JUDGMENT
1. The Income-tax Appellate Tribunal (Allahabad Bench) referred the following question relating to the assessment year 1969-70 for the opinion of this court :
" Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in cancelling the penalty of Rs. 31,477 imposed by the Inspecting Assistant Commissioner under Section 271(1)(c) ?"
2. The facts, briefly, are that the assessee, an unregistered firm engaged in the business of cold storage and manufacture of ice, filed a return showing a loss of Rs. 2,207 for the assessment year 1969-70. However, during the course of assessment proceedings, the following additions were made :
Rs.
(i) Cash credits amounting to 9,300
(ii) Expenditure of capital nature debited to profit and loss account 23,390
(iii) Out of labour charges, donation and income-tax debited to profit and loss account 3,260
3. These additions were sustained in appeal.
4. While making the assessment, penalty proceedings were initiated under Section 271(1)(c) of the Income-tax Act, 1961 (for short, "the Act").
5. Before the Income-tax Officer, the argument was that even if the explanation offered by the assessee in respect of cash credits is not supported by satisfactory evidence, it cannot be concluded that the assessee concealed the particulars of its income. Further argument was that the mere fact that the explanation of the assessee regarding the source and nature of cash credits appearing in the books has been rejected by the Income-tax Officer, would not in all cases, be sufficient material to come to the conclusion that the assessee has concealed the particulars of his income. These arguments proceeded on the basis of the rule laid down in CIT v. Anwar Ali [1970] 76 ITR 696 (SC), inter alia.
6. The Income-tax Officer relying upon the Explanation to Section 271(1)(c) of the Act held that the total income returned by the assessee being less than 80 per cent, of the assessed income the assessee shall be deemed to have concealed the particulars of its income or furnished inaccurate particulars of such income for the purpose of Clause (c). He also held that the assessee failed to prove that failure to return the correct income did not arise from any fraud or any gross or wilful neglect on its part. Such conclusion of the Inspecting Assistant Commissioner was based on the following observations :
" Perusal of income-tax records of Sarder Malik Singh '(one of the partners in the assessee-firm)' for the assessment year 1969-70 shows cash credits to the tune of Rs. 20,435 appearing in his capital account, which he could not prove by any evidence whatsoever. Therefore, these cash credits were added as income from other sources of the assessee and treated as concealed income in his case. In the case of Sardar Harbans Singh, the other partner of the firm also, for the assessment year 1969-70 cash credits of Rs. 2,000 appeared in his capital account. The assessee could not offer any explanation regarding the nature and source of this deposit either before the Income-tax Officer or at the appellate stage. It is thus seen that appearance of unexplained cash credits in the case of the firm as well as the partners, mentioned above, is a common feature of this group. The assessee has failed to offer any evidence to prove the genuineness of the cash credits. The only conclusion, therefore, that can be drawn in this case is that the cash credit of Rs. 9,300 represents the concealed income of the assessee. . . .
I further hold that wrong deductions and debits made by the assessee to the profit and loss account, document to furnishing of inaccurate particulars of income."
7. This is how the Inspecting Assistant Commissioner imposed the minimum penalty of Rs. 31,477 under Section 271(1)(c), read with the Explanation.
8. The penalty was cancelled by the Income-tax Appellate Tribunal with the following observations :
" Without going into the merits of the case, we find that the Inspecting Assistant Commissioner has taken a wholly erroneous view of the legal position as is applicable now after the decision of the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696 and various other cases. There are numerous decisions after that of the different High Courts as well and the decision in Lalchand Gopal Das (supra) is no longer good law. It is really surprising that the Inspecting Assistant Commissioner has gone on record to say that the onus of proving the concealment does not lie upon the income-tax authorities. . . .
So far as cash credits are concerned, the assessee could not give any evidence during the assessment proceedings and, hence, the amount was treated as its concealed income. That, however, does not mean that the disputed amount represents the concealed income of the assessee. The Department should have brought on record some independent material to show that this was the concealed income of the assessee of this year or that the assessee furnished inaccurate particulars in respect of it. , . .
Of course, in regard to the nature of the expenses there has been a difference between the assessee and the Department. That does not mean that the disallowance of these expenses should be taken into consideration for finding out as to whether the Explanation to Section 271(1)(c) is attracted. ...
We do not agree with the Departmental Representative that by claiming these expenses as deductions from the income, the assessee furnished any false particulars. It is another matter whether the claim was accepted or not. The rejection of a claim does not mean that there was any concealment made or any inaccurate particulars furnished. On merits, therefore, we hold that penalty provisions were not attracted. .. ." (emphasis* supplied).
9. To state briefly, the findings of the Appellate Tribunal are that the correct legal position applicable to the case of the assessee in regard to onus is laid down by the Supreme Court in Anwar Ali's case [1970] 76 ITR 696 that even if the plea of cash credits is not accepted, the deposits will not amount to concealed income of the assessee that the onus is on the Revenue to bring some independent evidence to show that the deposits represented the concealed income of the assessee in the relevant year : that disallowance of the claim of the revenue expenditure will not attract the Explanation to Section 271(1)(c) of the Act and that rejection of a claim of revenue expenditure does not mean that there was concealment or that inaccurate particulars were furnished by the assessee.
