JUDGMENT Gulati, J.
1. At the instance of the Commissioner of Income-tax, Kanpur, the Income-tax Appellate Tribunal, Delhi, has submitted this statement of the case and the following question of law for the opinion of this court:
"Whether, having regard to the scope and operation of the Explanation to Section 271(1)(c) of the Act, the charge that had been framed upon the assessee for levy of penalty under Explanation to Section 271(1)(c) was correct ?."
2. The assessee is a registered firm carrying on the business at Agra. During the course of assessment proceedings for the year 1964-65, the Income-tax Officer noticed certain cash credits in its account books in the names of certain parties. The Income-tax Officer treated all these credits as income of the assessee from undisclosed sources as he was not satisfied with the explanation of the assessee with regard to the source and nature of these credits. The Income-tax Officer also initiated penalty proceedings with a view to levy penalty under Section 274/271(1)(c) of the Act presumably on the ground that the assessee had concealed its income represented by the cash credits. The Inspecting Assistant Commissioner of Income-tax examined the items of cash credits separately and found that in respect of some cash credits the assessee had led no evidence and in respect of others the evidence led by it was not acceptable. He, accordingly, held that all the cash credits had rightly been treated as the assessee's income inasmuch as he had not included this income in its return and was guilty of concealment. He, accordingly, levied a penalty of Rs. 35,754. On appeal the Income-tax Appellate Tribunal knocked off the penalty relying upon the decision of the Supreme Court in Commissioner of Income-tax v. Anwar Ali, [1970] 76 ITR 696 (SC) where the Supreme Court has held that penalty proceedings under Section 28 of the Indian Income-tax Act, 1922, which corresponds to Section 271(l)(c) of the Act of 1961, are penal in nature and as such the onus lies upon the department to prove that a particular deposit or a cash credit is the income of the assessee which he has deliberately concealed. The mere fact that the assessee's explanation with regard to the deposit or cash credit had not been believed and the amount has been held to be the assessee's income is not by itself sufficient to sustain the charge of concealment. The Tribunal found that in the instant case the department did not discharge its onus inasmuch as it had placed no other material on the record except that the assessee's explanation with regard to the cash credits was not believable.
3. In the course of arguments the department sought to rely upon the Explanation to Section 271(1)(c) which has been added with effect from 1st April, 1964. According to that Explanation, where the total income returned by any person is less than 80% of the total income as assessed, such person shall, 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, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for purposes of Clause (c) of Section 271(1). This Explanation shifts the burden upon the assessee where the income returned by him is less than 80% of the income assessed. The Tribunal repelled the contention on the ground that the authority below had acted upon the basis that the assessee would come under the main provision of Section 271(1)(c) and the charge was not under the Explanation and as such the penalty could not be justified under the Explanation. We are of the opinion that the Tribunal has taken a correct view. In order to determine as to whether the income returned by an assessee is less than 80% of the income assessed, any expenditure incurred bona fide by the assessee for purposes of making or earning income included in the total income which has been disallowed as a deduction has to be deducted. In other words, the income assessed by the Income-tax Officer has to be reprocessed. This has not been done in the instant case obviously because the Inspecting Assistant Commissioner of Income-tax, who passed the penalty order, never relied upon this Explanation. He, on the other hand, relied upon the substantive provision of Section 271(1)(c) under which penalty is attracted only if the assessee had concealed a particular income. In view of the decision of the Supreme Court in Anwar Ali's case, the charge of concealment could not be said to have been proved.
4. We, accordingly, answer the question in the negative, in favour of the assessee and against the department. The assessee is entitled to the costs which we assess at Rs. 200.