disapproved. It was a case where the explanation stood not proved on account of lack of evidence. In this state of affairs, it cannot be said that the assessee was guilty of any fraud or wilful neglect in not showing this amount as its income. The decision of the Tribunal cancelling the penalty order appears to be correct.
7. For the reasons given, we answer the question in affirmative and against the department. The assessee is entitled to costs, which was assess at Rs. 200/-. Counsels fee is assessed at the same rate.