1. In pursuance of directions issued by this court, the Income-tax Appellate Tribunal, Delhi Bench C, has referred the following question for our opinion :

"Whether, on the facts and in the circumstances of the case and having regard to the Explanation to Section 271(1)(c) of the I.T. Act, 1961, the Tribunal was legally correct in holding that the onus of proving the deposits as assessee's income lay on the department ?"

2. The assessment year in question is the year 1964-65. The assessee who carried on money-lending business filed a return showing an income of Rs. 1,326 from property and a loss of Rs. 255 from business. The ITO, however, completed the assessment on a total income of Rs. 52,931. This amount was computed by making the following addition :

Rs. 25,000 on account of unexplained investment treated as income from undisclosed sources;

Rs. 14,748 on account of difference in the balance-sheet;

Rs. 6,000 for low rate of interest shown;

Rs. 5,000 disallowed out of expenses claimed.

3. The assessee filed an appeal against the assessment order. The AAC deleted both the additions of Rs. 5,000 and Rs. 6,000 and also reduced the addition of Rs. 14,748 on account of difference in the balance-sheet to Rs. 1,505 only. As a result of this, the additions that survived were to the tune of Rs. 25,000 on account of unexplained investment treated as income from undisclosed sources and Rs. 1,505 on account of difference in the balance-sheet.

4. The appeal filed by the assessee before the Tribunal failed. After making the assessment, the ITO initiated, penalty proceedings under Section 271(1)(c) of the Act, and referred the case to the IAC as the penalty .imposable exceeded Rs. 1,000. The assessee's explanation to the show-cause penalty notice was that the item of Rs. 25,000 was made up from withdrawals made by the assessee at the rate of Rs. 300 per month from the assessment year 1942-43 till 1950-51 and further withdrawals of Rs. 4,500 during the assessment years 1951-52 to 1964-65. It was contended that the assessee had been able to save an amount of Rs. 25,000 out of these withdrawals during the period which covered a period of 23 years and that this amount was deposited by her during the accounting year relevant to the assessment year. In regard to the addition for difference in the balance-sheet, it was stated that the discrepancy was attributable to totalling mistake. As regards the other additions, the asses-see's case was that they were arbitrary and unjustified. The IAC rejected the explanation of the assessee. He held that it was not probable that the assessee would have withdrawn this amount solely for the purposes of keeping it in the form of cash at her home. In his view, the withdrawals in the earlier years were utilised for the purpose for which they were made. He also took the view that inasmuch as the returned income was less than 80% of the assessed income, the Explanation to Section 271(1)(c) of the Act applied, and the onus lay upon the assessee, which had not been discharged by her. In view of this finding, he imposed a penalty of Rs. 15,000.

5. The assessee preferred an appeal to the Tribunal. The Tribunal held that although the explanation of the assessee in respect of the deposit made was rejected for assessment purposes, that by itself would not justify inclusion of the amount for levy of penalty. Following the decision of the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696, it held that the onus of proving that the case fell within Section 271(1)(c) lay upon the department and as in its view the department had failed to discharge that onus the order levying penalty could not be sustained. It accordingly allowed the appeal.

6. Section 271(1)(c) of the Act has been the subject-matter of a number of amendments but fqr the purposes of the present case, it is necessary only to notice two amendments. Up to the 1st April, 1964, Section 271(1)(c) read as under:

"has concealed the particulars of income or deliberately furnished inaccurate particulars of such income....."

7. With effect from 1st April, 1964, the word "deliberately" was omitted and an Explanation added to the following effect:

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 purposes of cl, (c) of this sub-section.

