P.N. Khanna, J.
(1) At the instance of the Revenue, the following question has been referred to this court by the Income-tax appellate Tribunal, Delhi Bench 'C', for opinion:
'WHETHERon the facts and in the circumstances of the case, the Appellate Tribunal was justified in cancelling the order of penalty passed by the Inspecting Assistant Commissioner of Income-tax imposing a penalty of Rs. 12,000.00 under section 271(l)(c) read with section 274 to the Income-tax Act 1961?'
Messrs. Narang and Company, a registered firm carrying on business in brass-ware goods and in exports and imports, is the assessed. The relevant assessment year is 1961-62, the previous year being the financial year ending on March 31. 1961. The Income-tax Officer found the following cash credits in sundry creditors account:
18.4.1960 Shri S.P. Khanna Rs. 1,500 30. 4. 1960 M/s. Mackinnon Mackenzie Rs. 14,000 31. 3. 1960 M/s. M. Motors Rs. 1,500 3.7.1960 M/s. Allied Engineers Rs. 3,000 Rs. 20,000
The assessed explained that advances aggregating Rs. 20,000.00 had been given to these parties in the sundry advances account, which on being received back during the relevant previous year were credited in the account. As this Explanationn was not considered proper and no further Explanationn could be rendered, the assessed surrendered these amounts voluntarily to be taxed as its income. The asessee wrote to the Income-tax Officer on January 20, 1961 in the following terms
'WEare unable to render proper Explanationn of the credits in the under-noted accounts, which you may treat as part of the taxable income:
1. Shri S.P. Khanna Rs. 1,500 2. M/s. Mackinnon Mackenzie & Co. Rs. 14,000 3. M/s. M. Motors Rs. 1,500 4. M/s. Allied Engineers Rs. 3,000 Rs. 20,000'
THEabove additions are being voluntarily made and we trust you would be kind enough not to levy any penalties in this respect.'
(2) The Income-tax Officer also found an item in the foreign sales account in respect of a bill of Rs. 14,115, which was reversed in the books. The assessed explained that the bill was not retired by Mess's V. S. Savona, Los Angles, to whom the goods had been dispatched. The goods remained with the clearing agents throughout the previous year. As the sale did not relate to the year in question, entry in respect thereof was reversed. The goods, however, had not been included in the closing stock during the year. This, according to the assessed, happened inadvertently. It had no objection to the closing stock being increased by Rs. 5,615.00, which was the approximate cost of goods. The Income-tax Officer added these amounts as income of the assessed. He issued a penalty notice under section 274 read with section 271(l)(c) of the Income-tax Act, 1961 and as the minimum amount of penalty imposable exceeded Rs. 1000.00, referred the matter to the Inspecting Assistant Commissioner of Income-tax. who imposed upon the assessed a penalty of Rs. 12,000.00. The asses- see appealed to the Income-tax Appellate Tribunal and contended that it had not concealed any income, nor had furnished inaccurate parti-, culars. It could not furnish in the year 1965, further Explanationn after a lapse of five years. The amount of Rs. 20,000.00 according to the assessed was surrendered not because it was concealed income, but because the assessed was unable to render proper Explanationn after this lapse of time. Relevant entries in the cash book were, however, produced to show that during the relevant year, it had made actual payments to the parties concerned. Regarding Rs. 5650.00 the assessed pointed out that the goods had not been received back even till now. The Tribunal accepted the contentions of the assessed and cancelled the penalty.
(3) Mr. B. N. Kirpal, the learned counsel for the Revenue contended before us that the onus lay on the assessed to prove that there was no fraud or willful neglect on his part. According to him, the Tribunal was under an erroneous impression that the burden of proving the essential ingredients for imposing penalty was on the Revenue. He mainlv relied on a judgment of this court in Durga Timber Works v. Commissioner of Income-tax : 79ITR63(Delhi) .
MR.K. S. Suri, on the other hand, contended that the Explanationn offered by the assessed was found by the Tribunal to be acceptable and sufficient. This was, thereforee, a finding of fact recorded by the Tribunal on the basis of which it was justified in cancelling the penalty.
