JUDGMENT
R.K. Agrawal, J.
1. The Tribunal, Allahabad, has referred the following questions of law under Section 256(2) of the IT Act, 1961 (hereinafter referred to as “the Act”) for opinion to this Court :
“Whether, on the facts and circumstances of the case, the view of the Tribunal that penalty under Section 271(1)(c) was liable to be sustained is correct in law ?”
2. Briefly stated, the facts giving rise to the present reference are as follows :
The reference relates to the asst. yr. 1975-76 in respect of proceeding for imposition of penalty under Section 271(1)(c) of the Act. The applicant is an individual who did not maintain any account. The original assessment for the year under reference was framed by the ITO on 20th Sept., 1975 on a total income of Rs. 12,000. A search took place on 28th Nov., 1976 at the residence of the applicant’s father Sri S.B. Bhatnagar in which a black diary which was in the handwriting of the applicant, was seized. Amongst other entries, an entry relating to Rs. 10,000 in respect of some transaction with one Lalloo was found. The ITO reopened the assessment under Section 147 of the Act and made an addition of Rs. 10,000. It may be mentioned here that pursuant to the notice issued under Section 148 of the Act, the applicant himself had surrendered a sum of Rs. 10,000 standing in the name of Lalloo in the black diary on the ground that he was not in a position to produce the said person. Proceedings for initiation of penalty under Section 271(1)(c) of the Act was initiated and the ITO imposed a sum of Rs. 10,000 as penalty. The order was set aside by the AAC. However, the Tribunal, in appeal preferred by the Revenue, has restored the penalty order.
3. We have heard Sri Vikram Gulati, learned counsel for the applicant, and Sri A.N. Mahajan, learned standing counsel appearing for the Revenue.
4. Sri Vikram Gulati, learned counsel submitted that the applicant himself had disclosed the amount of Rs. 10,000 as his income pursuant to the reassessment proceeding and had, in fact, surrendered the said amount on the ground that the person Lalloo in whose name the entry stood in the black diary, was not traceable and could not be produced. He, thus, submitted that the omission to disclose the said amount in the return, did not arise from any fraud or any gross or wilful neglect on his part and, therefore, the penalty ought to have been set aside. He further submitted that the Explanation to Section 271(1)(c) of the Act, as it was applicable during the assessment year in question, only raised a presumption which is rebuttable. The applicant has given valid explanation and, therefore, it was upon the Department to prove that the applicant had wilfully concealed the particulars of his returned income. In support of his aforesaid submissions, he has relied upon the following decisions :
(i) CIT v. Net Ram Ram Swarup (1973) 88 ITR 213 (All);
(ii) CIT v. B.S. Badve (1982) 138 ITR 682 (Bom);
(iii) Addl. CIT v. Jeewandas Gyanchand (1983) 144 ITR 881 (MP);
(iv) CIT v. Punjab Tyres (1986) 162 ITR 517 (MP); and
(v) C.M. Shivamallappa v. CIT (1987) 163 ITR 725 (Kar).
5. Sri A.N. Mahajan, learned standing counsel, submitted that in the present case the original assessment was made on an income of Rs. 12,000 and, but for the search in which a black diary was seized, the applicant would not have disclosed his real income. The amount of Rs. 10,000 relating to Lalloo had been treated as an income by the authorities on which there is no dispute. As the returned income is less than 80 per cent of the total assessed income, the Explanation, as inserted by the Finance Act, 1964, was applicable and the onus was on the applicant 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. In the present case, the applicant has failed to prove the same and, therefore, the penalty has rightly been imposed. He has relied upon a decision of the apex Court in the case of K.P. Madhusudhanan v. CIT (2001) 251 ITR 99 (SC).
6. Having heard the learned counsel for the parties, we find that it is not in dispute that in the original return the applicant had not disclosed the transaction recorded in the black diary in respect of Lalloo, which was found in the search conducted on 28th Nov., 1976 at the residence of his father. He had admitted the amount of Rs. 10,000 to be his income in the reassessment proceeding as he has surrendered the same on the plea that it is not possible to produce Lalloo. The Explanation inserted to Section 271(1)(c) of the Act was clearly attracted as the returned income was less than 80 per cent of the assessed income.
7. It may be mentioned here that by Section 40 of the Finance Act, 1964 the word ‘deliberately’ occurring in Clause (c) of Section 271(1) of the Act has been omitted and the following Explanation was inserted at the end of Sub-section (1) :
“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 Clause (c) of this subsection. ”
8. Prior to the aforesaid amendment made by the Finance Act, 1964, the apex Court in the cases of CIT v. Anwar Ali (1970) 76 ITR 696 (SC) and CIT v. Khoday Eswarsa & Sons (1972) 83 ITR 369 (SC) has held that the burden is on the Department to prove that a particular amount is a revenue receipt. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income and it cannot be said that the finding in the assessment proceedings for determining or computing the tax is conclusive. It is only a good evidence. Before the penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.
