Govindan Nair, C.J.
1. Two questions have been referred to us by the Income-tax Appellate Tribunal, Madras Bench, in relation to the assessment of a person engaged in the business of operating motor vehicles for profit.
2. The questions read as follows :
'1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the penalty of Rs. 30,000 imposed under Section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1963-64?
2. Whether the finding of the Appellate Tribunal that no penalty is exigible is a reasonable view to take on the facts and circumstances of the case ?'
3. It appears that for some years the assessee had been filing returns on the basis of certain estimates, which are called 'cash statements'. It also appears that these returns have not been accepted by the department and assessments were made under Section 144 of the I.T. Act, 1961. This happened for the year 1963-64 as well, with which we are concerned in the reference before us. The income returned by the assessee was Rs. 32,875. But as finally assessed by the AAC and adopted by the Tribunal, the income was fixed at Rs. 2,14,402. The assessment proceedings ended here. But this is not the end of the story. Proceedings were initiated for imposing penalty in accordance with Section 271(1)(c) of the Act. Reliance was placed on the Explanation which was available and which read as follows:
'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 purposes of Clause (c) of this sub-section.'
4. As evident from the facts that we have narrated, the income assessed was in excess of the income returned by the assessee to the margin of eighty per cent. required by the Explanation and the presumption arising from the legal fiction provided by the Explanation is admittedly attracted. The question is whether the assessee has discharged the burden of dislodging the presumption that arises under the Explanation. According to the Tribunalthe assessee has succeeded in discharging this burden. We shall extract the relevant paragraph of the order of the Tribunal where this matter has been dealt with:
'In our view, it is not necessary, on the facts of this case, to decide the point whether the Explanation applies or not to this assessment year. Even on the assumption that the Explanation can be invoked for this year, we hold that, on the facts and in the circumstances of this case, no penalty can be levied for this year in terms of the Explanation. The assessee has submitted her return of income based on the cash statement prepared by her as regards her income from business. It is common ground that this has been her practice in the past also. As against the assessee's estimate of her income from the business, higher estimates came to be adopted as reduced in appeal and these estimates have been accepted by the assessee for the years concerned. These circumstances, however, do not necessarily lead to the inference that for this year the assessee failed to return the correct income and that such failure was due to gross or wilful neglect or fraud on her part. The assessee has shown that the income returned by her for this year had some basis even though it was an estimate. Admittedly she did not keep books of account for her business. In the absence of such accounts, she estimated her business income on the basis of a cash statement prepared for the purpose. This estimate of the assessee was not accepted and a higher estimate was adopted which was substantially confirmed in appeal also. But, as against this, the assessee has indicated the basis, even though imperfect, on which she arrived at her returned income for this year. There is also nothing on record to show that this basis was coloured by suppressio veri. In view of this and in the absence of a statutory compulsion to maintain regular books of account, the assessee's submissions in this regard cannot be dismissed as untenable. In that view of the matter, no penalty would be exigible even in terms of the Explanation to Section 271(1)(c). The penalty of Rs. 30,000 levied is accordingly cancelled.'
5. It is well established by now--too well established to require any citation of authority--that the fact that the assessing authorities in assessing a person were satisfied that the return filed by the assessee did not disclose his correct income and proceeded to make a best judgment estimate and that the income was assessed on that basis would not enable us to hold that the assessee had concealed the particulars of his income or had furnished inaccurate particulars thereof in order to attract Section 271(1)(c) of the Act. The Supreme Court in CIT v. Anwar Ali : 76ITR696(SC) has laid down this proposition. In the absence of material evidence, therefore, where, on the facts disclosed, the assessment was made on the basis of an estimatethat the bulk of the vehicles owned by the assessee should provide an income of Rs. 13,000 per vehicle per year, that would not by itself provide a ground for concluding that there had been a concealment of income or that the assessee had furnished inaccurate particulars thereof. But by virtue of the Explanation and the deeming provision therein, it has to be deemed that the assessee had concealed particulars of her income or had furnished inaccurate particulars thereof. As we said a while ago, it is for the assessee to disprove this presumption, if we may call it a presumption. The assessee has attempted to do so, and the Tribunal has accepted her contention that she had not been guilty of fraud or of gross or wilful neglect. The burden that the assessee has to discharge is not that her true income is what she has returned nor even to establish that what has been assessed as her income has not been properly assessed--in fact, she would be precluded from doing so, but only to prove the absence of fraud on her part and also to establish that she has not been guilty of gross or wilful neglect. Courts have always refrained from defining 'fraud ', because they have been baffled with the difficulty of defining 'fraud' which can manifest itself in various and unpredictable forms, and of laying down precisely what the term meant, so that it can be applied to the facts and circumstances of all cases. The word 'fraud' must, therefore, remain flexible and in each case courts will have to determine whether there has been fraud or not. But that apart, it is clear that in all cases of fraud there must have been an intention to defraud. The definition of the term in the Indian Penal Code proceeds on this basis. We cannot, of course, rely on the definition of the term in the Penal Code, but it certainly gives an indication as to what would constitute fraud. In other words, there must always be a mental element, mens rea as we call it in legal parlance, which would establish a guilty mind, and, unless this is established, we cannot say that there has been fraud. Now, in attempting to prove a negative, as an assessee in a case where the Explanation is attracted is called upon to do, it must be borne in mind that the element of proof that is required for establishing a positive fact is different from the element of proof that is required for establishing a negative fact. The casting of a burden, such as the one cast by the Explanation, brings in its wake difficulties, for it is often very difficult to establish a negative fact and that perhaps may be the reason why the law does not insist on that degree of proof in establishing a negative fact. The assessee is called upon to prove that there has been no fraud on his part, and if he is able to establish that he has not been guilty of fraud and that he did not intend to defraud and that he did not intend to conceal his income or furnish inaccurate particulars thereof, that will be sufficient for the purpose of showing that he has not been fraudulent. In the case before us what the assessee has done is to prepare cash statements.
