P.D. Desai, J.
1. The assessee, a partnership firm, was a dealer in medicines. It return of income for the assessment year 1969-70, the previous year being S. Y. 2024, was filed on May 12, 1969. The assessee returned an income of Rs. 7,874. In the course of the assessment proceedings, the ITO found, upon verification of the cash book of the assessee, 26, 1967, was not correctly made. The total which should have been struck at Rs. 14,105 was actually worked out at Rs. 17,605. The cash book thus reflected excess cash in the sum of Rs. 3,500 in the hands of the assessee. When asked to explain, the assessee pointed out that the discrepancy was the result of a totaling mistake and that the same was set right by an entry made in the cash book on October 2, 1968, whereunder the cash balance as on that day was reduced by Rs. 3,500. According to the assessee, the sum of Rs. 3,500 was, in fact, never in its hands during the interfering period. The ITO found the explanation to be untrue because on three occasions during the period between December 26, 1967, Rs. 1,300 below the amount which should have been in the hands of the assessee, if the totaling mistake has not occurred. In other words, it the aforesaid period which he had drawn upon on three different occasions to the extent of Rs. 1,300. When confronted with this evidence, the assessee tendered a further explanation that it had borrowed a temporary loan from one Hathilal Amarchand which was not recorded in the books from the amount advanced by the said Hathilal. The ITO thereupon examined Hathilal and recorded his statement in regard to the alleged loan. Hathilal denied having advanced any loan to the assessee. An opportunity was afforded to the assessee and its representative to cross-examine Hathilal but it was not availed of. In view of the circumstances aforementioned, the ITO came to the conclusion that the assessee had 'introduced the income earned by them from undisclosed assessee-firm has concealed the income of Rs. 3,500'. The said amount was, therefore, added as income from undisclosed sources and the total income of the assessee was computed at Rs. 11,154. A show-cause notice under s. 274 of the I. T. Act, 1961 (hereinafter referred to as 'the Act'), for concealment of the particulars of income was also directed to be issued against the assessee.
2. In view of the fact that the minimum penalty imposable exceeded the prescribed sum, the case was referred to the IAC who issued a fresh notice on July 22, 1971, calling upon the assessee to show cause why penalty should not be imposed upon it under s. 271(1)(c) for concealment of particulars of income for the assessment year 1969-70. The assessee showed cause and took up the same pleas which it had advanced before the ITO in the course of the assessment proceedings. The IAC held :
'Here is the case of an arithmetical inaccuracy detected in the books. That inaccuracy was not bona fide because soon after the detection by the ITO, the assessee could approach to point out (even when the cash books was no more with him) another inaccuracy which had been indulged in for compensating the earlier inaccuracy. So the assessee was well aware of the inflation of cash balance and even then did not bring it to the notice of the ITO.'
3. The IAC, therefore, held that the provisions of s. 271(1)(c) were satisfied. Alternatively, the IAC also found that the case was covered by the Explanation appended to s. 271(1)(c). The IAC, therefore, imposed a penalty in the sum of Rs. 3,500 under s, 271 (1) (c).
4. The assessee carried the matter in appeal before the Income-tax Appellate Tribunal and urged in the forefront that there was merely and arithmetical error which had crept into the cash book while striking the balance on the credit side on December 26, 1967, and that the same was corrected on October 2, 1968, and that no extra cash was, in fact, introduced into the accounts between the intervening period and that consequently there was no concealment of the particulars of income. The Tribunal rejected the submission in the following words :
'The plea taken by the assessee in this regard is wholly untrue. If this was merely a case of an arithmetical error, the cash balance on the 3 dates would not have gone below Rs. 3,500 as detected by the ITO. Actually, the cash balance during the intervening period had gone down to less than Rs. 3,500 by about Rs. 1,300 as found by the ITO and the IAC and if the assessee's story was true, the cash balance should have always exceeded Rs. 3,500 all along during the intervening period.'
5. The assessee also placed for the consideration of the Tribunal the alternative case of having borrowed a loan from Hathilal on the days on which the cash balance had gone down below Rs. 3,500. This alternative submission was also rejected by the Tribunal in the following words :
'Even at the time of the hearing of this appeal, the assessee's representative is unable to furnish the said dates on which such hand-loans were taken from Shri Hathilal Amarchand, the amounts of hand-loan taken and the dates on which the hand-loans were returned. In fact, the assessee having given any hand-loans at any time and the assessee thought it prudent not to cross-examine Shri Hathilal Amarchand on such denial. Evidently, the second plea taken by the assessee so as to cover the first plea was also wholly untrue. On the facts, it was reasonable to conclude that the assessee had concealed income which was brought into the cash book to the above extent of Rs. 3,500 by inflating the totals in the cash book on December 26, 1967, and which concealed income, after having been utilised in the business for a period of about 10 months, was withdrawn from the cash book on October 2, 1968. I am accordingly of opinion that, on the facts, it was reasonable to conclude that the assessee had concealed the particulars of his income within the meaning of s. 271(1)(c) of the Act and was, therefore, liable to penalty under the main provisions of s. 271(1)(c) of the Act.'