10. The question for consideration is whether the Appellate Tribunal was right in holding that the case of Anwar Ali [1970] 76 ITR 696 (SC) would govern the legal position for the assessment year 1969-70. Anwar Ali's case [1970] 76 ITR 696 (SC) dealt with Section 28(1)(c) of the Indian Income-tax Act, 1922, which in so far as is relevant, read as follows :
" 28. Penalty for concealment of income or improper distribution of profits. - (1) If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that any person. ...
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. ..."
11. Section 271(1)(c) of the Act as originally indicated was to the same effect. By the Finance Act, 1964, however, the word "deliberately" occurring in Clause (c) was omitted and the Explanation abovementioned was added.
12. The rule laid down in Anwar Ali's case [1970] 76 ITR 696 (SC) was that it is for the Department to establish that the receipt of the amount in dispute constitutes the income of the assessee and that the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. If there is no evidence on record^" except the explanation given by the assessee, which explanation has been % found to be false, it does not follow that the receipt constitutes his taxable income.
13. With a view to making the task of the Revenue less difficult Parliament by the Finance Act, 1964, omitted the word "deliberately" in Clause (c) and added the Explanation. The Explanation creates a presumption of law, which is no doubt rebuttable that where the total income returned by any person is less than 80 per cent, of his total assessed income, such person shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, for the purpose of Clause (c) unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. The Explanation thus shifts the burden to prove on the assessee in a situation where difference between the returned income and the assessed income is more than 20 per cent. If the burden is shifted to the assessee under Explanation and if he fails to rebut the same, then on the strength of the presumption, it would be open to the authority to levy the penalty. But if the assessee establishes that his failure to return the correct income was not on account of any fraud or any gross or wilful neglect on his part, then no penalty can be levied.
14. In view of the aforesaid legal position emerging from the amended Section 271(1)(c), read with the Explanation, the burden, no doubt, shifted to the assessee in the case on hand, inasmuch as a return of loss was filed and the total assessed income was more than 80 per cent. of the returned income. The Tribunal, therefore, clearly erred in holding that the onus was on the Revenue to prove that there was concealment on the part of the assessee and that the assessee furnished inaccurate particulars of income. In view of the Explanation to Section 271(1)(c), a presumption arose that the assessee had concealed the particulars of its income or furnished inaccurate particulars of its income for the purpose of Clause (c) of Section 271(1).
15. In view of the amendment made by the Finance Act, 1964, the case on hand will not be governed by the case of Anwar Ali [1970] 76 ITR 696 (SC), but by a decision of the Supreme Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, in which the Supreme Court explained that under the law, as it stood prior to the amendment of 1964, the onus was on the Revenue to prove that the assessee had furnished inaccurate particulars or had concealed his income. The Supreme Court, however, added that the onus to prove that it was not the failure of the assessee or the fraud of the assessee or the neglect of the assessee, that caused the! difference, shifted to the assessee, but the onus that was shifted was rebut- \ table and that the rebuttal must be on materials relevant and cogent. It is for the fact-finding body to judge the relevancy and sufficiency of the material. If such a fact-finding body bearing these principles in mind, comes to the conclusion that the assessee has discharged the onus, it becomes a conclusion of fact.
16. A similar view was reiterated by the Supreme Court in CIT v. K. R. Sadayappan [1990] 185 ITR 49 and in Addl. CIT v. Jeevan lal Sah [1994] 205 ITR 244 (SC). From these authorities it is clear that after the Finance Act, 1964, the rule regarding burden of proof enunciated in Anwar Ali's case [1970] 76 ITR 696 (SC) is no longer valid.
17. The onus of proof for rebutting the presumption lies squarely on the assessee. This burden, however, can be discharged (as in civil cases) by a preponderance of evidence. Equally it may not be inflexibly necessary to lead fresh evidence and it would be permissible in the penalty proceedings for the assessee to show and prove that in the existing material itself the presumption raised by the Explanation stands rebutted.
18. In view of the abovesaid legal position, the Tribunal must record a clear and categorical finding whether any explanation of the assessee can be accepted and thereby it has discharged the onus laid upon it by law. The explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation. It may not prove what it asserts to the hilt positively, but as a matter of fact materials must be brought on the record to show that what it says is reasonably valid. It is for the authorities whether they will accept or reject the explanation, but law enjoins upon them that they should be explicit in recording a finding on the point.
19. Upon a perusal of the Appellate Tribunal's order, it appears that the explanation of the assessee was not considered in the right perspective that the onus was on the assessee to prove that the difference between the returned income and the assessed income was not due to fraud or gross or wilful neglect on its part and no categorical finding was recorded whether or not the explanation, if any furnished by the assessee, was acceptable and sufficient to discharge the onus shifted upon it by virtue of the Explanation to Section 271(1)(c).
20. It is, however, made clear that when the Appellate Tribunal proceeds to consider the explanation of the assessee from the point of view whether the onus was successfully discharged or not by the assessee, it will be free to come to the same conclusion, which it had already reached. We may not be misunderstood that the legal position, stated above, deprived the Appellate Tribunal from reiterating its view either wholly or partly. What we have impressed in this order is that the Tribunal has to proceed bearing in mind the correct legal position and come to the conclusion whether the explanation of the assessee is sufficient to discharge the onus, which shifted upon it under the amended law.
21. We, therefore, answer the question referred to this court in the negative and remand the case to the Appellate Tribunal for deciding to record a clear finding on the question whether there was cogent and relevant material to rebut the presumption that the concealment was not due to fraud or any gross or wilful neglect on the part of the assessee.