8. As the assessment year involved in the present case is 1964-65, the Explanation applied to the proceedings. Anwar Ali's case [1970] 76 ITR 696 (SC) dealt with penalty proceedings for the year 1947-48 under Section 28(1)(c) of the Indian I.T. Act, 1922. It was held that if there was no evidence on the record except the explanation given by the assessee, which explanation was found to be false, it did not follow that the receipt constituted taxable income, and further that the finding given in the assessment proceedings for determining or computing the tax was not conclusive in penalty proceedings, although it was a piece of evidence which can be considered in those proceedings. It was held that the entirety of the circumstances must give a reasonable belief and point to the conclusion that the disputed income represented income, and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. Similar is the view in the case of CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369 (SC), wherein it was held that penalty proceedings being penal in character, the department must establish that the amount in dispute constituted income of the assessee, and apart from the falsity of the explanation given by the assessee, the department must have cogent material from which it could be inferred that the assessee concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same, and that, the disputed amount is a revenue receipt. Although assessment proceedings constituted a good piece of evidence in penalty proceedings, penalty cannot be levied solely on the basis of the reasons given in the order of assessment., This case also arose under^s. 28(1)(c) of the Indian I.T. Act, 1922. The language of Section 271(1)(c) before the amendment was in pari materia with Section 28(1)(c) of the Indian I.T. Act, 1922. Thus, till such time that Section 271(1)(c) was not amended and the Explanation added with effect from 1st April, 1964, the principles laid down in Anwar Ali's case [1970] 76 ITR 696 (SC) and in Khoday Eswarsa [1972] 83 ITR 369 (SC) fully applied to the penalty proceedings taken under the 1961 Act. The effect of the addition of the Explanation to Section 271 had been considered in a number of cases. In CIT v. Sankersons & Co. [1962] 85 ITR 627 (Ker) it has been held that the Explanation places the burden of proving that the failure to return the correct income did not arise from gross and wilful neglect upon the assessee. The presumption raised by the Explanation could, however, be displaced by the assessee by leading relevant evidence, and the quantum of proof necessary would be that which is required in civil cases, i.e., preponderance of probability. In the case of Addl. CIT v. Karnail Singh [1974] 94 ITR 505 (Punj) it was held that the Explanation inserted by the Amending Act was not intended to get over the decision of the Supreme Court in Anwar Ali's case [1970] 76 ITR 696 (SC). The purpose of the Explanation was to differentiate between two types of assessees, one who returned income up to 80% of the assessed income, and the other those who have not. In the first case, the onus is on the department and in the second type of case, the onus is on the assessee to establish that the failure to return correct income was not on account of gross or wilful neglect on his part. It was held that as Section 271(1)(c) is penal in nature, the department must establish initially that the receipt in dispute constituted the income of the assessee and if there is no evidence on the record except the Explanation of the assessee, it does not follow that the receipt constituted the taxable income of the assessee. In the case of Addl. CIT v. Swatantra Confectionery Works [1976] 104 ITR 291 (All), the Tribunal had knocked off the penalty in a case where the assessee's books were rejected and a best judgment assessment made after estimating the sales on the ground that, in such a case, no penalty could be imposed. This court differed from the view taken by the Tribunal and held that the provisions of Section 271(1)(c) also applied to a case where income had been estimated after rejection of account books. It held that the Tribunal should have examined the circumstance relied upon by the IAC to hold that the assessee had concealed or furnished inaccurate particulars of his income and further as to whether the assessee had discharged the burden placed upon it by the Explanation added to Section 271(1)(c).

9. In the present case, the Tribunal has knocked off the penalty on the ground that the department had not established that the receipt of the amount in dispute constituted the income of the assessee and as such was taxable. From the order passed by the Tribunal, it does not appear that it took into account the Explanation added to Section 271(1)(c) which raises a presumption in cases where the returned income is less than 80% of the assessed income. It appears that the Tribunal focussed its attention solely to the question as to whether the department had in the penalty proceeding established that the amount in respect of which penalty was imposed constituted the taxable income of the assessee. It held that, apart from the assessee's explanation which was found to be false, there was no evidence on the record to prove that the amount in question constituted the taxable income of the assessee.

10. We have already extracted the Explanation added to Section 271. The deeming part which is in the following words "be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income" for purposes of Clause (c) of the sub-section created three fictions ; one of concealment, the other of inaccurate particulars and the third that the amount so concealed or in respect of which inaccurate particulars have been furnished is "income" of the assessee. In this context, it can refer only to taxable income, for if it related to non-taxable income it was purposeless to create the fiction. The reference to Section 271(1)(c), which obviously refers to taxable income which becomes the subject-matter of penalty proceedings, also clearly pointed to this result. We are as such unable to, with respect, subscribe to the view that even after the enactment of the Explanation, the department is still saddled with the onus of proving that the amount in question is the taxable income of the assessee, in cases where the returned income is less than 80% of the assessed income. The Tribunal was thus in error in knocking off the penalty solely on the ground that the department had failed to place material on the record to establish that the amount was taxable income of the assessee. The Explanation took full care of this aspect of the matter. The Tribunal should have considered the explanation of the assessee on merits and considered whether the assessee had been able to dislodge the presumption created by the Explanation by proving that there was no fraud or any gross or wilful neglect on his part.

11. We, accordingly, answer the question in the negative, in favour of the department and against the assessee. As none has appeared on behalf of the assessee, there shall be no orders as to costs. Counsel fee assessed at Rs. 200.