(4) According to sub-section (1) of section 271, if the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings is satisfied that any person, inter alia, has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay a certain sum by way of penalty in addition to any tax payable by him. It is the Income-tax Officer or the Appellate Assistant Commissioner, who has to satisfy himself first about the applicability of this section. The Explanationn to the sub-section is then important and provides that where the total income returned by any person is less than eighty per cent of the total income as assessed (suitably reduced by any bona fide expenditure, which may have been disallowed), such person shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars unless he proves that failure to return the correct income did not arise from any fraud or gross or willful neglect on his part. The deeming provision raises a presumption in law about the concealment of the income or about the inaccuracy of its particulars whenever the returned income is less than eighty per cent of the assessed income. But this is a rebuttable presumption and the assessed is entitled to show that there was no fraud or gross or willful neglect on his part.
(5) It would, thus, be observed that sub-section (1) of section 271 is not only penal or quasi-criminal in nature, but departs from the normal well established rule which would throw the burden of proof on the Revenue to establish that the assessed had consciously concealed the particulars of his income or deliberately furnished inaccurate particulars in respect thereof. The onus of proof, on the other hand, has been placed on the assessed, who is required to prove the negative, that is, the absence of fraud or gross or willful neglect on his part. The assessed is to be afforded an opportunity to furnish this proof. He would, in these peculiar circumstances, be taken to have discharged the onus, if he, in the absence of aay proof to the contrary, can raise probabilities in his favor or point out circumstances which can create doubts, the benefit of which can be given to him.
(6) In the case of Durga Timber Works (supra) the assessed admitted that the amounts in .question 'could be treated as its concealed income'. The Tribunal found that there was material before the authorities to justify the levy of penalty. This was held to be a finding of fact which, according to this court, was binding on it in the exercise of its advisory jurisdiction under section 256 of the Act. That was not a case of false Explanationn. It was found to be a case where a device or deliberate disguise had been created by the assessed for concealing its income. It was under these circumstances that this court observed that 'it would amount to laying an impossible burden of proof on the department and making the provision for imposition of penalty wholly unworkable, if one were to insist that the department should still be called upon to prove by independent evidence that the assessed had concealed its income or that the amounts were not revenue receipts.'
(7) Mr. Kirpal also relied on Commissioner of Income-tax v. Gates Foam and Rubber Company : 91ITR467(Ker) . In that case, the assessed had deducted a sum of Rs. 39,121.00 as commission paid to an agent-firm. The Income-tax Officer discovered that the onlv partners of the agent-firm were the children of a partner of the assessed firm, of whom only two were adults. The agent-firm was held to be spurious set up for diverting large portion of income and the assessed agreed to the inclusion of Rs. 39,121.00 in its total income. No inadvertence was pleaded. On the other hand, it was conclusively established that the entries were false. The Kerala High Court in these circumstances held that the placing of bogus debit as genuine constituted furnishing of inaccurate particulars of income and attracted the Explanationn to section 271(l)(c) of the Act. Both these cases were decided on their own peculiar facts. The assesseds therein had been given opportunity to rebut the evidence on record which was against them and to substantiate their Explanationns. But, they had failed. They could not establish even probabilities in their favor. The presumption of concealment which arises under the Explanationn to section 271(1) was, thereforee, found to have not been displaced.
(8) In Krishan Lal Shiv Chand Rai v. Commissioner of Income-tax Patiala . The High Court of Punjab and Haryana referred to the established principle of law that a party was entitled to show and prove that an admission made by him previously was in fact not correct and true. The Inspecting Assistant Commissioner had proceeded to impose penalty solely on the basis of the fact that the amounts were surrendered by the assessed at the time of the assessment. The High Court held that the assessed could not be denied his ri'ht to prove that the surrender was no admission and that the so-called admission was in fact wrong and the surrender was made solely to avoid botheration as had been stated by the assessed. Penalty proceedings were held to be distinct from assessment proceedings. In Commissioner of Income-tax v. Sankarsons and Company : 85ITR627(Ker) , the High Court of Kerala observed that the purpose of the Explanationn to section 271(1) was to create a presumption that where the total income returned was less than 80 per cent of the assessed income, the assessed had concealed the income or furnished inaccurate particulars of such income. This presumption could be displaced by the assessed by proving that failure to return the correct income did not arise from any fraud or gross or willful neglect. The quantum of proof necessary, held the court, would be that required in a civil case, viz. preponderance of probability. With respect, we think that this is the correct position of law.
