1. At the instance of the revenue, the following three questions have been referred to us for our opinion :

"1. Whether the Tribunal was correct in law holding that the assessee could be proceeded against either for factual concealment or for fictional concealment under section 271(1)(c) and if the assessee was proceeded for charge of concealment, the penalty could not be levied for fictional concealment under the Explanation to section 271(1)(c) ?

2. Whether the Tribunal has been correct in law in holding that before a penalty under the Explanation to section 271(1)(c) can be imposed, the assessee must be given a clear opportunity of meeting a case under such Explanation ?

3. Whether the Tribunal in this case was justified in law in holding that the levy of penalty under section 271(1)(c) read with section 274(2) was unsustainable and thereby cancelling the penalty of Rs. 10,000 ?"

2. The facts leading to this reference are as follows : We are concerned in this case with the assessment year 1967-68. During the previous year relevant to this assessment year, the respondent was a partner of Messrs. Keshavlal & Co., running an oil mill at Mahuva, in Bhavnagar District. The assessee originally filed his return for the assessment year under consideration on August 14, 1967, declaring an income of Rs. 20,024. Later on, in March, 1968, the assessee filed a revised return declaring an additional income of Rs. 600 from "fatak dalali". The ITO, while processing the assessment, found that the assessee had encashed demand drafts totalling Rs. 88,455. These demand drafts were obtained by the assessee in his own name and they had been obtained from the branches of Dena Bank at Bombay. Later, on these demand drafts were encashed by the assessee at Mahuva with the Dena Bank. For the purpose of encashment of the demand drafts, the assessee was identified by a partner of the firm of Messrs. Keshavlal & Co. The assessee contended before the ITO that the amount of the demand drafts represented gross receipts of dalali business in which he had earned nominal commission. Subsequently, the assessee changed his stand before the ITO and submitted that the transactions of dalali business were entered into by him as the karta of his HUF and not in his individual capacity. An affidavit was filed by the assessee in support of this contention regarding the HUF. The ITO was not satisfied with the assessee's contention and treated the amount of Rs. 88,455, being the aggregate of the amounts of the demand drafts encashed by the assessee, as the income of the assessee, invoking in support of his conclusion the provisions of s. 69A, and the ITO directed that penalty proceedings under s. 271(1)(c) should be initiated against the assessee.

3. Against the decision of the ITO, the matter was taken in appeal before the AAC by the assessee, and the assessee contended at the stage of appeal tat the amount of Rs. 88,455 should not be treated as his income but that the peak amount of Rs. 45,000 should be treated as his money and the matter should be processed accordingly. The AAC did not accept the contention regarding Rs. 45,000 being the peak amount but he came to the conclusion that the peak amount was Rs. 60,000. Before the AAC, the assessee does not seem to have pressed his contention that the demand drafts represented the transactions in the assessee's dalali business. On behalf of the assessee, his advocate, Shri Shukla, conceded that the amounts invested in the purchase of the demand drafts may be assessed in the hands of the assessee. The exact words of the concession before the AAC are

"amounts invested in the purchase o demand drafts belong to the assessee and may be assessed in his hands"

. The AAC, therefore, proceeded on the footing that the amount of Rs. 60,000 should be treated as income of the assessee for the previous year relevant to the assessment year under consideration.

4. Thereafter, before the IAC, to whom the case for penalty proceedings was referred the assessee denied that the addition agreed to by him in the assessment proceedings represented the concealed income of the assessee. The assessee's case before the IAC was that the addition was agreed to only for cutting short prolonged litigation and expenses. It was also submitted on behalf of the assessee that no penalty was imposable in this case as the entire case against the assessee was the result of disbelieving the assessee's version regarding his income from dalali business. The IAC rejected the contentions of the assessee and imposed a penalty of Rs. 10,000 and the IAC proceeded on the footing that in the assessment proceedings before the AAC, the assessee had agreed to the addition of the peak amount of Rs. 60,000.

5. Against the imposition of penalty of Rs. 10,000, the assessee took the matter in appeal before the Tribunal. On behalf of the assessee, it was submitted that the value of unexplained investment was assessable as deemed income of such financial year and, on deemed income, penalty as such was not exigible. It was further argued that the burden was shifted to the assessee to prove his innocence, though, in penalty matters, it was for the revenue to prove concealment. The assessee relied upon the Supreme Court decisions in CIT v. Anwar Ali [1970] 76 ITR 696 and in CIT v. Khoday Eswarsa and Sons [1972] 83 ITR 369. Before the Tribunal, the revenue relied on the Explanation to s. 271(1)(c) and contended that it was for the assessee to explain the source of the money in his hands. Otherwise the case would fall under s. 271(1)(c) read with the Explanation. The Tribunal followed the decision of the Punjab High Court in Gumani Ram iri Ram v. CIT [1972] 85 ITR 67, and did not follow the decision of the Delhi High Court in Durga Timber Work's case [1971] 79 ITR 63. The Tribunal, therefore, allowed the appeal of the assessee and set aside the judgment and order of the IAC levying the penalty. Thereafter, at the instance of the revenue, the questions hereinabove set out have been referred to us for our opinion.

