The assessee bears the initial burden of proof under the Explanation to section 271(1)(c) of the Income-tax Act, 1961, to demonstrate the absence of fraud or gross or wilful negligence in cases of concealment of income.

1. - On the request of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law under its order dated June 17, 1982, in respect of the assessment year 1974-75 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalty of Rs. 21,500 levied under section 271(1)(c) of the Income-tax Act, 1961 ?"

2. The facts of the case are that the assessee is a manufacturer of groundnut oil and deals in oil and oil-cakes, etc. The assessee has entered into an agreement for the purchase of 43 tonnes of oil-cakes with Smt. Usha A. Agrawal of Bombay on October 18, 1973. A similar agreement for the purchase of 43 tonnes of oil-cakes was entered into with Shri Suresh K. Agrawal on October 23, 1973. The contracts were settled on October 20 and October 24, 1973, respectively, without taking delivery of the goods and the difference of an amount of Rs. 10,750 was paid to each of the parties. The actual payments to these parties were made in the next year and credit was made in the account of the respective parties. During the course of assessment proceedings, the assessee was asked to produce the books of account and details of these credits as was evident from the balance-sheet. The assessee claimed that the amount is a business loss. The contention of the assessee was not accepted and Rs. 21,500 was treated as speculation loss which was disallowed and penalty proceedings were initiated. In the penalty proceedings, it was found that the assessee had not led any evidence to prove that the transaction was not a speculation transaction and the addition so made in the assessment order was upheld by the Income-tax Appellate Tribunal as well. The Income-tax Officer was of the view that the assessee had adopted a tactic of showing the same in the balance-sheet in order to reduce the taxable income and to avoid the payment of legitimate amount of tax. The burden which was on the assessee to prove that there was no intention to conceal its true income was not discharged and as such a penalty of Rs. 21,500 was levied under section 271(1)(a). In the appeal before the Appellate Assistant Commissioner, it was found that instead of taking these transactions in the trading account and in the profit and loss account, the assessee has taken them directly to the accounts of respective parties. The Appellate Assistant Commissioner found that the assessee has made the payments on account of difference of rates and not on account of loss on regular business. It was nowhere mentioned in the return of income submitted by him on July 20, 1974, or in any other account enclosed along with the return and it was only subsequently during the course of scrutiny of the balance-sheet by the Income-tax Officer which was filed by the assessee that these two figures were found. The copies of the entry of Nakal Bahi was also produced in the order in which it was mentioned that oil-cakes purchased at the rate of Rs. 1,225 per tonne have been sold back at the rate of Rs. 975 and the amount of difference was credited. Similarly, entries were made in the oil-cakes accounts from which it was found that it was obligatory on the part of the assessee to have indicated this fact separately in the trading account or profit and loss account furnished by him, but he intentionally omitted to make a reference to the said transaction in the return of income or statement of accounts furnished and, therefore, the Appellate Assistant Commissioner was of the view that the appellant has completely failed to show that the disparity in the income returned and assessed was not the result of any fraud or wilful or gross neglect on the part of the appellant. The burden which was placed under the Explanation to section 271(1)(c) was considered not to have been discharged. The levy of penalty was upheld.

3. In the second appeal before the Income-tax Appellate Tribunal, it was found that the assessee has not made any ent