(9) In the instant case, the Inspecting Assistant Commissioner, when levying the penalty noticed the amounts of Rs. 20,000.00 and Rs. 5650.00 surrendered by the assessed towards its total income, which were treated as unexplained. He obseryed: 'To this extent, its own confession corrobrates the fact of assessed's guilt of deliberately furnishing its inaccurate particulars. In cases where the assesseds admit the omissions and consent to their inclusion in the assessable income, such of their confession do not take their cases out of the purview of penalty proceedings... . . ' This was an entirely wrong approach. Penalty proceedings are distinct from assessment proceedings and even if the assessed had failed to give a satisfactory Explanationn in respect of these credits in the assessment proceedings, it would be open to him in the penalty proceedings to offer Explanationn Ob the basis of fresh material.
(10) The Explanationn to section 271(1) which was introduced in the Act in 1964 was not invoked by the Inspecting Assistant Commissioner. Even before the Tribunal the Revenue did not seek to justify the levy of penalty on the basis of the Explanationn. The learned counsel for the Revenue, thereforee, cannot be permitted to raise the contention for the first time before us on the basis of the Explanationn. Even if he is allowed to raise this contention, we find ourselves unable to accept the same. The opportunity, to which the assessed is entitled, to rebut the presumption of concealment of income raised under the Explanationn by showing that his failure to return correct income was not due to any fraud or gross or willful neglect, was denied to him in the instant case. The assessed here had not admitted that the amount in question was its concealed income as had been in the case of Durga Timber Works (supra). It explained, on the other hand, that it was unable to render proper Explanationn of the credits after the lapse of five years. It had also been contended before the Tribunal in appeal against the penalty order that the assessed surrendered the credits because the assessedment was getting time barred and the assessed had cooperated with the Department in the expectation that there will be no penalty in respect of the said amounts. The assessed also furnished relevant copies of the cash book and was able to show that it had made these payments to the parties concerned during the earlier years. The amounts had been credited when they were received back. It was open to the Tribunal to accept these Explanationns notwithstanding that such Explanationns had not been accepted, in the assessment proceedings. The Tribunal, was, in fact, satisfied that the entries in the books of aaccount of the assessed for the earlier years in respect of the parties in whose names credits had been found during the relevant year proved that the amounts in question could not be treated as concealed income during the previous year. There is an observation in the order of the Tribunal to the effect that the burden of proving essential ingredients for imposing penalty was on the Revenue, but its conclusions were not based on that legal proposition. It had observed, on the other hand, that the assessed in rebuttal was entitled to adduce additional evidence to show that no penalty could be imposed on him. The assessed was found to have given evidence to prove that no penalty was attracted.
(11) Regarding Rs. 5650.00 in respect of foreign sales, the assessed had not received back the goods even till now. This amount could be added to the income only for the purpose of accountancy. There' could be no mala fides intention to supress the purchase price of goods from the closing stock. This Explanationn was found to be satisfactory by the Tribunal. That being a finding of fact recorded by the Tribunal on evidence before it, cannot be disregarded by us in the exercise of our advisory jurisdiction under secton 256 of the Act. The Explanationns offered by the assessed do not appear to be false or unreasonable. The Tribunal, thereforee, cannot be said to have unjustifiably cancelled the order imposing penalty.
(12) Our answer to the question referred to us, thereforee, is in the affirmative, i.e. in favor of the assessed and against the Revenue. In the peculiar circumstances of the case, however, there shall be no order as to costs.