6. In the instant case, we find that the legal position is quite clear. After the decision in Anwar Ali's case [1970] 76 ITR 696 (SC), it is clear that the gist of the offence is that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income and, therefore, the department must establish that the receipt of the amounts in dispute constituted income of the assessee. If there is no evidence on record except the explanation given by the assessee-which explanation has been fund to be false - it does not follow that the receipt constituted his taxable income. This was the principle laid down by the Supreme Court in Anwar Ali's case [1970] 76 ITR 696, and the same principle has also been laid down by the Supreme Court in CIT v. Khoday Eswarsa [1972] 83 ITR 369. The question, therefore, arises whether, while discharging the burden of proof which lies upon the department in these penalty proceedings, the Explanation to s. 271(1)(c) can be availed of and to what extent. At the relevant time, the Explanation to s. 271(1)(c) stood 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 as 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."

7. It is undoubtedly true that in this case the the income returned by the assessee was less than 80% of the total income as assessed by the ITO. However, it must not be forgotten that it was by resorting to the provisions of s. 69A that the ITO and the AAC assessed the amounts of the demand drafts as income of the assessee of the particular previous year relevant to the assessment year under consideration. Under s. 69A :

"Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition o the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year."

8. On behalf of the assessee, an admission was made before the AAC that the amounts invested in the purchase of the demand drafts belonged to the assessee and may be assessed in his hands. Now, it is obvious that there was no concession on behalf of the assessee, nor was there any admission on his part that the amount invested in the purchase of the demand drafts was his income for the previous year relevant to the assessment year 1967-68. The AAC in the assessment proceedings accepted the contention of the assessee regarding the peak amount and on that basis included only Rs. 60,000 as the deemed income of the assessee under s 69A of the I.T. Act. The admission, therefore, was that this amount of Rs. 60,000 belonged to the assessee. There was no concession that this amount represented his income or that it was his income from business for the previous year relevant to the assessment year under consideration.

9. It is well settled that admissions have to be read as a whole and in the context in which they are made. Admission cannot, be read de hors the context in which they are made. The context of the admission made in the instant case is that the ITO had treated the entire amount of Rs. 88,455 as the income of the assessee under the deeming provision of s. 69A. Before the AAC, all that the assessee said or his advocate said was that the amounts invested in the purchase of the demand drafts belonged to the assessee. Whatever the legal inference flowing from that particular statement could be, or would arise, inter alia, under the provisions of s. 69A, there was no admission on the part of the assessee that this amount invested in the purchase of the demand drafts was his income or that it was his income during the previous yea relevant to the assessment year under consideration. Under s. 271(1)(c), what is required to be established is that there must be concealment of particulars of income or furnishing of inaccurate particulars of income, and the Explanation to s. 271(1)(c) lays down a rule of evidence by which a rebuttable presumption would arise in a case where the requirements of the Explanation are satisfied that the assessee concerned had concealed the particulars of his income of furnished inaccurate particulars of his income or furnished inaccurate particulars of his income. The Explanation enables the revenue to discharge the burden of proof if the condition regarding the returned income being less than eighty per cent. of the assessed income is satisfied.