9. However, with the incorporation of Explanation to Section 271(1) of the Act, the apex Court has held in the cases of CIT v. Mussadilal Ram Bharose (1987) 165 ITR 14 (SC): CIT v. K.R. Sadayappan (1990) 185 ITR 49 (SC); Addl. CIT v. Jeevan Lal Shah (1994) 205 ITR 244 (SC); and B.A. Balasubramaniam Bros. & Co. v. CIT (1999) 236 ITR 977 (SC) that the view which had been taken earlier in Anwar Ali’s case (supra) no longer holds the field and it is for the assessee to discharge the onus as contemplated in the said Explanation.
10. In the case of K.P. Madhusudhanan (supra), the apex Court has held that the Explanation to Section 271(1)(c) is a part of Section 271. When the AO or the AAC issues a notice under Section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By virtue of the notice under Section 271 the assessee is put to notice that, if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, and, consequently be liable to the penalty under the section. No express invocation of the Explanation to Section 271 in the notice under Section 271 is necessary before the provisions of the Explanation are applied.
11. In the case of Net Ram Ram Swamp (supra), this Court has held that mere failure of an assessee to prove the nature and source of an income would not lead to an inference that he is deliberately concealing the income or has furnished inaccurate particulars thereof. The IT Department’s burden to establish that the assessee’s case falls under Section 28(1)(c) of the IT Act, 1922, would not be discharged in such a case and penalty cannot be imposed. It may be mentioned here that the aforesaid case related to the imposition of penalty for concealment of income under the Indian IT Act, 1922 in which the Explanation, as inserted in the year 1964, was not there. Thus, no benefit or advantage can be obtained from the aforesaid decision.
12. In the case of B.S. Badve (supra), the Bombay High Court has held that the returns which were filed by the assessee, were merely on the basis of estimates of income and what the ITO did was to raise the estimates of income given by the assessee in respect of the income from the cinema business and from the running of the power looms, There was nothing in the order of the ITO to show that he found the estimates given by the assessee to be fraudulent or that the ITO came to the conclusion that the assessee had made any deliberate false estimate of his income. Moreover, even the additions made by the ITO in the estimates of income made by the assessee are so modest, that merely from those additions it cannot be said that the assessee has made any deliberate under-estimation of his income and, therefore, the levy of penalty was not valid. In the present case, there was a search and a black diary was seized, which contained entries relating to transactions resulting in income which was not disclosed in the return and, therefore, the aforesaid decision is of no help to the applicant.
13. In the case of Jeewandas Gyanchand (supra), the Madhya Pradesh High Court has held that where the assessment was made after rejecting the books of account of the assessee and no particular item in the books was found to be false, nor it had been shown that any specific item of income had not been entered in the books, the assessee has succeeded in rebutting the presumption arising under the Explanation to Section 271(1)(c) of the Act. The Madhya Pradesh High Court has held that the presumption is rebuttable which is not present in the case in hand.
14. In the case of Punjab Tyres (supra) the Madhya Pradesh High Court has held that even in cases of agreed addition to the total income on account of unexplained investments, the Department had to prove by independent evidence in addition to the evidence already brought on record from various sources during the assessment proceedings that that amount represented the concealed income of the assessee earned during the relevant accounting year and where the assessee had agreed to the addition to purchase peace with the Department and the Department was unable to adduce evidence showing that the assessee had consciously concealed the particulars of his income in regard to the unexplained investments, any admission made by the assessee surrendering a particular amount as his income would not by itself justify the imposition of penalty. In the case of C.M. Shivamallappa (supra), the Karnataka High Court has held that as the assessee himself voluntarily disclosed the receipts which became the basis for the reopening of the assessments, there was no concealment of income and the levy of penalty was not valid, The Madhya Pradesh High Court and the Karnataka High Court have not considered the effect of Explanation added by the Finance Act of 1964.
15. As already mentioned hereinbefore, the applicant had not disclosed the income of Rs. 10,000 in the original return and has disclosed it only after the search was conducted and reassessment proceeding was initiated. Thus, there has been a conscious effort on the part of the applicant to conceal the income. The applicant has not been able to rebut the presumption raised under the Explanation to Section 271(1)(c) of the Act which was upon the applicant to prove that there was no gross or wilful neglect on his part. The question of shifting the burden/onus on the Department, in the circumstances, did not arise. The findings recorded by the Tribunal are, therefore, based on the material and evidence on record and do not suffer from any legal infirmity.
16. In view of the foregoing discussion, we answer the question referred to us in the affirmative, i.e., in favour of the Revenue and against the assessee. There shall be no order as to costs.