Arijit Pasayat, C.J. 1. The following questions have been referred by the Income-tax Appellate Tribunal, Cochin Bench (hereinafter referred to as "the Tribunal"), under section 256(1) of the Income-tax Act, 1961 (in short, "the Act"), for the opinion of this court :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in cancelling the penalty under section 271(1)(c) sustained by the Commissioner of Income-tax (Appeals) ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that the assessee's case falls under clause (B) of Explanation 1 of section 271(1)(c) and so Explanation 1(A) is not applicable to the facts of the case ?"
2. The background facts, as indicated in the statement of case, are as follows : The assessee is a public limited company engaged in the business of manufacturing yarn. For the assessment year 1979-80, it was assessed to tax on a total income of Rs. 21,06,690. In appeal, the Commissioner of Income tax (Appeals). Calicut (in short, "the CIT(A)"), reduced the total income to Rs. 14,55,300. Further reduction of Rs. 57,719 was allowed by the Tribunal in second appeal filed by the assessee. Additions in the assessment included a total sum of Rs. 2,28,825 for inflation in claim for consumption of raw materials. The assessee claimed that raw materials of 2,69,992.3 kgs. valued at Rs. 1.75,62,085 were consumed. On an examina-tion of the books of account and documents maintained by the assessee, the Assessing Officer found that the claim included 5,795 kgs. of polyster fibre given as loan to outside parties. The assessee's claim was that this 2,330 kgs. from J. C. Mills and 3,465 kgs. from Madura Coats were received back. The Assessing Officer accepted the claim for a part, i.e., 1,960 kgs. in respect of J. C. Milts on July 31, 1978. But held that still there was a balance of 3,835 kgs. included in the consumption of raw materials and no explanation therefor was given. In its letter dated September 13,1984, the assessee stated that there were receipts to the extent of 4,119.50 kgs. of polyster fibre as per folio 1 of raw materials register and that accounted for the consumption of raw materials received from outside parties. The aforesaid quantum related to four items, i.e., 683.4 kgs., 676.5 kgs., 650.5 kgs and 2,049.5 kgs. As regards the first two items, the Assessing Officer accepted the claim of receipt from outside parties. But, for the balance, he was of the view that there was no such receipt and the assessee had inflated the consumption account. Accordingly, he made addition of Rs. 2,28,825, which was confirmed in appeal. Penal proceedings under section 271(1)(c) of the Act were initiated on the ground that the assessee had concealed its income by inflating the consumption of raw materials account. In response to the show-cause notice, the assessee explained that there was no inflation in the said account and that two quantities of 2,049.5 kgs. and 650.5 kgs. were actually received from outside parties. The entries in the registers showing receipts from the processing department and the dyeing department were explained to be wrong entries by clerical error. The Assessing Officer without accepting the plea of the assessee, levied penalty of Rs. 1,75,000 under section 271(1)(c) of the Act. In the first appeal, the Commissioner of Income-tax (Appeals) held that as regards quantity of 2,049.5 kgs. claimed to have been received from job work, it would not be correct to hold that there was concealment on the part of the assessee. It was observed that in the light of the entries in the register the other quantity of 650.5 kgs. could not be accepted to have been received from outside parties on job work account and there was concealment of income warranting levy of penalty. Accordingly, penalty of Rs. 55,130 was sustained. It was worked out by taking the value of 650.5 kgs. at Rs. 84.75 per kg. In the second appeal, the Tribunal analysed the factual position and observed that the case was one which is encompassed under clause (B) of Explanation 1 to section 271(1)(c). It was held that the case at hand was one where the assessee was not able to substantiate the plea and, therefore, penalty was not imposable and was accordingly cancelled.
3. Learned counsel for the Revenue submitted that the logic pressed into service by the Tribunal was erroneous. Merely because the explanation in respect of 2,049.5 kgs. was accepted, that cannot be a ground for accepting the explanation in respect of 650.5 kgs. The authorities have categorically held that the entries'were not correct and consumption was claimed in an inflated manner. It was not a case covered by clause (B) of Explanation 1 to section 271(l)(c). It was further submitted that there was no positive finding that the explanation offered is bona fide, or that all the facts relating to consumption and materials have been disclosed. In the absence of such a finding, it was submitted, the order of the Tribunal is not sustain-able.
