Addl. Commissioner Of Income-Tax, Lucknow v. Ram Prakash.

C.S.P Singh, J.:— The assessee owned a truck and was a partner in two firms, M/s. Amolak Ram Ram Prakash and M/s. Ram Prakash Kulbhushan Rai. For the year 1967–68, he filed a return showing an income of Rs. 4,000. During the course of assessment the ITO found that the assessee had invested a sum of Rs. 15,000 for the purchase of a truck which was run in partnership. The assessee's explanation regarding the investment was that a loan of Rs. 2,000 had been taken from his father-in-law and the balance had come out of his past savings. The ITO gave credit for Rs. 2,000 only as coming from past savings, and treated the balance as income from undisclosed sources. Penalty proceedings were also started against the assessee and the matter was referred to the IAC. The IAC did not accept the assessee's explanation that the amount represented the income of the assessee for the year 1966–67, and the income up to the date of the investment during the previous year, and imposed a penalty of Rs. 14,000 under s. 271(1)(c). The Tribunal has allowed the appeal on the view that it was not established that the assessee had deliberately acted in defiance of law or was guilty of conduct, contumacious or dishonest, or had acted in conscious disregard of his obligation. It also held that it was not conclusively established that the assessee had committed a fraud in filing the return or was wilfully or grossly negligent.

2. It appears to us that the Tribunal has approached the question in a wrong perspective. In the relevant assessment year, in view of the first Explanation to s. 271(1)(c), in a case where the returned income was less than eighty per cent, of the assessed income, as is the case here, a presumption arose that the case fell within the throes of s. 271(1)(c), unless the assessee established that the failure to return the correct income was not due to fraud or any gross or wilful neglect on his part. As has been held by this court in the case of Smt. Rukmani Baku v. Addl. CIT, [1979] 116 ITR 468, followed subsequently in the case of CIT v. Gyan Prakash, [1979] 116 ITR 513, once the position arises that the returned income is less than eighty per cent, of the assessed income, the onus shifts on the assessee to prove that he was not guilty of any fraud or gross or wilful neglect in filing a correct return.

3. In such cases enquiry should be directed to the question whether the explanation given by the assessee establishes that the assessee had failed to file an accurate return of his income not due to any fraud or wilful or gross neglect on his part. It is only in case this is established, that the fiction raised by the Explanation stands rebutted. In the present case, the Tribunal has not considered the explanation of the assessee and has not given a clear finding as to whether the explanation offered was acceptable. It has allowed the appeal solely on the consideration already adverted to earlier. These considerations do not satisfy the requirement of Explanation 1 to s. 271(1)(c). The Tribunal should now re-examine the matter and decide as to whether the explanation given by the assessee was such as rebutted the presumption added by Explanation 1 to s. 271 of the Act.

4. In view of this conclusion it is not possible to answer the question as framed, and we accordingly return the question unanswered. The Tribunal should rehear the appeal and decide it in accordance with law, keeping in view the observations made by us above. In the circumstances, there shall be no order as to costs.