6. The Tribunal also considered the applicability of the Explanation to s. 271(1)(c) and found that the total income returned by the assessee was less than 80% of the assessed total income. The Tribunal held :
'The circumstances of the case narrated above show that the assessee had resorted to manipulation of accounts and to one untruthful plea of arithmetical inaccuracy and when the same could not be sustained, had resorted to the second untruthful plea of hand-loans, found to be a fictitious plea on examination of the party concerned. On the facts, it must be said that the assessee has not proved that the failure to return the correct income did not arise from fraud on its part..... The assessee's case is covered, as stated earlier, by the main provisions of section 271(1)(c) and, as stated by the IAC, otherwise also, the case is covered by the Explanation to section 271(1)(c).'
7. In view of these findings, the assessee's appeal was dismissed.
8. The assessee moved the Tribunal for stating a case in respect of six questions said to arise out of its order. The Tribunal, however, declined to state a case as, in its opinion, the conclusion that there was concealment of income was a question of fact. The assessee thereupon moved this court for direction to the Tribunal to state the case. This court directed the Tribunal to draw up a statement and to refer the following question of law :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the levy of penalty of Rs. 3,500 under section 271(1)(c) of the Income-tax Act, 1961 ?'
9. The facts narrated above would show that both the IAC and the Tribunal have invoked in aid the Explanation to s. 271(1)(c) in addition to the main provision of s. 271(1)(c). They have found that the conditions laid down in the explanation are also satisfied. Since we are in agreement with the said view, we propose to deal with the question referred for our opinion only on the basis of the applicability of the Explanation without entering into the consideration of the further question whether the requirements of s. 271(1)(c) are independently satisfied.
10. The Explanation to s. 271(1)(c) read as follows at the material time :
'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 making 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 wilful 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.'
11. In CIT v. Drapco Electric Corporation : 122ITR341(Guj) , this court had an occasion to consider the true content and effect of this Explanation. It was observed (p. 354) :
'The Explanation consists of two parts. The first part sets out the facts which, if proved, give rise to a rebuttable presumption. It provides, in order to raise the presumption, that the case must be one where the total income returned by any person is less than eighty per cent. of the total income as assessed under s. 143 or s. 144 or s. 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as deduction). If these facts are shown to exist, a presumption would be raised that such person shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purpose of clause (c) of s. 271(1). This presumption would of course be a rebuttable resumption and it would be open to such person to establish that despite there being a difference of more then twenty per cent. between the income returned and the income assessed (such difference having been arrived at in the manner indicated in the first part of the Explanation), the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. It is only if he fails to discharge the burden of displacing the presumption in the manner aforesaid on the basis of preponderance of probabilities by leading evidence or by relying on the material which is already on record that the penalty under s. 271(1)(c) for concealment of income would be attracted.'
12. In CIT v. S. P. Bhatt : 97ITR440(Guj) , the question of the nature and extent of the burden of proof in a case covered by the Explanation was examined and the following pertinent observations were made by this court (p. 445) :
'The fact of the total returned income being less than eighty per cent. of the total income assessed is sufficient to bring the assessee within the penal provision enacted in section 271(1)(c). That is achieved by the legal fiction enacted in the Explanation... If the assessee wants to repel the legal fiction and throw the burden of bringing the case within section 271(1)(c) again on the revenue, as it would be in the absence of Explanation, the assessee has to show - and this burden is upon him - that his failure to return to return the correct income did not arise from any fraud or gross or wilful neglect on his part...... It is a burden akin to that in a civil case where the determination is made on preponderance of probabilities. It is also not necessary that any positive material should be produced by the assessee in order to discharge this burden which rests upon him. The assessee may claim to have discharged the burden by relying onn the material which is on record in the penalty proceedings, irrespective of whether it is produced by him or by the revenue. The only question to which the income-tax authority had to address itself is, whether on the material on record in the penalty proceeding, can it be said on a preponderance of probabilities that the failure to return the total assessed income has not arisen on account of any fraud or any gross or wilful neglect on the part of the assessee. If the answer to the question is in the affirmative, the legal fiction enacted in the Explanation cannot arise and the revenue must fail in its attempt to impose penalty on the assessee.'
