R. M. Sahai, J. - The following question of law has been referred for the opinion of this court by Income Tax Appellate Tribunal (Delhi Branch C) :
'Whether upon the facts and in the circumstances of the case, the order of the Income tax Appellate Tribunal quashing the penalty imposed upon the assessee by the Inspecting Assistant Commissioner is right in law, specially having regard to the terms of the Explanation to section 271(1)(c) of the Income Tax Act, 1961
2. The return was filed by the assessee showing an income of Rs. 46,228/-. The assessment was completed by the Income Tax Officer on a total income of Rs. 74,273/- which was subsequently reduced by the Assistant Appellate Commissioner to Rs. 63,773/- As the returned income fell short of 80 per cent. of the assessed income the Income Tax Officer initiated proceedings under section 271(1)(c) of Income Tax Act, 1961. As the minimum penalty leviable exceeded Rs. 1000/- the case was referred to the Inspecting Assistant Commissioner under section 271(1)(c) read with section 274(2). The Inspecting Assistant Commissioner imposed the penalty of Rs. 5,000/- on the ground that the difference of more than 80 per cent between the income assessed and the income returned arose out of fraud, or gross or wilful neglect on the part of the assessee. Aggrieved by the decision of the Inspecting Assistant Commissioner the assessee filed an appeal and the Tribunal deleted the penalty on the ground that the burden placed on the assessee by the Explanation was discharged when it filed a return on the basis of accounts maintained by it and further it was not found that the account books were not correct or complete.
3. Counsel for the Department has placed reliance on a decision reported in Commissioner of Income Tax vs. M/s. Kedar Nath Ram Nath, (1974 U.P. Tax cases 488) : (1975 CTR (All.) 13) and has urged that the Tribunal misunderstood the scope of the Explanation appended to section 271(1)(c). Section 271(1) reads like this :-
(1) If the Income Tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this act is satisfied that any person
(c) has concealed the particulars of his income or furnished inaccurate particulars of Such income. .......................................... .......................................... ..........................................
Explanation - Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide 'by him for the purpose of ranking or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilfil neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purpose of clause (c) of this sub-section.'
3. Taxation may be an illegal exaction or compulsory levy yet it is a sovereign act and is necessary in any system of Government for the welfare of the society and the country. If on one hand the assessee has a well recognised right to arrange its affair in such a manner as to avoid the impact of taxation and escape the liability the Legislature is well within its bound to incorporate provisions which may foreword the assessee of the dangers of taking recourse to such steps. Penal provisions are contained in normally every taxing statute. It is a common feature of these provisions that they are hedged with numerous restrictions and controls for instance reasonable cause, bona fide act etc. The courts of law have also been liberal in interpreting the penal provisions but where the liberality of the interpretation is taken away by the legislative mandate the courts are left with no other alternative except to accept it. Explanation to Section 271(c) is one of the exception which has been incorporated by which the burden to establish, where difference of tax between the income returned and the income assessed is more than 80 percent has been placed on the assessee. It contains a rule of presumption. The Legislature has willed that where it is found that the difference is of 80 percent it shall be presumed that the assessee was not acting bonafide. We do not agree with the Tribunal that in cases where accounts are maintained and income is returned on its basis the onus placed by the Explanation stands discharged. Mere filing of return or lack of evidence on behalf of the Department to establish mens rea on the part of the assessee would not absolve it from the primary responsibility placed on it by the Explanation. There appears to be substance in the submission made by the counsel for the Department that the Tribunal Completely misunderstood the scope of the Explanation. The Legislature has dispensed with the necessity of establishing fraud or wilful neglect on the part of the Department. It has as a matter of law laid down that where the difference is so much the presumption shall be against the assessee. The presumption however is rebuttable and it is open to the assessee to discharge the same by proving that difference did not arise from any fraud or any gross or wilful neglect on his part. This could be done by direct evidence or by circumstances from which an inference can be derived that the assessees conduct was bona fide. The Tribunal has recorded the following finding :
'However in the instant case though the rate of gross profit as shown remained unproved by the assessee yet it has not been proved by the revenue that the books of account were not real and that the return submitted by it were not correct and complete. As there is no material evidence on record from which we can come to a reasonable and positive inference that the assessees books of account are not correct and complete the assessee must be held to have proved that there was no fraud or gross or wilful neglect on its part.'
The revenue was not required to prove that the books of accounts were not real or that the return submitted by it were not correct and complete. Once the difference in the income returned and the income assessed was more than 80 per cent. the explanation applied and it was for the assessee to prove that this difference was not due to any fraud or wilful conduct. No material was required to be placed on record by the Department to establish that the account books were not correct and complete. This has been done by application of the Explanation. The burden to dispel the effect of the Explanation was on the assessee. If no direct or circumstantial evidence was led or available on the record it cannot be presumed that the assessee was not guilty of fraud or gross or wilful neglect. In our opinion it is otherwise.
4. In view of what we have stated above the question referred to us is answered in the negative in favour of the Department and against the assessee. As nobody appeared for the assessee there shall be no order as to costs.