TMI Blog1981 (11) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... was right in law in cancelling the penalty of Rs. 9,200 levied under section 271(1)(c) of the Act for the assessment year 1968-69 ? " The assessee is a firm of three partners. The firm carries on business in automobile spare parts. The firm filed a return for the assessment year 1968-69 disclosing an income of Rs. 26,740. In the course of the examination of the firm's books of account the ITO found that there were credit entries on various dates amounting in all to Rs. 8,000 in the name of one Sundari Bai. She is the wife of a partner in the assessee-firm. The account in her name not only showed the credits as borrowings of the firm, but also carried an entry crediting interest to her in the sum of Rs. 1,200. When the assessee was questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal allowed the appeal and cancelled the penalty. They observed that this was merely a case of rejection, by the taxing authorities, of the explanation offered by the assessee as to the nature and source of the credits. The Tribunal referred to Sundari Bai's affidavit which was in support of the assessee's explanation and observed that the contents of her affidavit cannot be rejected out of hand merely because she was not available for cross-examination. The Tribunal held that on the facts on record there was no evidence of concealment of income on the part of the assessee. Before the Tribunal, the Department had invoked the Explanation to s. 271(1)(c) to sustain the penalty. The Tribunal, however, held that the Explanation did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the courts in innumerable decisions down the years. This doctrine was translated in statutory terms for the first time in 1961, and incorporated in s. 68 of the LT. Act, 1961. But this is only so far as the assessment part of the proceeding goes. Cases in the books have held, chief amongst which is the well-known decision of the Supreme Court in Anwar Ali's case [1970] 76 ITR 696, that what applies to assessment of cash credits does not apply to penalty proceedings taken in the wake of the assessment. Court rulings have settled the position that by merely rejecting the assessee's explanation concerning a cash credit and treating the cash credit as income in the assessment, the Department cannot levy penalty on the assessee on the scor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lment. It only introduced a special rule of evidence applicable to cases coming within a particular penalty bracket. The rule of evidence laid down by the Explanation might be regarded as an inversion of the initial burden of proof from the Department to the assessee under the rebuttable presumption. According to the Explanation in cases where an assessee's returned income is less than 80 per cent. of the income as ultimately assessed, he will be presumed to have concealed particulars of his income unless he establishes that the hiatus between his return and his assessment was not due to fraud or wilful neglect in the filing of the return. It is clear that this inverted burden of proof does not apply to cases where the gap between the retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the Anwar Ali decision [1970] 76 ITR 696 (SC), had not been abrogated by the rule of evidence enacted in the Explanation to s. 271 (1)(c) introduced by the Finance Act, 1964. But the position may have to be reconsidered in the context of Expln. I to s. 271 (1)(c) which has come into the statute with effect from April 1, 1976, in cases governed by it. This new Explanation might well be considered as being more than a rule of evidence, as a rule of substantive law relating to penalty for concealment. The Explanation is to the effect that where in respect of any fact material for purposes of his assessment an assessee offers an explanation which is found by the ITO or the AAC to be false or where the assessee is unable to substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal has found that there was no fraud or wilful neglect on the assessee's part when he excluded the credits in Sundari Bai's account from his return of income. It follows, therefore, that the Tribunal was right in holding that the Explanation, which governed s. 271(1)(c) at the material time, could not be relied on by the Department to invoke the presumption against the assessee. With the result that the Anwar Ali approach made by the Tribunal has to be upheld as the proper one in this case. Mr. Rangaswami, in the course of his argument, sought to make some point out of Sundari Bai not being available for cross-examination on her affidavit. We do not think there is much to comment about this aspect of the case. The record does not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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