1. The assessee, which is a wholesale dealer in plantains, and had returned the total income of Rs. 33,215, was assessed on a total income of Rs. 99,600, after the ITO had rejected the book results. In appeal, the total income was reduced to Rs. 71,450 and as the returned income was less than 80 per cent. of the assessed income, the ITO initiated penalty proceedings in view of the Explanation to s. 271(1)(c) of the I.T. Act, 1961, as in force in the relevant assessment year.
2. The IAC took the view that the failure to maintain records like purchase and sale vouchers as well as vouchers for expenses constituted a gross and wilful neglect on the part of the assessee within the meaning of the Explanation to s. 271(1)(c) of the Act. A penalty of Rs. 50,035 was, therefore, levied.
3. When the appeal before the Tribunal was heard, the Tribunal found that a similar question in respect of plantain dealers was dealt with by it in Income-tax Appeal No. 2306 of 1970-71, in which the Tribunal had taken the view that 'merely because the accounts of the assessee did not commend to the Income-tax Officer and that he had rejected the book results, it would not ipso facto follow that the difference in the returned income arose due to any gross or 'wilful neglect' or 'fraud' on the part of the assessee'. On that view, the Tribunal allowed the appeal and set aside the order of penalty. Arising out of this order of the Tribunal, the following two questions have been referred to this court under s. 256(1) of the Act :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that even where the Explanation to section 271(1)(c) of the Income-tax Act, 1961, comes to the aid of the Revenue in raising the presumption mentioned therein for the purpose of proving the requirements of clause (c) of section 271(1) ibid, the burden still lies on the Revenue to prove that the difference between the 'returned income' ad the 'income assessed' has arisen due to fraud or gross or wilful neglect on the part of the assessee, although the assessee fails 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 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the penalty imposed on the assessee under section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1967-68 was not tenable ?'
4. We had occasion to deal with this question when the reference arising out of Income-tax Appeal No. 2306 of 1970-71 was decided by us, being Income-Tax Reference No. 152 of 1972 decided on January 20, 1982 CIT v. Devandas Perumal & Co. : 140ITR943(Bom) . In that reference, we have endorsed the view of the Tribunal that if the accounts kept by the assessee were such as could be kept in view of the nature of the business of the assessee, even though the returned income is not accepted by the tax authorities, the assessee does not become liable to penalty because of the assessee cannot be said to have concealed the particulars of his income and that he cannot be said to have failed to return the correct income on account of any fraud or any gross or wilful neglect on his part. The same principle must apply in the instant case also and accordingly the Tribunal must be held to have correctly taken the view that the order of penalty was not justified. We have already pointed out in that case that the first question therein which is identical to question No. (1) in the instant reference does nor really arise because the order of the Tribunal did not have effect of casting any burden on the Revenue as sought to be suggested by question No. (1), Accordingly, it is not necessary for us to answer question No. (1), as it does not arise out of the order of the Tribunal.
Question No. (2) has to be answered in the negative and in favour of the assessee.
5. The Commissioner to pay the costs of this reference.