1. For the assessment year 1964-65, the assesses, a partnership-firm dealing in yarn, returned an income of Rs. 21,600. During the assessment proceedings, the ITO found numerous mistakes and discrepancies in the assessee's books. Certain purchases had not been accounted for. After receipt of the assessee's explanation and on the basis of the same he recast the trading account and computed the total income at Rs. 83,154 which included Rs. 12,000 being profit on transactions kept outside the books. During the assessment proceedings, the ITO was satisfied that the assessee had concealed its income and hence he initiated penalty proceedings under Section 271(1)(c) of the I.T. Act, 1961, and referred the case to the IAC. In reply to the show-cause notice issued by the IAC the case taken by the assessee was that sales had been over-stated in the trading account by Rs. 12,000 on account of a wrong entry of the credit entry dated June 10, 1963, of Rs. 27,254 instead of Rs. 17,254 and, secondly, that purchases from M/s. Chajja Ram Ram Kumar and M/s. Bharat Commerce and Industries amounting to Rs. 22,432 be further debited to the trading account. According to the IAC, if the above submission were to be accepted, the net profit would come to Rs. 34,193 instead of Rs. 21,600 and according to the assessee's own showing there was concealment of Rs. 12,593.
2. It was also found that the assessee had not accounted for the purchases made from the aforesaid two parties and there were numerous discrepancies in the account books. The IAC, therefore, found that the case was fully covered by the substantive provisions contained in Section 271(1)(c) and, apart from that, the Explanation to that section was also attracted. In the result, he imposed penalty in the sum of Rs. 28,452. On appeal, the Appellate Tribunal confirmed these findings but reduced the quantum of penalty to 30% of the final tax sought to be avoided by the assessee. The Tribunal had heard the penalty appeal along with the appeal against the assessment order and therein for various reasons it had confirmed the addition sustained by the AAC by way of extra profit. The Tribunal relied on these findings in confirming the penalty order.
3. At the instance of the assessee, the following two questions of law have been referred to this court for its opinion :
"1. Whether there was any material before the Tribunal to endorse the finding of the Appellate Assistant Commissioner of Income-tax that the assessee had confessed the concealment of income for Rs. 12,593 ?
2. Whether the Appellate Tribunal was right in law in imposing penalty upon the assessee under Section 271(1)(c) of the Act ?"
4. It was submitted before us on behalf of the assessee by Dr. K.B. Bhatnagar that purely because a certain addition had been made on account of extra profit, and that too on estimate, imposition of penalty would not be justisfied. According to the learned counsel, in penalty proceedings the findings in assessment proceedings may be relevant, but they are not conclusive and penalty cannot be imposed merely on the basis of those findings. The department must bring on record some further material to prove that the assessee had concealed its income or had furnished inaccurate particulars in respect of the same. According to the learned counsel, the Tribunal was thus not justified in confining the penalty order on the basis of the findings recorded in assessment proceedings, and apart from that there was no material before it to justify the inference that the assessee had ever made any concession. We are not very much impressed with this argument because it loses sight of the fact that the Explanation to Section 271(1)(c) is attracted to the case. The difference between the income returned by the assessee and the income finally assessed was more than 20 per cent. and the Explanation to Section 271(1)(c) was clearly attracted. It shall be deemed that the assessee concealed the particulars of his income and furnished inaccurate particulars of such income. However, this presumption is rebuttable and the assessee can rebut it by showing that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part ; under the Explanation, therefore, the onus is on the assessee and not on the department and this onus is to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect. The nature of the proof is of course as in a civil case and the matter is to be decided on preponderance of probabilities. In the present case, it was found as a fact that all the purchases had not been accounted for and that there were numerous discrepancies. In regard to purchases from the Kanpur party the assessee had failed to prove the source of the same and they were also not recorded in its account books. In the circumstances of the case, it cannot be said that the findings recorded by the Tribunal suffer from any error of law.
5. We, therefore, answer both the questions in the affirmative, in favour of the department and against the assessee. The department is entitled to its costs which we assess at Rs. 200.