1982 Supreme(All) 552

High Court Of Allahabad
K. N. Seth, R. R. Rastogi, JJ.
Addl. Commissioner Of Income-Tax : Appellant
Versus
Lakshmi Industries And Cold Storage Co. Ltd. : Respondent
Income-tax Reference 387 of 1977
Decided On : Aug 06, 1982

The Explanation to Section 271(1)(c) of the Income-tax Act, 1961, has brought about a material change in the situation, inasmuch as in a case where it is found that the income returned was less than 80 percent, of the income assessed as reduced by the expenditure incurred bona fide for earning any income included in the total income but which has been disallowed as deduction, unless such person proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof. The Department is now only required to show that the difference in the income returned and the income assessed was more than 20 per cent, and if that is so, the onus is on the assessee to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. It is another thing that this onus is as in a civil case and the matter is to be decided on preponderance of probabilities.

Headnote:

INCOME TAX - Penalty - Concealment of income - Explanation to Section 271(1)(c) of the Income-tax Act, 1961 - Whether the Tribunal was legally justified in cancelling the penalty - HELD, no.

Fact of the Case:

The assessee, a private limited company, was engaged in the business of running a cold storage and manufacture and sale of kattha. For the assessment year 1965-66, the assessee filed its return showing an income of Rs. 1,74,613. During the course of the assessment proceedings, the ITO found that the assessee had also purchased firewood trees at auction and that though transport charges in respect of firewood were debited in the accounts, the firewood transported from the jungle did not find a place in the books of account. The assessee explained that it had consumed firewood in its boiler in the manufacture of kattha and part of the same was sold in the market for Rs. 28,624. Quantitative details of the firewood extracted and consumed in the manufacture of kattha were not available and hence the ITO estimated the assessee's consumption of firewood at Rs. 22,000 and estimated the excess firewood available for sale but not accounted for at 37,500 quintals. Taking the price of the firewood at Rs. 4 per quintal, the ITO made an addition of Rs. 1,50,000. On appeal, that addition was reduced to Rs. 1,06,000. The Tribunal required the assessee to furnish a comparative statement of firewood consumed by it in the manufacture of kattha in some of the previous years. The assessee could not do so and also conceded that the quantity of firewood purchased was not mentioned in the books. The same was the position regarding the recovery of firewood from the jungle. The Tribunal found that the assessee had taken firewood trees from the Government. It had extracted firewood. Its claim that the firewood recovered was not available for sale was not satisfactory and, therefore, there was no alternative except to hold that approximately 25,000 quintals of firewood had remained unaccounted for. The Tribunal considered it fair and reasonable to estimate the value of the same at Rs. 50,000.

Finding of the Court:

The Tribunal erred in cancelling the penalty. The Explanation to Section 271(1)(c) of the Income-tax Act, 1961, has brought about a material change in the situation, inasmuch as in a case where it is found that the income returned was less than 80 percent, of the income assessed as reduced by the expenditure incurred bona fide for earning any income included in the total income but which has been disallowed as deduction, unless such person proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof. The Department is now only required to show that the difference in the income returned and the income assessed was more than 20 per cent, and if that is so, the onus is on the assessee to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. It is another thing that this onus is as in a civil case and the matter is to be decided on preponderance of probabilities.

Issues: Whether the Tribunal was legally justified in cancelling the penalty.

Ratio Decidendi: The Explanation to Section 271(1)(c) of the Income-tax Act, 1961, has brought about a material change in the situation, inasmuch as in a case where it is found that the income returned was less than 80 percent, of the income assessed as reduced by the expenditure incurred bona fide for earning any income included in the total income but which has been disallowed as deduction, unless such person proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof. The Department is now only required to show that the difference in the income returned and the income assessed was more than 20 per cent, and if that is so, the onus is on the assessee to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. It is another thing that this onus is as in a civil case and the matter is to be decided on preponderance of probabilities.

Final Decision: The question is answered in the negative, in favour of the Commissioner and against the assessee. The Commissioner is entitled to costs, which we assess at Rs. 250.