The assessee has the onus to prove that the failure to return the correct income did not arise from any fraud, gross or wilful neglect on his part.

( 1 ) THE Income-tax Appellate Tribunal, Delhi Bench b, New Delhi, hereafter "the Tribunal", has referred the following two questions for the opinion of this court :

"1. Whether, on the facts and circumstances of the case, the assessee could be said to have discharged its onus under the Explanation to. Section 271 (1 ) (c) of the Income-tax Act, 1961 ?

( 2 )

Whether the Tribunal was justified and had material in deleting the penalty levied by the inspecting Assistant Commissioner of Income-tax under Section 271 (1) (c) read with the explanation thereto ?"

2. The reference relates to the assessment year 1966-67. The assessee ran a cold storage and ice factory at Moradabad. For the assessment year 1966-67 it filed its return on December 26, 1970, declaring a loss of Rs. 51,942. It was mentioned in the return that it was a duplicate return. According to the ITO there was no such previous return on record and it was only after the service of a notice under Section 142 on September 1, 1970, when the assessee was called upon to produce its account books on September 15, 1970, that the appellant filed the return on december 26, 1970. Even after the filing of the return several notices were issued to the assessee but it did not appear before the ITO. Consequently, the ITO made an ex parte assessment on a totalincome of Rs. 85,000. Ultimately, that income was reduced by the Tribunal to Rs. 6,700, since the income returned fell short of eighty per cent. of the income assessed, the ITO initiated penalty proceedings under Section 271 (1) (c) read with the Explanation thereto of the Act. As the minimum penalty imposable exceeded Rs. 1,000, the case was referred to the IAC. The assessee was served with a showr cause notice. In reply thereto it submitted that it was not guilty of any fraud, gross or wilful neglect and had filed its return on the basis of the regular books of account maintained by it and, secondly, that the difference between the income returned and the income assessed was as a result of an estimate of the income and no penalty could be levied in respect of such estimated income.

( 3 ) THE IAC did not accept these contentions and held that the assessee had failed to discharge the onus which lay upon it under the Explanation to Section 271 (1) (c) and, hence, it was guilty of concealing its income or furnishing inaccurate income in respect thereof. The IAC hence levied a penalty in the sum of Rs. 60,000 which was almost equal to the minimum penalty leviable.

( 4 ) AGGRIEVED, the assessee took up the matter in appeal before the Appellate Tribunal. The tribunal agreed that the conduct of the assessee had not been above board, in withholding the account books from scrutiny by the I. T. authorities. However, for that default, action could be taken under Section 271 (1) (b) of the Act. As for action under Section 271 (1) (c) no specific finding had been given of concealment nor any adverse comment had been made by the I. T. authorities at the assessment stage and taking into consideration the fact that the additions had been made in the trading account merely on the basis of an estimate and there was scope for error in good faith, penalty could not be levied. The Tribunal took note of the decisions of this court in Addl. CIT v. Swatantra Confectionery Works [1976] 104 ITR 291 and CIT v. Kedar nath Ram Nath [1977] 106 ITR 172, but taking into account the totality of the circumstances of the case, it felt inclined to delete the penalty. The Tribunal also noted that under the Explanation to Section 271 (1) (c) the onus is on the assessee but the quantum of proof to discharge the onus is as in a civil case and it is to be decided by the rule of preponderance of probability. Taking the facts and circumstances of the case cumulatively, the Tribunal felt itself unable to affirm the penalty. In the result the penalty was deleted. Now, at the instance of the revenue, the questions mentioned above have been referred to this court.

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