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Commissioner of Income-tax Vs. Prabhat Bakery - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 125 of 1974 (Reference No. 18 of 1974)
Judge
Reported in[1979]118ITR35(Mad)
ActsIncome Tax Act, 1961 - Sections 271(1)
AppellantCommissioner of Income-tax
RespondentPrabhat Bakery
Appellant AdvocateNalini Chidambaram, Adv.
Respondent AdvocateV. Ramachandran, Adv.
Excerpt:
.....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. of the total income as assessed has been satisfied in this case. when the explanation is attracted the assessee will have to prove that its failure to return the correct income did not arise from any fraud or any gross or wilful neglect on its part. ' 6. later on, in the order, the tribunal observed :the assessee was clearly conscious that all the sales had not been entered in the books of accounts but it can be that some of the purchases or other outgoing might have also not been entered in the..........is whether it can be said that the assessee is guilty of not having declared in the return some income wilfully and before a penalty can be imposed it is our opinion that the burden of showing that the assessee has done so is on the department.....'8. it is clear from the extracts that we have made from the order of thetribunal that the tribunal has completely misconducted itself and has notentered a finding of fact that is necessary to determine whether the assessee has or has not established that the presumption which is to be drawn inview of the explanation which we have already extracted in this judgmenthas been rebutted. 9. on behalf of the revenue, it has been contended that the course of conduct and what has been returned will clearly indicate that the assessee has failed to.....
Judgment:

Govindan Nair, C.J.

1. The Income-tax Appellate Tribunal, Madras Bench, has referred the following question relating to the year of assessment 1967-68 for the opinion of this court:

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law and justified in cancelling the penalty of Rs. 13,300 levied under Section 271(1)(c) of the Income-tax Act, 1961?'

2. The assessee had first filed a return showing an income of Rs. 20,899 on the turnover of Rs. 5,19,616. This works out to 12.6 per cent. of thegross profit as seen from the books of account. The assessing authorities felt that both the turnover as well as the percentage of profit were too low. The turnover was, therefore, fixed at Rs. 6,79,364 and the percentage of profits was fixed at 18 per cent, with the result, the income-tax to be assessed was determined as on the income of Rs. 66,460. The tax was imposed on that figure. The assessment order has been accepted by the assessee, no appeal having been taken from the order of assessment. Penalty proceedings were then commenced against the assessee under Section 271(1)(c) of the I.T. Act, 1961, which states:

'(1) If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person--.....

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,--.....'

3. It is unnecessary to refer to the quantum of the penalty provided under different circumstances.

4. During the year of assessment, there was an Explanation to Section 271(1)(c) 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.'

5. The income assessed which is called correct income exceeded very much more than the income returned and the condition in the Explanation, namely, 'where the total income returned by any person is less than eighty per cent. of the total income as assessed has been satisfied in this case. Automatically, the presumption under the Explanation would be attracted. When the Explanation is attracted the assessee will have to prove that its failure to return the correct income did not arise from any fraud or any gross or wilful neglect on its part. There can be no doubt whatever that the burden of proving this is on the assessee. The Kerala High Court has held in CIT v. Sankarsons and Co. : [1972]85ITR627(Ker) that the degree of proof is not the degree of proof required in a criminal case but the degree of proof required in a civil case, i.e., evidence or circumstances that will probabilise the version put forward by the assessee. In these circumstances, there isno scope for applying the principle laid down by the Supreme Court in Anwar Ali's case : [1970]76ITR696(SC) and in CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) . But the Tribunal appears to have proceeded on the basis that the burden of proving that there has been fraud or wilful or gross negligence on the part of the assessee is on the department. We shall refer to certain observations of the Tribunal, which were as follows :

'Now, whether a sum of Rs. 12,000 should be added to the profits as per books or some larger sum should be added by making the estimates in a different way, is only a matter of estimate.

There is no material at all to show that the assessee ought to have declared something more than Rs. 20,899. In any case, it cannot be said that in declaring this income there was gross or wilful neglect on the part of the assessee.'

6. Later on, in the order, the Tribunal observed :

'The assessee was clearly conscious that all the sales had not been entered in the books of accounts but it can be that some of the purchases or other outgoing might have also not been entered in the books of account so that merely considering the amounts of sales it is difficult to say that a certain amount of profit was also omitted from the books of account. From whatever angle the present case is examined, what we find is that the department has made an estimate of income which is higher than the estimate of income made by the assessee, that the department has not proved that the assessee had consciously omitted declaring any income and also that it cannot be said that in making its estimate the assessee was guilty of gross or wilful neglect.....'

7. The Tribunal observed in the concluding paragraph of its order thus:

'Now, the question is whether it can be said that the assessee is guilty of not having declared in the return some income wilfully and before a penalty can be imposed it is our opinion that the burden of showing that the assessee has done so is on the department.....'

8. It is clear from the extracts that we have made from the order of theTribunal that the Tribunal has completely misconducted itself and has notentered a finding of fact that is necessary to determine whether the assessee has or has not established that the presumption which is to be drawn inview of the Explanation which we have already extracted in this judgmenthas been rebutted.

9. On behalf of the revenue, it has been contended that the course of conduct and what has been returned will clearly indicate that the assessee has failed to discharge his burden. On the other hand, on behalf of the assessee, it was urged that the assessee voluntarily co-operated with the department and even suggested the adoption of a higher turnover and waswilling to have the estimate at 18 per cent. instead of 12 per cent., and thiswould show that there has been no wilful or gross negligence on its partand it did not act fraudulently. This is essentially a question of fact to bedetermined by the Tribunal. In the absence of a finding which is due tothe fact that the Tribunal misunderstood the scope of the application of theExplanation, we are not in a position to answer the question referredto us.

10. We, therefore, direct, as has been done by the Supreme Court, in CIT v. Greaves Cotton & Co. Ltd. : [1968]68ITR200(SC) and CIT v. Seshasayee Bros. (Travancore) (Pvt.) Ltd. : [1976]102ITR372(Ker) , that the Tribunal may rehear the appeal and enter a finding on the question posed above and then decide whether the penalty imposed should be maintained or cancelled.

11. We dispose of this reference in the above terms. No costs.


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