1. This is a reference under Section 256(1) of the I.T. Act, 1961. The question before us is as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee could not be deemed to have concealed the particulars of its income or furnished inaccurate particulars thereof within the meaning of the Explanation to Section 271(2)(c) of the Income-tax Act, 1961, and, on that view, cancelling the penalty order under Section 271(1)(c)?'
2. The statement of the case relates to the assessment year 1964-65, the relevant accounting year ending on December 31, 1963. In the course of of the assessment proceedings the ITO found that there was a cash credit of Rs. 50,000. The assessee's case was that it was a loan from Berlia Cloth Stores which belonged to one Ramchandra Berlia. The I.T.O. was not satisfied with the genuineness of the loan and issued a summons under Section 131 on Shri Berlia and, as he was out of Calcutta, his employee, Shri Masudilal Agarwalla, gave evidence before the ITO.
3. The evidence of Shri Masudilal Agarwalla is as follows : He was the sole employee of Mr. Berlia ; his salary was Rs. 150 per month ; he and Mr. Berlia lived in that shop; no books were maintained by the shop ; Mr. Berlia was assessed to income-tax on estimate ; besides the said shop, Mr. Berila had no other source of income at Calcutta nor had he any other asset at Calcutta ; and the alleged loan was not given through him nor he knew anything about it.
4. Apart from the aforesaid evidence of Shri Masudilal Agarwalla, it was found by the ITO that for the assessment year 1962-63 the income of Mr. Berlia was returned at Rs. 1,500 and it was assessed under Section 143(3) of the Act at Rs. 5,500, for the assessment year 1963-64, the income was returned at Rs. 1,800 and it was assessed at Rs. 5,800 under the aforesaid Section and for the assessment year 1964-65 the income was returned at Rs. 4,500 and it was assessed at Rs. 10,000 under Section 144. The assessment records of Shri Berlia also revealed that he did not maintain any books of account and had no banking account.
5. In view of all the aforesaid facts, the ITO was not satisfied with the creditworthiness of Mr. Berlia and held that the loan was not genuine. He accordingly added Rs. 50,000 as the assessee's income from undisclosed sources. The assessee did not file any appeal from the assessment order.
6. As the ITO was satisfied in the course of the assessment proceedings that the assessee has deliberately filed an incorrect return of income and has also concealed its income, he initiated the penalty proceedings and referred it to the IAC who, after hearing the assessee and considering the materials on the record held that the loan was not genuine and the aforesaid amount was the assessee's concealed income from undisclosed sources. He also held that the assessee had deliberately filed an incorrect return and accordingly he imposed a penalty of Rs. 38,099.
7. The assessee filed an appeal from the penalty order. The departmental representative argued before the Tribunal that the Explanation under Section 271(1)(c) of the Act was applicable in the instant case. The Explanation runs thus:
'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.'
8. As the income returned was Rs. 22,315 and it was finally assessed at Rs. 86,076, the Tribunal accepted the aforesaid contention of the departmental representative. The Tribunal, however, cancelled the penalty after saying as follows:
'In the case of Anwar Ali : 76ITR696(SC) their Lordships of the Supreme Court have considered the circumstances under which the penalty could be justified. Indeed, the department would be justified in presumingconcealment of income in view of Section 271(1)(c) but the question will still be whether there was a fraud or wilful neglect on the part of the assessee. We agree that the assessse cannot establish a negative. He can be expected to have evidence in his analogy and as such fraud or wilful neglect cannot be presumed in the absence of any indication at all that there was any fraud or wilful neglect when the assessee has some evidence to the contrary. In this case the assessee produced a confirmation letter from the party. It has not been shown that this letter was not correct. The creditor's employee did attend but his evidence which is negative cannot be treated as conclusive as far as penalty proceedings are concerned. We are of the opinion that after the decision of their Lordships of the Supreme Court in : 76ITR696(SC) (CIT v. Anwar Ali) it has been clarified that only because an addition has been made to the income of the assessee, it would not justify the imposition of penalty. In our view the position would stand even after the introduction of the Explanation to Section 271(1)(c).'
9. Mr. N. K. Poddar, learned advocate for the assessee, argues before us that the case of the CIT v. Anwar Ali : 76ITR696(SC) , relied on by the Tribunal, still holds the field. He urges that the assessee cannot establish a negative. He submits that fraud, gross or wilful neglect cannot be presumed. He also argues that the identity of Shri Berlia was established by the assessee and the confirmatory letter issued by Shri Berlia was sufficient to discharge the onus that lay on the assessee under the aforesaid Explanation.
10. We are not at all impressed by his contentions. Where the total income returned is less than 80 per cent. of the total income as assessed under Section 143 or Section 144 or Section 147, the assessee must prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part as enjoined by the Explanation. In other words, the Explanation presumes fraud, gross or wilful neglect on the part of the assessee in the circumstances stated therein. Similarly, where an assessee fails to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part he shall be deemed to have concealed particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of Section 271(1) of the Act as stated in the Explanation.
11. In view of the clear provisions of the Explanation, it must be held that it is only after the assessee has proved positively that the failure to return correct income did not arise from any fraud, gross or wilful neglect on his part, the principles laid down by the Supreme Court in Anwar Ali's case : 76ITR696(SC) will come into play, viz., the department will have to prove that the assessee was guilty of concealment of iilcome or has furnished inaccurate particulars of income.
12. In our opinion the Tribunal was entirely wrong in its understanding of the Explanation. The entire approach of the Tribunal is also erroneous, because a confirmatory letter does not prove the creditworthiness of a creditor which must be proved as a fact by an assessee. The Tribunal has further failed to appreciate the relevant facts found by the authorities below.
13. In these circumstances and as submitted by the learned advocates for both the parties, we send back this matter to the Tribunal without answering the question with a direction that after giving a reasonable opportunity to both the parties of being heard, the Tribunal shall decide afresh whether any penalty was imposable on the assessee.
14. This reference is accordingly disposed of without answering the question and without making any order as to costs.
Sudhindra Mohan Guha, J.
15. I agree.