1. This is a reference under Section 256(2) of the I.T. Act, 1961. On the direction of this court the Income-tax Appellate Tribunal, Indore, has stated the case and referred the following question for our decision :
'Whether, on the facts and circumstances of the case, the Tribunal rightly held that the assessee cannot be held to be guilty of fraud or gross or wilful neglect on his part, the burden was upon the Department to prove so and consequently rightly deleted the penalties in question ?'
2. The assessee is an HUF carrying on business in grain and cotton, etc. For assessment years 1966-67 and 1967-68, it filed a return disclosing an income of Rs. 2,600 on estimate basis. The ITO issued a notice under Section 143(2) of the Act, with which the assessee failed to comply, and, therefore, best judgment assessments were completed for each of the two years under Section 144 of the I.T. Act. The total income computed by the ITO for each year was Rs. 18,100. The assessee appealed against the assessments and the AAC reduced the income to Rs. 11,700 and Rs. 15,100 respectively. The ITO initiated penalty proceedings and as the minimum penalty imposable exceeded Rs. 1,000, he referred the matter to the IAC under the provisions of the Act as they stood at the relevant time. The IAC invoked the Explanation to Section 271(1)(c) of the Act and levied penalties of Rs. 9,100 and Rs. 12,500 for the two assessment years in question.
3. The assessee appealed against the orders of the IAC. The Income-tax Appellate Tribunal allowed the appeals and cancelled the penalties holding that even though the accounts of the assessee were not closed and the same were not produced before the ITO, the assessee was not guilty of suppressio veri or suggestio falsi. The operative part of the Tribunal's order may be reproduced :
'The assessee filed its income on the basis of an estimate and the departmental authorities have rejected the estimate of its income by theassessee and substituted their own estimate of the income of the assessee. After all an estimate is an estimate and the circumstance that the estimate of income given by the assessee is rejected and is substituted by another estimate by the departmental authorities and also by the Tribunal will not, ipso facto, go to show that the assessee is guilty either of fraud or of gross or wilful neglect and, therefore, guilty of concealment. We are satisfied that on the facts of the case for each of these two years, the penalty provisions are not attracted. The non-maintenance of closed accounts and the non-production of them, when called upon to do so, might expose the assessee to a different penalty altogether, but so far as the charge of concealment is concerned or of gross or wilful neglect of the assessee is concerned, we must come to the conclusion that on the facts of the case, the penalty provisions under Section 271(1)(c) are not attracted, in either of these two appeals We, therefore, vacate the orders of penalty and allow the appeals.'
4. The Department sought a reference under Section 256(1) of the I.T. Act but the Appellate Tribunal rejected the application. The Department then filed an application under Section 256(2) of the Act before this court and this court directed the Appellate Tribunal to state the case and refer the aforesaid question for our decision.
5. It may be noted that the Appellate Tribunal placed complete reliance on the decision of the Supreme Court in CIT v. Anwar Ali : 76ITR696(SC) . The decision was rendered under the 1922 Act which did not contain any provision analogous to the Explanation to Section 271(1)(c) of the Act which was introduced by the amendment of Section 271(1)(c) by the Finance Act, 1964, w.e.f. 1st April, 1964. We have reproduced the relevant portion of the Appellate Tribunal's order and it is clear from a mere perusal thereof that the Appellate Tribunal did not consider the question of burden proof in the wake of the Explanation to Section 271(1)(c) of the Act.
6. Though there has been some conflict of opinion amongst the different High Courts with regard to the question of burden of proof in the light of the Explanation added to Section 271(1)(c) of the Act, so far as the Madhya Pradesh High Court is concerned the matter is concluded by its decision in Hansraj's case : 119ITR688(MP) . It has clearly been held therein that whenever the returned income is less than 80% of the assessed income, the burden of proving absence of fraud or gross or wilful neglect on his part is on the assessee. In a recent decision a Full Bench of the Punjab & Haryana High Court in Vishwakarma Industries v. CIT , after reviewing numerous cases from different High Courts including the case of Anwar Ali : 76ITR696(SC) , has held that in cases where the Explanation to Section 271(1)(c) applies, the burden is always on the assessee to show absence of fraud or gross or wilful neglect.
7. The learned counsel for the assessee vehemently argued that Explanation to Section 271(1)(c) of the Act was very much in the mind of the Appellate Tribunal while it allowed the appeals and cancelled the penalties. He invited our attention to the following observations in the Tribunal's order :
'After all an estimate is an estimate and the circumstance that the estimate given by the assessee is rejected and is substituted by another estimate by the departmental authorities and also by the Tribunal will not, ipso facto, go to show that the assessee is guilty either of fraud or gross or wilful neglect and, therefore, guilty of concealment.'
8. Learned counsel urged that the use of the words 'guilty either of fraud or of gross or wilful neglect' by the Tribunal clearly indicated that it was fully aware of the requirement of law under the Explanation to Section 271(1)(c) of the Act.
9. We do not find any merit in this contention. A perusal of the Tribunal's order; does not indicate anywhere that the Tribunal was alive to the requirement of the Explanation to Section 271(1)(c) which placed the burden on the assessee to show that the difference between the returned and the assessed income did not result on account of any fraud or gross or wilful neglect on the part of the assessee. On the contrary, the Tribunal decided the question raised before it as if the Explanation to Section 271(1)(c) did not exist on the statute book. In any case the Appellate Tribunal erred in failing to place the burden on the assessee as envisaged by the Explanation to Section 271(1)(c) of the Act and placed the burden of proving concealment on the Department.
10. We, therefore, hold that the Tribunal was in error in holding that the burden was upon the Department to prove fraud or gross or wilful neglect on the part of the assessee. We answer the question accordingly. The case be now sent back to the Tribunal for passing an appropriate order in the light of our observations as regards the effect of the Explanation to Section 271(1)(c) of the Act and the burden of proof under the said Explanation. The Appellate Tribunal will hear the parties again and dispose of the appeals.
11. There will be no order as to costs.