R. N. MISRA J. - On an application under s. 256(2) of the I.T. Act of 1961 (hereinafter referred to as 'the act') made by the revenue, this court directed the Income-tax Appellate Tribunal, Cuttack Bench, to state a case and refer the following question for the opinion of the court :
'Whether, In the facts and circumstances of the case, the Tribunal erred in law in deleting the imposition of penalty ?'
The assessment years in question are 1961-61 and 1965-66. The assessee is a partnership firm deriving income from business in grocery. For the assessment year 1960-61, the assessment was completed by adopting an income of Rs. 48,255. The assessment was reopened under s. 147 of the Act and ITO made the reassessment treating the income to be Rs. 68,255 and the enhancement of Rs. 20,000 was on the basis of income from undisclosed sources. A cash credit of that amount appearing in the assessees books in the name of one, M/s. Harnarayan Prabhudayal of Calcutta, was not accepted to be a cash credit, the ITO started a penalty proceeding under s. 271(1)(c) of the Act and the IAC imposed a penalty of Rs. 12,900.
The assessee thereupon appealed to the Tribunal against the imposition of penalty. The Tribunal examined the matter at some length and ultimately deleted the penalty by holding that the imposition was not justified in the facts and circumstances of the case. At the instance of the revenue, the following question was referred to this court :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in cancelling the penalty imposed by the Inspecting Assistant Commissioner by resort to the Explanation to section 271(1)(c) of the Act which was introduced with effect from April 1, 1964, and also holding that there was concealment of income on the part of the assessee ?'
A Bench of this court examined the matter at length and by the decision dated September 13, 1973, in : 103ITR479(Orissa) (CIT v. K. C. Behera) came to hold :
'The Explanation brought in radical changes. The object of the Explanation was to get over the difficulty created by decisions which placed the burden of proving concealment of the particulars of the income on the revenue as was done in Anwar Alis case : 76ITR696(SC) . The Explanation now places the burden of proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect of the assessee. The object of the Explanation is to create a presumption in favour of the revenue in a certain contingency. That is to say, where the total income returned is less than 80 per cent. of the total income assessed, the presumption would apply. This presumption is a rebuttable one and can be displaced by the assessee by providing that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part.
It is to be noted that the penalty proceeding continues to be penal in nature even after the introduction of the Explanation. The quantum of proof necessary to discharge the onus by the assessee would be as in a civil case, that is, by preponderance of probabilities. After applying the Explanation the taxing authorities would take into consideration all the facts and circumstances, pros and cons, and then determine whether the assessee has discharge the onus.
On the aforesaid analysis the Tribunal acted contrary to law in not applying the Explanation to the facts of this case. We would accordingly answer the question in the negative by saying that the Tribunal was not justified in law in cancelling the penalty without resorting to the Explanation.'
For the assessment year 1965-66, the IAC imposed a penalty of Rs. 14,500 under 271(1)(c) of the Act and the assessee had appealed to the Tribunal. The Tribunal cancelled the penalty whereupon the following question has been referred at the instance of the revenue for the opinion of this court :
'Whether, on the facts and circumstances of the case, the order of the Appellate Tribunal in cancelling the penalty was justified in law ?'
This court by judgment dated september 5, 1973, in S.J.C.No. 157 of 1971 [since reported as CIT v. K. C. Behera : 105ITR193(Orissa) ] answered the question by saying that the Tribunal was not justified in cancelling the penalty. The court observed that after the case went back to the Tribunal, the correct law should be applied and a finding of fact as to whether penalty was exigible should be reached.
After the disposal of the reference for the respective years by this court, the Tribunal set down the appeals for a further hearing for the purpose of passing orders as may be necessary to dispose of the cases conformable to the decision of this court as provided under s. 260 of the Act. The Tribunal relied upon the decision of the Supreme Court in the case of CIT v. Jubilee Mills Ltd. : 68ITR630(SC) , in support of its view that the appeals could be reheard if the facts and circumstances of the case required for disposal of the appeal by the Tribunal in conformity with the opinion of the court. After hearing the parties, the Tribunal again came to the conclusion that the imposition of penalty was not justified. So far as the first assessment year is concerned, the Tribunal held :
'....... The assessee made the entries relating to the credits in its books of account regularly maintained in the course of its business and produced the same before the Income-tax Officer. These books have not been found to be false or concocted and, in fact, the assessment of the business income of the assessee has been made on the basis of those books. The assessee explained the credits in question to be genuine deposits from the two parties and furnished their names and addresses. The assessee, however, could not produce any further corroborative evidence to prove those entries. The amounts were, therefore, assessed as the assessees income in the assessment proceedings. It is now well settled that penalty proceedings are different from assessment proceedings and that the assessee is entitled to claim in the course of the penalty proceedings that the evidence on record may be considered afresh. The assessee expressed its helplessness to produce the creditors as required by the Income-tax officer on the ground that the creditors were not willing to co-operate with the assessee. Even the Income - tax officer who issued the summons could not enforce their attendance. It is not known as to under what circumstances the creditors failed to comply with the summons under s. 131 of the Act and what further action, as prescribed under the law, was taken in the matter. The mere fact that the creditors did not appear in response to the summons or that the assessee failed to produce them does not, in our opinion, lead to the conclusion that the entries made in the assessees books were not genuine. In our opinion, these amounts have been assessed as unproved cash credits simply because the assessee could not prove by extraneous evidence the entries made in its books. We do not think that the explanation of the assessee is entirely inconsistent with the probability that the amounts in question could be genuine deposits received and returned in the ordinary course of business. Considering all the facts and circumstances of the case, we hold that the assessee discharged the onus cast on it by the Explanation to section 271(1)(c) of the Act,.....'
The Tribunal found support for its view from the decision of the Jammu and Kashmir High Court in the case of Addl. CIT v. Sadiq Ali & Bros. .
In the second assessment year, the Tribunal observed :
'....... In our opinion, the penalty for this year also cannot be sustained for reasons similar to those discussed in the appeal for the assessment year 1960-61 above. The credit in question has been assessed disbelieving the explanation of the assessee. The credit appeared an entries in the books kept in the regular course of business and produced before the Income-tax Officer. A letter of confirmation was produced before the Income-tax Officer. The creditor was also examined. Hence, the addition has been made only as unproved cash credit. Taking all the facts and circumstances of the case into consideration. We do not find anything improbable in the explanation of the assessee that the amount in question represented genuine transactions recorded in the running account of the creditor in the books of the assessee. Hence, we find that the assessee cannot be said to be guilty of any fraud or gross or wilful neglect on its part and that the assessee has discharged the initial onus cast on it by the first part of the Explanation.'
We have extracted at length from the decision of the Tribunal to show that the Tribunal acted in conformity with the direction of this court. It took into account the Explanation, placed the initial burden on the assessee, proceeded on the footing that it was a rebuttable presumption and could be displaced by the assessee by proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on its part. The Tribunal scrupulously followed the ratio indicated in the reported decision and as a fact has now come to hold against the revenue. It is the settled view in law that where on consideration of all facts and circumstances, pros and cons, a conclusion is reached, it is one of fact. There may be cases where errors of law would be committed in reaching a conclusion. It is not the case of the revenue before us that any such error was committed.
Our answer, therefore, in the facts and circumstances of the case, is that the Tribunal did not err in law in deleting the imposition of penalty.
We make no order for costs.
PANDA J. - I agree.