4. Learned counsel for the assessee, on the other hand, submitted that on analysing the factual position, the Tribunal had concluded that the explanation offered was not substantiated. But that did not necessarily bring in the concept of concealment and the proviso to Explanation 1(B) is clearly applicable. The finding being factual, no question of law arises. The Tribunal analysed the factual aspects in detail. It was observed that there is no dispute about the assessee having received raw materials from outside parties. In fact, the explanation of the assessee was accepted by the Commissioner of Income-tax (Appeals) in regard to quantity of 2,049.5 kgs., which was also considered to be inflation and sustained in the quantum appeal. It was noticed that the assessee's total claim for consumption was in the neighbourhood of 4.58 lakh kgs. of raw materials. The Tribunal found substance in the plea of the assessee that even otherwise going by the normal wastage allowable, the assessee could have claimed more than 20,000 kgs. as wastage and would not make a bogus claim of 650.5 kgs. which was even less than the 0.001 per cent, of its total consumption.
5. The adjudication revolves round the core question whether the explanation offered by the assessee was found false or was not substantiated by the assessee, as observed by the Tribunal. It is true that in comparison to the total claim of consumption, a disputed claim may be of a very small percentage. That is not always a determinative factor to decide concealment or otherwise. It would depend on the circumstances of each case. Section 271(l)(c) (with Explanation 1) reads as follows :
"271. Failure to furnish returns, comply with notices, concealment of income, etc.--(1) If the Income-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person-. . .
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,-. . .
(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income ;
Provided that, if in a case faliing under clause (c) the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty-five thousand rupees, the Income-tax Officer shall not issue any direction for payment by way of penalty without the previous approval of the Inspecting Assistant Commissioner.
Explanation 1 .-Where in respect of any facts material to the computation of the total income of any person under this Act,--
(A) such person fails to offer an explanation or offers an explanation which is found by the Income-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) to be false, or (B) such person offers an explanation which he is not able to substantiate, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed :
Provided that nothing contained in this Explanation shall apply to a case referred to in clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him."
6. The proviso, which has considerable importance in the adjudication of the present dispute, was omitted by Act No. 46 of 1986 with effect from September 10, 1986. Prior to that, the structure of section 271(1) was drastically changed by the Taxation Laws (Amendment) Act, 1975. Explanation 1 to section 271(1)(c) was added. It provides that where in respect of facts material to the computation of the total income of the assessee, he furnishes no explanation, or he cannot substantiate the explanation offered by him or the explanation offered by him is found to be false, the relevant income shall be deemed to be his concealed income. If, however, the explanation offered by him is bona fide and all the facts relating to the explanation and material to the computation of the total income have been disclosed by him, Explanation 1 will not be applicable. As is clear from the explanatory notes relating to the amendments by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 (Act 46 of 1986), the inadequacy of the Explanation added by the Finance Act, 1964, led to the subsequent substitution by the 1975 Amendment Act, of four Explanations. As per the proviso, which was in force at the relevant time, the onus to establish that the explanation offered was bona fide and all facts relating to the same and material to the computation of his income have been disclosed by him will be on the person charged for concealment. However, the fact that the explanation offered was not substantiated will have to be established by the Revenue. Further, mere failure on the part of the assessee to substantiate his explanation is not enough to warrant penalty if such explanation is bona fide and all facts relating to the same are disclosed by him. By Act No. 46 of 1986, the position was changed, regarding onus, and it was cast on the person who has committed the default. In the case at hand, that position has no application. The assessee had offered an explanation in respect of the entries. It was a case of the assessee's failure to establish or explain them. Therefore, in our view, the Tribunal was justified in treating it to be a case covered by clause (B) of Explanation 1.
7. The other question is even if such is the case, whether the proviso applies. The Tribunal categorically observed that the assessee had disclosed all facts relating to and material to the computation of income. Merely because the Tribunal has not specifically used the word "bona fide" in respect of the explanation, in our view, that would not make a difference since the Tribunal had, in so many words, observed that the assessee had disclosed all the facts relating to and material to the computation of income and that his case falls under clause (B) and so, clause (A) of Explanation 1 had no application to the facts of the case. Just before arriving at the conclusion, the requirements of the statutory provision were noted. Whether the burden of proof in a given case has been discharged on a set of facts is a question of fact. Similarly, whether the presumption under Explanation 1 to section 271(1)(c) has been rebutted in a particular case by evidence, is a question of fact. Where the fact finding body, bearing in mind the correct principle, comes to the conclusion that the assessee has discharged the onus, it became a conclusion of fact (see CIT v. Mussadilal Ram Bharose (1987] 165 ITR 14 (SO). Since the Tribunal has based its conclusion on factual aspects keeping the correct principles in mind and held that the proviso to clause (B) of Explanation 1 to section 271(1)(c) applies, no question of law arises.
8. Our answer to both the questions referred is in the affirmative, in favour of the assessee and against the Revenue.