K.K. Dubey, J.
1. The following questions have been referred for our decision under Section 256( 1) of the I.T. Act, 1961.
' 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee cannot be guilty of failure to return the correct income as required by Explanation Under Section 271(1)(c) and deleting the penalty imposed?
2. If the answer to the first question be in the negative, whether the Tribunal was justified in holding that amended provisions of Section 271(1)(c) with effect from April 1, 1968, about the quantum of penalty will not be applicable for the assessment year 1964-65, though the assessee had filed a revised return of income dated 14th August, 1968, after the introduction of that amendment '
2. This case relates to a penalty of Rs. 21,300 imposed by the IAC, Indore Range, Indore, for default under Section 271(1)(c) of the I.T. Act, 1961. In the opinion of the Department the income concealed was the cash credits of the amounts of Rs. 1,500, Rs. 1,800 and Rs. 17,980. The penalty imposed was with respect to these amounts. The AAC found that the cash credit of Rs. 1,800 was included in the sum of Rs. 17,980. Finally the Tribunal on appeal deleted the excess income of Rs. 1,500. Therefore, these two amounts do not survive for the purpose of imposing the penalty. The addition of the cash credit of Rs. 17,980 was, however, sustained in appeal by the Tribunal.
3. The ITO noticed the cash credit of Rs. 22,980 in the name of Keshri-mal Mishrilal, father of the assessee. The assessee was asked to explain and establish the genuineness of the cash credit. After a detailed investigation the ITO came to the conclusion that the assessee's father, Keshrimal Mishrilal, did not have the capacity to pay the large amount of Rs. 22,980 and, accordingly, treated this amount as the assessee's own income from undisclosed source. On the basis of the assessment, penalty proceedings for the default of the assessee under Section 271(1)(c) of the I.T. Act, 1961, were also started. On appeal, the AAC came to the conclusion that the father of the assessee could have saved a sum of Rs. 5,000 and, therefore, reduced the addition of income by that figure. The Tribunal affirmed the rinding of the AAC and the assessee has been taxed accordingly.
4. The penalty proceedings were referred by the ITO to the IAC for disposal as required by Section 274(2) of the I.T. Act. The IAC held that the assessee was guilty of concealment of income and imposed a penalty of Rs. 21,300. The IAC was of the view that Explanation to Section 271(1)(c) will be applicable placing the burden on the assessee to show that he had not committed any default or the alleged concealment. In regard to the quantum of penalty, he applied the higher quantum as applied from April 1, 1968, as the assessee had filed a revised return of income after the amendment of Section 271(1)(c).
5. The assessee came up in appeal against the imposition of penalty and the Tribunal has set aside the penalty. The Tribunal has taken the view that the addition of income in respect of the cash credits in the assessee's account is because the explanation of the assessee had not been accepted. There was no other material before the Department to hold that it was the assessee's income and, therefore, in the circumstances of the case, the law laid down by the Supreme Court in Anwar Ali's case : 76ITR696(SC) , and in the case of Khoday Eswarsa and Sons : 83ITR369(SC) applied. It was incumbent on the Department to establish that the income sought to be enhanced constituted income of the assessee and it was such income as was of the revenue nature. In the absence of such evidence the assessee could not be held guilty of failure to return the correct income as required by the Explanation to Section 271(1)(c) of the I.T. Act, 1961. The Tribunal was further of the opinion that the amended provision of Section 271(1)(c) with effect from April 1, 1968, did not apply retrospectively to prior assessment years. The penalty imposed was, therefore, deleted and the assessee's appeal allowed.
6. It is strenuously contended by Shri Bagadia, learned counsel for the Department, that the Tribunal completely ignored the Explanation to Section 271(1)(c) as in force after April 1, 1964, when the total income returned was less than 80% of the total income assessed. The assessee could, unless he proved that the failure to return the correct income did not arise from any fraud or any gross or any wilful neglect on his part, be deemed to have been guilty of concealment or of furnishing inaccurate particulars. It is contended that the Explanation clearly casts the burden on the assessee. The Tribunal's view that it was the Department which had to show that the addition of the income constituted the income of the assessee and that it was the income of a revenue nature, was clearly misplaced. The assessee did not prove in terms of the Explanation that he committed no default.
7. It would be seen that the explanation of the assessee that he had borrowed from his father a sum of Rs. 22,980 has not been accepted. This was on the ground that the father could not have saved such a large amount from the agricultural income. In appeal, the AAC came to the conclusion that the father could have at least saved a sum of Rs. 5,000 and, therefore, reduced the addition of income by Rs. 5,000. In a case like this when the assessee had borrowed the money from his relative or his father, all that the assessee could do was to produce the person, who gave such money, in evidence. The father had been examined, but his evidence did not carry the conviction with the Department. The evidence has been mainly disbelieved on the ground that the father could not have saved an amount of Rs. 22,980. It is somewhat difficult to appreciate how it could be concluded with an exactitude that the father could have saved only Rs. 5,000 and not more. Though it was open to the Department not to accept the explanation, it could not be said that the explanation was false. There was no material with the Department to indicate that it was false. It may well be that the father had saved a much larger amount and the amount had been actually paid to the son. All that the Explanation to Section 271(1) required was to cast a burden on the assessee to explain that the amount had been borrowed from his father as stated by him. If he has tendered proof of such explanation and the Department was not convinced with it, merely on the possibility of its being unlikely, the conclusion that concealment was established, would be not warranted. Even after the Explanation the ratio of the Supreme Court's decisions in Anwar Ali's case : 76ITR696(SC) and CIT v. Khoday Eswarsa and Sons : 83ITR369(SC) , would govern the case and unless there were circumstances to lead to the inference categorically as to the concealment of income, no penalty ought to be levied merely for not being able to prove the case to the hilt as in a criminal proceeding. It is well established that the order of assessment is not conclusive of the fact that the amount assessed was in fact the income of the assessee. But if the total income returned was less than 80% of the total income assessed, the burden is on the assessee to prove that the failure to return the correct income did not arise from fraud or any gross or wilful neglect. The proof necessary under this Explanation was not as required in a criminal case. The assessee here had shown that the father had lent the money to him and now unless the Department had something more than mere estimate of the father's ability to save the amount in question the guilt of concealment could not be held to have been established. Something more than their estimate would be necessary to say that the father could not have such an income and that he could not have saved a large amount to be able to lend to the son, the assessee could not be held to have made a default under Section 271(1)(c) of the I.T. Act, 1961.
8. We think that the assessed must be held to have discharged the burden resting on him by the reasonableness of the explanation and that it could not be impeached by any established material with the Department. We think that the assessee, in the circumstances of the case, has discharged the burden cast on him because of the Explanation and no penalty can be levied in the circumstances of the case.
9. We would, therefore, answer the first question in favour of the assessee and against the Department. In view of the fact that no penalty is leviable, the rate at which this could be levied would not arise. The second question, therefore, will not arise and it need not be answered.