The quasi-judicial nature of penalty proceedings, the requirement for the department to collect direct or circumstantial evidence before imposing a penalty, and the burden of proof in penalty proceedings.

M.R.Sharma, J.

1. This judgment will dispose of Income-tax Cases Nos. 7 & 8 of 1976 as common questions of law and fact are involved therein.

2. The assessee is a transport company. For paying passenger tax, the assessee-company used to purchase stamps in bulk. For the assessment years 1966-67 and 1968-69, the assessee-company disclosed its receipts as under: Rs. 1966-67 11,88,665 1968-69 13,33,003

3. The ITO found that the assessee-company did not account for all the passenger tax stamps purchased by it from the various Treasuries during the above-mentioned assessment year. According to the ITO, the position was as under: Assessment yearTotal passenger tax stamps purchasedTotal passenger tax stamps accounted forTotal passenger tax stamps unaccounted for Rs.Rs.Rs. 1966-673,11,7382,87,91923,819 1968-693,06,4762,93,78912,687

4. When called upon to explain these discrepancies, the assessee-company submitted that the challans were prepared and handled by the clerks and these clerks had purchased more stamps than the quantity which was actually required by the assessee-company and they had sold the excess stamps to the other bus owners. The ITO rejected this explanation and made the following additions to the receipts declared by the assessee-company keeping" in view the ratio of passenger tax to the passenger fare : Rs. 1966-67 90,000 1968-69 52,000

5. The ITO also initiated penalty proceedings against the assessee- company under Section 271(1)(c) of the I.T. Act, 1961 (hereinafter called "the Act"), and since the minimum penalty imposable exceeded the sum of Rs. 1,000 in each case, he referred the cases to the IAC. The assessee-company filed an appeal before the AAC who upheld the additions for the year 1966-67 and gave some relief to it regarding the addition to its income for the year 1968-69. The second appeal filed by the assessee-company before the Tribunal was, however, partly accepted and the addition for the year 1966-67 was reduced to Rs. 60,000 and the addition for the year 1968-69 was reduced to Rs. 30,000.

6. In the penalty proceedings, the IAC had imposed a penalty of Rs. 15,000 on the assessee-company with regard to the concealment of income for the year 1966-67 and a penalty of Rs. 50,000 with regard to the concealment of income for the year 1968-69. The appeals filed by the assessee-company before the Income-tax Appellate Tribunal were allowed and the penalties were waived. The Commissioner of Income-tax filed an application before the Tribunal for the statement of the case to this court but these applications were dismissed. The Commissioner has come up before this court in these two applications (I; T. Cases Nos. 7 & 8 of 1976) with the prayer that the Tribunal be called upon to refer the following question of law to us for our opinion in each case:

" Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the penalty imposed under Section 271(1)(c) of the I.T. Act, 1961 ? "

7. After hearing the learned counsel for the parties at some length, we are of the view that the petitions deserve to succeed.

8. It is no doubt true that penalty proceedings are quasi-judicial in nature and unless and until the department is able to collect some additional evidence it cannot normally insist that penalty be imposed on an assessee on the ground that its explanation had been rejected. But the additional evidence to be collected should be direct evidence or circumstantial evidence. We are purposely refraining from expressing any opinion on this point. The learned counsel for the revenue has submitted that even under pure criminal law the burden of proving that the case falls within an exception lies on an accused person as laid down in Section 105 of the Evidence Act and that the additional evidence might be the conclusions drawn from the absence of entries in the account books of the assessee-company which conclusively establish that the explanation of the assessee was no