The main legal point established in the judgment is the shift in the burden of proof onto the assessee in penalty proceedings, as brought about by the Explanation to Sec.271 (1 ) (c) of the I. T. Act.

, J.

1. The true legislative intent in adding the Explanation to Sec.271 (1 ) (c) of the I. T. Act by the Finance Act, No.5 of 1964, as also the nature and scope thereof is the core question which has necessitated this reference to the Full Bench. Even more pointedly at issue is the correctness of the construction placed thereon by the Division Bench in Addl. CIT V/s. Karnail Singh V. Kaleran [1974] 94 ITR 505 (P and H ).

2. M/s. Vishwakarma Industries is a registered firm carrying on business in the manufacture and sale of ball-bearings. For the assessment year 1969-70 it declared a total income of Rs.99,098 in the return filed on the 5th of September, 1969. The examination of its books of account by the ITO revealed cash credits totalling Rs.30,000 in the name of M/s Jagan Nath and Sons, Ludhiana. The assessee-firm urged that these credits were genuine and in support thereof filed confirmatory letters from the said party. The ITO accepted the assessees contention and completed the assessment for the year 1969-70 on an income of Rs.1,02,437.

3. After the completion of the above assessment it came to light in the context of the assessment of other assessees that the loans appearing in the name of M/s Jagan Nath and Sons were not genuine. Indeed, Shri Jagan Nath of the said firm gave a categoric statement on the 16th of December, 1971, that he was a mere name-lender and later he filed another affidavit dated the 21st December, 1971, before the ITO, Ludhiana, affirming that all his business had been fictitious and that he had never paid any loan to any party whatsoever. Further enquiries conclusively established that Shri Jagan Nath during the course of 4-5 years had purported to effect loans to the tune of about Rs.25 lakhs whilst he was having no business whatsoever from 1963 onwards. His family consisted of 10-12 members and the balance available with him in his bank account was nominal. A house was found to have been purchased by his wife in 1967 for Rs.10,000 on which a mortgage of Rs.4,000 effected by the previous owner still subsisted and that mortgage he had not been able to redeem. Shri Jagan Nath further disclosed his modus operandi for the hawala-hundi business which he operated by putting his signatures on hundis at the instance of brokers without even caring to enquire if they were complete or not. All these documents were drawn merely to give a colour of genuineness to the hundi transaction and he denied that he had ever paid interest on those hundi loans. Instead he was allowed to retain some paltry commission. His stand was that the atmosphere at Ludhiana at the time was such that the parties and their brokers were apprehensive of raids by the I. T. authorities. In essence Shri Jagan Nath totally denied having ever lent any genuine loan to any party and was otherwise conclusively found to be a man of straw.

4. When the aforesaid startling disclosures became public, the assessee-firm submitted a letter dated the 25th of March, 1972, before the ITO, Jullundur. Therein it was mentioned that it had cash credits in its books of account in the name of M/s. Jagan Nath and Sons for the accounting periods relevant to the assessment years 1969-70 and 1971-72. Further, it was stated that the statement made by Shri Jagan Nath, though of a general nature, had put the assessee in a very embarrassing position and despite the fact that Shri Jagan Nath had executed an affidavit that the transactions between him and the assessee were true and correct, yet it apprehended some departmental action against itself on the basis of the aforesaid statement of Shri Jagan Nath. Finally it was stated that in order to avoid any controversy and the consequential harassment which might result therefrom, the assessee was filing revised returns for the assessment years 1970-71 and 1971-72 surrendering the cash credits in both these years for tax purposes. Particularly with regard to the assessment year 1969-70 on which the assessment had