13. Now, the fact that the total income returned by the assessee in the instant case is less than 80% of the assessed total income within the meaning of the first part of the Explanation is not in dispute. The essential precondition for the applicability of the Explanation is, therefore, admittedly satisfied. In other words, the assessee has been prima facie brought within the ambit of the penal provision of s. 271(1)(c) by virtue of the legal fiction raised in the Explanation. The sole question, which survives for consideration, therefore, is whether, on the facts and in the circumstances of the case, the Tribunal was right in law in reaching the conclusion that the assessee has failed to discharge the burden of repelling the legal fiction.
14. The assessee offered two explanations - one after another, in order to prove that his failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. They were the same two explanation which he had offered during the course of the assessment proceedings. The Tribunal found that the explanation with regard to an arithmetical error having crept into the cash book while striking the balance on the credit side on December 26, 1967, was 'wholly untrue' on the ground that if that explanation were true, the cash balance should have always exceeded Rs. 3,500 until the mistake was corrected on October 2, 1968, but, in fact, on three occasions during the intervening period, the cash balance had fallen below Rs. 3,500 to the extent of Rs. 1,300. The alternative explanation of the borrowing of a loan from Hathilal was also found to be 'wholly untrue' on the ground that Hathilal had flatly denied having advanced any such loan to the assessee and that even at the time of the hearing of the appeal, the assessee's representative was unable to furnish the relevant date such as the dates of such loans, amounts of the loans and the dates of return of the loans. The Tribunal reached the positive conclusion that there was 'manipulation of accounts' and that the attempt on the part of the assessee to cover up the same by resort to one 'untruthful plea' after another led to the conclusions that 'the assessee has not proved that the failure to return to correct income did not arise from fraud on its part'.
15. In our view, the aforesaid conclusion has been correctly reached by the Tribunal on a balanced consideration of the entire evidence on record and by approaching the question from the correct legal angle. The difference between the returned income and the assessed total income has arisen in the instant case because it was found, during the course of the assessment proceedings, that the amount of Rs. 3,500, which was introduced in and subsequently withdrawn from the account books of the assessee, constituted the undisclosed income of the assessee earned during the relevant accounting year. In the penalty proceedings, in the context of the provisions of the Explanation, the burden was on the assessee to show, on a preponderance of probabilities, that no fraud, inter alia, was involved in his failure to return the correct income. The assessee fell back upon the same explanations which it had offered during the course of the assessment proceedings in order to discharge the said burden. These explanation are found to be wholly untrue. No other explanation such as, for example, that the amount was drawn from a fund which was constituted by the secret profits or undisclosed income of the assessee earned in an earlier assessment year was offered. Under such circumstance, on a preponderance of probabilities, it would be legitimate to infer that the amount in question represented a part of the real income of the assessee derived in the course of the accounting year and that the assessee's failure to return the said income was motivated by the desire to defraud the revenue. What is more, a positive finding has been recorded that the assessee has manipulated the accounts. Once the conclusion as to manipulation of accounts has been arrived at, the inference that the intention was to defraud the revenue cannot possibly be ruled out, when no other explanation is forthcoming for the manipulation. Under such circumstances, in our opinion, no other view is possible and the levy of penalty is fully justified.
16. It was strenuously urged on behalf of the assessee that the differences of more than 20% between the income returned and the income assessed in the instant case arose on account of the addition made by the ITO either under s. 68 or s. 69A of the Act and that, under such circumstances, having regard to the decision of this court in S. P. Bhatt's case : 97ITR440(Guj) and CIT v. Vinaychand Harilal : 120ITR752(Guj) , the burden cast by the Explanation on the assessee must be held to have been automatically discharged. We are unable to agree. Both the cases upon which the assessee relies are clearly distinguishable.
17. In S. P. Bhatt's case : 97ITR440(Guj) , the ITO had not accepted the figure of profit appearing from the books of account maintained by the assessee and he had made a best judgment assessment as a result of which the income returned was less than 80% of the total income assessed. This court pointed out that the difference between the returned income and the total assessed income was entirely due to the fact that the ITO estimated the profits supposed to have been earned by the assessee and proceeded to observe (pp. 447, 448) :
'It was not the case of the Income-tax Office that any particular entries in the books of account were false or any particular items of purchase or scale were omitted to be entered in the books of accounts...... It is difficult to see how in these circumstances where assessment of total income is made on the basis of estimate, it can be said that the failure to return the total assessed income was on account of fraud or gross or wilful neglect on the part of the assessee and, if that be so, it must follow by necessary implication that the failure to return the total assessed income was not on account of any fraud or gross or wilful neglect on the part of the assessee...'