10. However, the fact that the Explanation can be invoked does not mean that the presumption cannot to rebutted by the assessee. In order to rebut the presumption raised by the Explanation to s. 271(1)(c), it is open to the assessee to point to the record of the case and point to materials on the record which would enable him to show that he had not concealed the particulars of his income or furnished inaccurate particulars of his income. In the instant case, because of the admission made on behalf of the assessee before the AAC at the time of the assessment proceedings, the revenue money belonging to the assessee. Thereafter, by virtue of the provisions of s. 69A, it was open to the ITO to deem that amount to be income of the assessee for the financial year in question because no satisfactory explanation was forthcoming from the assessee regarding the source of this amount of Rs. 60,000 which belonged to the assessee. It was, therefore, by the deeming provisions under s. 69A that the ITO and, thereafter, in appeal, the AAC could assess the amount of Rs. 60,000 as the income of the assessee for the financial year in question. But that does not discharge the onus on the revenue in proving in the penalty proceedings that the amount of Rs. 60,000 represented income of the assessee for the particular financial year. There is a distinction between wealth belonging to an assessee and his income in the course of a particular year. If by virtue of unexplained wealth under s. 69A in the absence of a satisfactory explanation a deeming provision is attracted and the amount of the wealth is deemed to be income of the assessee for tat particular year, it cannot be said that, for the purpose of penalty proceedings, the department has been able to establish that the amount of Rs. 60,000 in the instant case was the income (as distinguished from wealth) of the assessee. In view of the decisions of the Supreme Court in Anwar Ali's case [1970] 76 ITR 696 and in Khoday Eswarsa's case [1972] 83 ITR 369, it is obvious that in penalty proceedings, the department must establish that the receipt of the amount in dispute constituted income of the assessee. Unless and until we come to the stage of it being established, that the receipt of Rs. 60,000 constituted income of the assessee and that too without resort to the deeming provisions of s. 69A, it cannot be said that there was any scope for invoking the penalty provision of s. 271(1)(c). In any event, the burden of proof would be clearly discharged the moment it was pointed out on behalf of the assessee in the penalty proceedings that it was by virtue of the deeming provisions after the assessee's version was rejected that the amount was brought to tax under s. 69A of the I.T. Act. In view of the series of decisions ultimately culminating in CIT v. Anwar Ali [1970] 76 ITR 696 (SC) and Khoday Eswarsa's case [1972] 83 ITR 369 (SC), the mere fact that the explanation of the assessee in the assessment proceedings was rejected is no ground for levying penalty against the assessee in connection with that particular assessment year. That is all that has happened in the instant case. On the facts and circumstances of this case, reading the admission of the assessee before the AAC, it cannot be said that he had admitted before the AAC that the amount of Rs. 60,000 was his income from business in the particular year in question. It may be pointed out that, in a case before the Bombay High Court in Western Automobiles (India) v. CIT [1978] 112 ITR 1048, the assessee concerned had admitted before the ITO that the amount was his income from business in the year in question. As pointed out by Desai J. speaking for the Division Bench of the Bombay High Court at page 1056 :

"..... Whether a revised return is filed or an admission is made before the Income-tax Officer in the course of original assessment proceedings would seem to make little difference. The basis in both the case is the same, viz., that the assessee agreed to accept the amounts as his income from business for the year in question. Once this true position is established, it would appear that it would be sufficient for the department to seek to discharge the onus in the penalty proceedings that the admission made by him was incorrect as a matter of fact or it was wrongly or illegally made or that it was made for a reason which would suggest that it was not really the concealed income of the assessee."

11. The mere fact that there was some wealth in the hands of the assessee would not mean that there was accretion to the wealth of the assessee. Unless and until the department is able to bring home the fact that there was accretion to the wealth of the assessee, there cannot be any question of adverse inference being raised against the assessee. In CIT v. P.R. Seetharama Rao [1976] 105 ITR 151 (Mad), an adverse inference in penalty proceedings against the assessee could be drawn because of the accretion to the net wealth of the assessee in a particular period of time. The Madras High Court in that case held that penalty only if he was guilty of concealment of income or deliberately furnished inaccurate particulars thereof. Accretions to wealth, unless properly explained, could be taken as evidence of concealment of income. Though concealment of income should be referable to a particular assessment year and, therefore, unless the accretion to the net wealth is also referable to that assessment year, concealment of income cannot be inferred, once it is shown that there is an accretion to wealth disproportionate to the income assessed during the relevant year, it is for the assessee to prove that the acquisition was not with the income received during the assessment year in question. Acquisition of the property and the source from which the property was acquired are all within the exclusive knowledge of the assessee and he cannot merely plead that the onus is on the department to prove concealment and keep quiet. Without going into the question at what stage the burden shifts from the revenue to the assessee, even if the test of accretion to the net wealth of the assessee during the particular year were to apply-and, in our view, that might be a useful test to apply-the question is whether it has been established by the revenue in the instant case that there was accretion to the net wealth of the assessee during the relevant year under consideration. There is nothing on the record to show what was the wealth o the assessee before the commencement of the year under consideration and what was the accretion to his net wealth in the course of that particular year. It is only if these materials are available on record that it would be possible to say that there was a case of accretion to his net wealth in the course of that particular year. It is only if these materials are available on record that it would be possible to say that there was a case of accretion to the net wealth of the assessee which was not properly explained by the assessee and a presumption would raise that net accretion represented income of the assessee during the year under consideration. No such material exists so far as the record of this case is concerned and, hence, in our opinion, the decision in CIT v. P.R. Seetharama Rao [1976] 105 ITR 151 (Mad) cannot help the revenue.

