Where the assessee rebuts the presumption of concealment under the Explanation to Section 271(1)(c) by showing that the additions and disallowances made by the Income-tax Officer were based on mere estimates, the Department is required to prove by cogent and consistent evidence that the disputed amount represents the concealed income of the assessee.

AJIT K. SENGUPTA, J.

( 1 ) AT the instance of the Commissioner of Income-tax, West Bengal-II, the following question of law has been referred to this court under Section 256 (2) of the Income-tax Act, 1961, for the assessment year 1964-65 :"whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that no penalty under the provisions of Section 271 (1) (c) read with the Explanation thereto could be levied in the case of the assessee ?"

( 2 ) THE facts, shortly stated hereinafter are, that the assessee carried on business of printing, publishing and selling newspapers and periodicals known as Daily Basumati, Weekly Basumati and also some other periodicals. For the purpose of its business, the assessee-company purchased paper, ink and other miscellaneous materials. For the assessment year 1964-65, the assessee-company filed a return on October 20, 1964, disclosing a loss of Rs. 1,79,064. The Income-tax Officer rejected the book result of the assessee and completed the assessment on a total income of Rs. 89,085. The Income-tax Officer felt that the assessee must have inflated its purchases of paper and miscellaneous materials and disallowed Rs. 1,50,000 on an estimate from the purchases account. The Income-tax Officer further considered that the assessee must have deflated its sales by disguising some of the sales as distribution of free copies. He, therefore, added Rs. 1,00,000 on estimate towards, possible suppression of sales.

( 3 ) IT was with reference to the aforesaid inflation of purchases and suppression of sales that proceedings were taken against the assessee-company for imposition of penalty. On a mere consideration of the assessment, it was clearly established that the assessee suppressed its profits both by inflation of purchases and by suppression of sales. He also relied upon the fact that no evidence was produced before him to show that the purchases and sales were correctly recorded by the assessee in its books of account. Invoking the Explanation under Section 271 (1) (c) of the Income-tax Act, 1961, the Inspecting Assistant Commissioner held that the assessee-company failed to discharge the burden of proving that the difference between the returned income and the assessed income did not arise on account of any fraud or gross or wilful neglect on its part. He accordingly found the assessee-company guilty of concealing the correct particulars of its income and levied a penalty of Rs. 27,000 upon the assessee.

( 4 ) THE Tribunal, in the order under reference, cancelled the penalty in the following manner ;"from a mere perusal of the penalty order, it is abundantly clear that the Inspecting Assistant Commissioner levied the penalty merely on the basis of the reasons given by the Income-tax Officer in the assessment order for disallowing Rs. 1,50,000 from the purchase account towards possible inflation of purchases and for adding Rs. 1,00,000 in the trading account towards possible suppression of sales. It was only on estimate that the Income-tax Officer made the addition towards possible suppression of sales and disallowance towards possible inflation of purchases. We do not think that any inference of fraud or gross or wilful neglect on the part of the assessee could be drawn where additions towards possible suppression of sales or disallowances towards possible inflation of purchases were made in the trading account by the Income-tax Officer on mere estimate. By merely showing that the additions and disallowances were made in the trading account by the Income-tax Officer on mere estimate, the assessee can be said to have rebutted the presumption arising from the Explanation under Section 271 (1) (c ). We are fortified in this view by the decision of the Kerala High Court in CIT v. Sankarsons and Co. [1972] 85 ITR 627. Once it is held that the assessee has rebutted the presumption enacted in the Explanation under Section 271 (1) (c), the ratio of the decision of th

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