18. In Vinaychand's case : 120ITR752(Guj) the ITO treated an amount of Rs. 88,455 as the income of the assessee by invoking in support of his conclusion the provisions of s. 69A. In appeal, the assessee contended that the amount of Rs. 88,455 should not be treated as his income but that the peak amount of Rs. 45,000 should be treated as his money. The AAC did not accept the contention regarding Rs. 45,000 being the peak amount but he came to the conclusion that the peak amount was Rs. 60,000. The assessee conceded that the amount in question which was invested in the purchase of the demand drafts belonged to the assessee and that it may be assessed in his hands. Thereupon, the AAC treated Rs. 60,000 as the income of the assessee for the previous year relevant to the assessment year under consideration. In the penalty proceedings, the Explanation to s. 271(1)(c) was invoked in aid and it was contended that it was for the assessee to explain the source of the money in his hands. This court pointed out that the mere fact that the explanation of the assessee was found unsatisfactory and the deeming provision of s. 69A could be invoked in the light of the admission made by the assessee had not discharge the burden cast upon him by the Explanation. On the facts of the case, it was found that the burden cast by the Explanation upon the assessee was discharged.
19. Now, it requires to be emphasised that both S. P. Bhatt's case : 97ITR440(Guj) and in Vinaychand's case : 120ITR752(Guj) , the difference of more than 20% between the income returned and the income assessed arose because the income came to be assessed at a higher figure by resorting to the provisions of s. 69A in one case and s. 145(2) in the other case. It was not the positive case of the revenue, however, in the penalty proceedings in any of these two cases that any particular entries in the books of account were false or that the accounts were deliberately manipulated to conceal income. In the instant case, it is the clear case of the revenue, which has been accepted by the Tribunal, that there was manipulation of accounts. Manipulation of accounts, as observed earlier, could only be with a view to defrauding the revenue because no other explanation therefor has been offered by the assessee. In our view, having regard to the peculiar facts and circumstances of this case, the decisions in S. P. Bhatt's case : 97ITR440(Guj) and in Vinaychand's case : 120ITR752(Guj) cannot be invoked in aid of the assessee.
20. It requires to be emphasised that the question whether in a given case the burden cast on the assessee as a result of the Explanation is discharged or not will depend for its determination on the facts and circumstances of the particular case. The facts of no two cases can be exactly identical. It is, therefore, futile to resort to any decided case except to ascertain the principle.
21. Two other contentions advanced on behalf of the assessee remain to be dealt with. The first contention was that whereas the show-cause notice issued to the assessee was in regard to the concealment of particulars of income, the ultimate conclusion of the IAC was based on the footing that the assessee has furnished inaccurate particulars of income and that, therefore, there was a denial of reasonable opportunity of being heard before the imposition of the penalty in as much as the penalty proceedings were commenced on a particular footing and the final conclusion was based on a different footing altogether. The second contention was that the show-cause notice did not give any indication that it was intended to resort to the Explanation and that no such indication was given even during the course of the penalty proceedings and that, therefore, there was denial of reasonable opportunity. Both these contentions, in our opinion, deserve to be rejected.
22. So far as the first contention is concerned, on a fair reading of the order of the IAC in all its material parts, we are unable to agree that he reached the ultimate conclusion on the question of imposition of penalty on the basis that the assessee had furnished inaccurate particulars of income. It is true that the IAC has referred to 'inaccuracy' and to 'inaccurate particulars of income' at some places. However, it is manifest, on a close reading of the order as a whole, that the penalty was imposed for concealment of income. That is also the view taken by the Tribunal as regards the order of the IAC. In any case, having regard to the fact that the Tribunal itself has found that there was concealment of income, the infirmity, if any, in the finding of the IAC, could not vitiate the penalty proceedings.
23. As regards the second contention, it has been held in Drapco's case : 122ITR341(Guj) that the explanation enacts merely a rule of evidence and that it is competent to the authority which imposes the penalty to invoke its aid in reaching the final conclusion on the question of concealment, although it may not have been resorted to at the stage when the reference was made to the authority imposing the penalty. Therefore, merely because the Explanation has not been referred to in the show cause notices, there is no legal bar against invoking the Explanation during the course of the penalty proceedings. Whether, in the course of the penalty proceedings, before invoking the aid of the Explanation is a question of fact. It was, therefore, for the assessee to have contended before the Tribunal that material prejudice has been caused to it by the failure on the part of the IAC to draw its attention to the Explanation and to afford to it a reasonable opportunity of displacing the presumption arising under the Explanation. The assessee has not raised any such contention before the Tribunal. Under such circumstances, in our opinion, the second contention advanced on behalf of the assessee also cannot be accepted.
24. As a result of the foregoing discussion, we come to the conclusion that the Tribunal was right in law in confirming the levy of penalty upon the assessee under the provisions of s. 271(1)(c) of the Act. The question referred for our opinion is, therefore, answered in the affirmative, that is to say, in favour of the revenue and against the assessee. The assessee shall pay the costs of this reference to the revenue.