12. In may be pointed out that a Division Bench of this High Court in CIT v. S.P. Bhatt [1974] 97 ITR 440 had explained the scope of the Explanation to s. 271(1)(c). The entire history of the Explanation has been set out in the course of that judgment and it has been pointed out (p. 444) :

"It is an Explanation enacted in the context of a highly penal provision and there can, therefore, be no doubt that it must be construed fairly and reasonably. This, of course, does not mean that if a case falls fairly and squarely within the language of the Explanation, we should refuse to give effect to the mandate of the legislature as disclosed in the Explanation. But what is necessary to be borne in mind is that when we are construing the true meaning and effect of the Explanation, we must not forget that it is the Explanation which adds to the rigour of a highly penal provision and we must not therefore, be over anxious to enlarge the scope and ambit of the Explanation by making an effort t bring every possible case within it, but we should instead construe the Explanation and apply it in a fair and reasonable way with a view to achieving the purposes of the main provision, namely, that an assessee who has concealed the particulars of his income or furnished inaccurate particulars of such income should not escape penalty. The Explanation creates a legal fiction if the condition of its applicability is satisfied. The condition is an objective condition, namely, that the total income assessed subject to a certain reduction which is not material for our purpose. What the condition contemplates is merely a matter of arithmetical calculation. The income-tax authority is required to take the total income returned by the assessee and the total income as assessed by the revenue authorities and if the former is less than eighty per cent. of the latter, the condition for the applicability of the Explanation is satisfied. The Explanation then says that the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income within the meaning of section 271(1)(c). The Explanation raises a legal fiction and the assessee is straightway brought within the ambit of section 271(1)(c). It is then not necessary for the revenue to show affirmatively by producing the material that the assessee has in fact concealed the particulars of his income or furnished inaccurate particulars of such income. The fact of the total returned income being less than eighty per cent. of the total income assessed is sufficient to bring the assessee within the penal provision enacted in section 271(1)(c). That is achieved by the legal fiction enacted in the Explanation. But, this legal fiction can be displaced if the assessee proves that the failure to return the correct income, that is the total income assessed, did not arise from any fraud or gross or wilful neglect on his part. If the assessee wants to repel the legal fiction and throw the burden of bringing the case within section 271(1)(c) again on the revenue, as it would be in the absence of the Explanation, the assessee has to show - and this burden is upon him - that his failure to return the correct income did not arise from any fraud or gross o wilful neglect on his part. Now, this burden is not on the same nature as the burden which rests on the prosecution in a criminal case where the prosecution has to establish the guilt of the accused beyond reasonable doubt nor is it of the same nature as the burden which lies upon the revenue in establishing that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. It is a burden akin to that in a civil case where the determination is made on preponderance of probabilities. It is also not necessary that any positive material should be produced by the assessee in order to discharge this burden which rests upon him. The assessee may claim to have discharge the burden by relying on the material which is on record in the penalty proceedings, irrespective of whether it is produced by him or by the revenue. The only question to which the income-tax authority has to address itself is, whether on the material on record in the penalty proceedings, can it be said on a preponderance of probabilities that the failure to return the total assessed income has not arisen on account of any fraud or any gross or wilful neglect on the part of the assessee."

13. Ultimately, the question whether, in a particular case, the burden cast on the assessee as a result of the Explanation has been discharged or not is a question which will depend upon the facts and circumstances of the particular case. In the instant case, as we ave pointed out, the mere fact that the explanation of the assessee was found unsatisfactory and the deeming provision of s. 69A could be invoked in the light of the admission made by the assessee before the AAC to the effect that the amounts invested in the purchase of the demand drafts belonged to him, does not necessarily mean that he has not discharged the burden cast upon him by the Explanation. In penalty proceedings, the decisions of the Supreme Court in Anwar Ali's case [1970] 76 ITR 696 (SC) and in Khoday Eswarsa's case [1972] 83 IT 369 (SC) have to be applied and in the light of those decisions, it is obvious that, in the instant case, the burden cast by the Explanation upon the assessee must be held to be discharged. That is the only inference which follows from the facts of this particular case.

14. Income-tax Application No. 97 of 1975 which wanted certain questions to be referred to this High Court for its opinion now no longer survives in view of the decision in S.P. Bhatt's case [1974] 97 ITR 440 (Guj) and so also the controversy sought to be covered by those questions in view of the decision in S.P. Bhatt's case [1974] 97 ITR 440 (Guj). Income-tax Application No. 97 of 1975 is, therefore, rejected. Rule in that matter is discharged. There will be no order as to costs of the Income-tax Application.

15. Since the legal fiction arising from the Explanation to s. 271(1)(c) has been clearly explained by the decision of this court in CIT v. S.P. Bhatt, with which we are in complete agreement, the question referred to us must be answered as follows :

Question No.1 : - In the affirmative as to both parts, that is, in favour of the assessee and against the revenue.

Question No. 2 :- Not necessary.

Question No. 3 :- In the affirmative, that is, in favour of the assessee and against the revenue.

16. The Commissioner will pay the costs of this reference to the assessee.