6. This is seen from page 17 of the typed papers for the year in question. A glance at that statement would show that there were three main items of expenditure: Rs. 1,62,825 spent for repayment of loans to creditors, another sum of Rs. 38,000 odd utilised for the purpose of paying advance tax, and a further sum of Rs. 10,800 for personal expenses. Adding up these figures, and deducting from the total income, the agricultural income, and after deducting amounts of interest that were payable and that were paid, the net income was shown as Rs. 1,69,493. From this amount a depreciation of Rs. 1,47,018 was also claimed, and the balance was shown as Rs. 22,475. The assessing authorities have accepted the depreciation claimed and have also allowed the claim by way of interest, and, on a comparison of comparable material, estimated that the assessee should have made an income of Rs. 13,000 per unit. This, of course, is a legitimate method of assessment, but from the assessment it is not possible to conclude that the assessee had really made that much of income. There is not an iota of evidence that the assessee had spent more moneys or had concealed or secreted part of her income or had deposited it in any bank or had otherwise kept it or had lent money to others--facts which can easily be established by evidence tangible, and, at times, incontrovertible. No such fact has been established and no attempt has been made by the assessing authority to show that there were other amounts utilised by the assessee and there was, therefore, fraud in the sense that there was deliberate concealment with intent to defraud. We have; therefore, to hold that the assessee has established that she has not been guilty of fraud.
7. The question then is has the assessee been guilty of gross or wilful neglect? The expression 'gross neglect' is often used without meaning anything more than what is meant by neglect. We can quite easily understand what wilful neglect is. In the case of wilful neglect or in the case of anything else which is wilful, again a mental element comes in and there must be an intention to be negligent. Otherwise there can be no wilful neglect. Intention to be negligent is more blamable than rashness. In the case of rashness, man does not intend to be negligent. Perhaps he is aware of the evil consequences that might follow, but acts in disregard of those consequences and thereby makes the act rash. Rashness is, therefore, of a lesser degree, we think, than wilful neglect, where a person knows that he is negligent and intends to be negligent. This calls for a degree of proof. But it is not necessary for the revenue to prove it, for the legislature has supplied the proof by legal fiction, a deeming provision and the question is whether this deeming provision should be visited on the assessee, when he throws up his hands and says that he has not been guilty of wilful neglect and that he never intended to be negligent. The answer to the question must be that the assessee cannot be held to be guilty of wilful neglect, if he isable to establish that he has acted fairly reasonably. In this case, the assessee had, of course, been at fault in the sense that she had not been prudent in keeping regular books of account in a regular manner. That was perhaps carelessness which might ruin her business. But the question is whether a person has been careless to the extent of being called wilfully negligent in filing the return of income of his business taking into consideration the manner in which he or she ran his or her business. The fact that the assessee did not keep accounts and the fact that she had subjected herself to assessments made on best judgment method will not establish that she was guilty of wilful neglect in filing the return so as to attract Section 271(1)(c) of the Act. On the facts and circumstances of the case, we are unable to hold that the assessee was guilty of wilful neglect.
8. We are now left with the only other limb of the Section which speaks of a person being grossly negligent. We did observe in the beginning about the difficulty in defining gross neglect as distinct from neglect. In the context in which the word 'gross' occurs in the provision, coupled as it is with the word 'wilful', we would give to the term 'gross neglect' the same meaning as we would give to the term 'wilful neglect'. It must be negligence of a higher order which must be established. The fact that the assessee had been negligent in the manner of running the business will not be enough to show that the assessee had spent more than what was actually shown to have been spent and, in the absence of any material to show that the assessee had secreted part of her income which had been discovered or was discoverable, we have to accept the case of the assessee that she was not guilty of gross neglect. In fact, it is on a consideration of these aspects, that the Tribunal has come to the conclusion that the assessee has not been guilty of fraud or of gross or wilful neglect. The question is whether we should reverse that finding. We are unable to find any reason to reverse that finding.
9. Before parting with the case, we would like to refer to two decisions, one of the Patna High Court, CIT v. Patna Timber Works : 106ITR452(Patna) in which Untwalia C.J. (as he then was of the Patna High Court) considered this aspect, and the other of the Gujarat High Court, CIT v. S. P. Bhatt : 97ITR440(Guj) in which Bhagwati C.J. (as he then was of the Gujarat High Court) took a similar view. Both the learned judges have held that, notwithstanding the Explanation, the assessee had succeeded in discharging the burden cast on him. We would respectfully follow those decisions, and answer the two questions that have been referred to us, the first in the affirmative, viz., in favour of the assessee and against the revenue, and the second also in the affirmative, viz., in favour of the assessee and against the revenue.
10. We direct the department to pay the costs of the assessee. Counsel'sfee of Rs. 250.