JUDGMENT
S.K. Jha, J.
1. Pursuant to a direction of this court under Section 256(2) of the I.T. Act, 1961, by an order dated July 9, 1974, for the assessment
year 1964-65, the following question of law has been referred to this court by the Income-tax Appellate Tribunal, Patna Bench, Patna:
” Whether, on the facts and in the circumstances of this case, the Income-tax Appellate Tribunal was justified in taking the view that imposition of penalty upon the assessee under Section 271(1)(c) of the Income-tax Act, 1961, as it stood at the relevant time, read with the Explanation appended thereto was bad in law ? ”
2. For the assessment year 1965-66, the question referred to this court is :
” Whether, on the facts and in the circumstances of this case, the Income-tax Appellate Tribunal was justified in taking the view that imposition of penalty upon the assessee under Section 271(1)(c) of the Income-tax Act, 1961, as it stood at the relevant time, read with the Explanation appended thereto, was bad in law ? ”
3. As will be noticed from the statement of case submitted to this court, the facts relating to both the matters are the same and the questions of law referred to are also in the same terms. Therefore, a consolidated statement of case has been drawn up in respect of both the matters which relate to imposition of penalty for the assessment years 1964-65 and 1965-66.
4. The assessee is an individual and derived income as a partner in the firm, M/s. National Engineering Works, Tatanagar. Besides this, he had some income from property. In the assessment year 1964-65, the ITO found that the account books of the firm showed a cash credit of Rs. 32,296. The explanation of the assessee regarding the source of this credit was that a sum of Rs. 21,000 was withdrawn by the assessee from the firm between September and October, 1963, and this was later on credited on different dates. The ITO held that the balance of the cash credit to the extent of Rs. 11,296 had not been proved and he, therefore, added the amount as the assessee’s income from undisclosed sources.
5. In the accounting period relating-to the assessment years 1964-65 and 1965-66, the assessee constructed a house property and regarding the source of this investment it was explained that the assessee had invested Rs. 36,095 in this building. It was explained that Rs. 31,327 was deposited in the capital account. The ITO held that the cost of construction shown by the assessee was very low and he estimated the cost of construction at Rs. 75,000.
6. This was done by estimating the cost of construction at Rs. 15 per sq. ft. for the ground floor and Rs. 12 per sq. ft. for the first floor. On this basis, the ITO determined the unexplained investment at Rs. 44,000 and spread over the investment in the assessment years 1964-65 and 1965-66. These additions of Rs. 22,000 each were made in the two assessment
years in question. Copies of the assessment orders of the ITO have been annexed as annexs. A and A-1 and form part of the statement of the case.
7. In appeal, the AAC reduced the estimate of cost of construction by Rs. 10,000 and thus allowed a relief of Rs. 5,000 in each year. The addition of Rs. 11,296 was maintained by him. On further appeal before the Appellate Tribunal, the addition of Rs. 11,296 was reduced to Rs. 1,296 only and the balance of Rs. 10,000 was treated as explained. Regarding the investment in the building, the Tribunal estimated the cost of construction at Rs. 50,000 and thus reduced the addition by Rs. 7,500 each year. The order of the Appellate Tribunal in appeal against the quantum has been annexed as annex. B forming part of the statement of the case.
8. In respect of the aforesaid additions, the IAC imposed a penalty of Rs. 4,500 for the assessment year 1964-65 and Rs. 2,500 for the assessment year 1965-66. He had passed a penalty order before the order of the Tribunal passed in the quantum appeal. The IAC rejected the plea of the assessee that the additions had been made on the basis of estimated cost and also referred to the fact that even the valuer appointed by the assessee had estimated the cost at Rs. 45,000 as against Rs. 36,095 claimed to be the cost of the building by the assessee. Regarding the unexplained cost of investment and the unexplained cash credit, the IAC held the charge of concealment lo be proved and imposed the aforementioned penalties. The common order of the IAC for the two years has been annexed as annex. C forming part of the statement of the case.
9. Against the order of the IAC, the assessee went up in appeal before the Tribunal and the Tribunal considered the two appeals along with the two earlier appeals by the assessee relating to the penalties imposed for the assessment years 1962-63 and 1963-64. The Tribunal held that in both the years, the explanations given by the assessee had not been accepted by the Department. The Tribunal further found that the Explanation to Section 271(1)(c) for the purpose of imposing the penalty was not attracted in the circumstances of the case because the circumstances did not lead to the reasonable or positive inference that the assessee’s explanation was false and in the circumstances the assessee must be held to have proved that there was no fraud or gross or wilful neglect on his part and even in this view of the matter, the explanation could not justify levy of penalty. According to the Tribunal, the absence of a proof acceptable to the Department cannot be equated with fraud or gross or wilful neglect on the part of the assessee. The Tribunal accordingly cancelled the orders
imposing penalties on the assessee for the two years in question. These are all the relevant facts.
10. It may at once be pointed out that the Explanation to Section 271(1)(c) of the Act was inserted with effect from 1st April, 1964. Thus both the assessment years in question would come within the sweep and ambit of the Explanation introduced. The courts have, therefore, always to keep in mind the aforesaid Explanation to the section inserted with effect from 1st April, 1964, while examining the question of imposition of penalty. This question, in my opinion, now is no longer res integra. There have since been a catena of decisions on the point. I need not refer to all of them because the ratio of all the decisions is the same. None the less, it may be worthwhile to make a reference in this connection to a Bench decision of this court in the case of CIT v. Gopal Vastralaya [1980] 122 ITR 527 (Pat) which, in its turn, has reviewed most of the decisions on the point, including an earlier Bench decision of this court in the case of CIT v. Patna Timber Works [1977] 106 ITR 452. I may as well point out that I myself was a member of the Bench on one occasion sitting with Untwalia C. J. in Patna Timber Work’s case’ and in the other with S. P. Sinha J., in Gopal Vastralaya’s case.
11. By now it has been well settled that though before the insertion of the Explanation to Section 271(1)(c) of the I.T. Act, 1961, the onus to prove all the ingredients for levying penalty, which were required to be proved, was wholly on the Department, after the insertion of the Explanation, as soon as it is found that there was a difference of more than 20 per cent. between the income returned and the income assessed, the presumption embodied in the Explanation is attracted and it is for the assessee to prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. What will amount to furnishing of inaccurate particulars with an element of fraud or gross or wilful neglect on the part of the assessee will depend upon the facts and circumstances of each case. A high standard is always applied for the proof of a positive fact while the standard of preponderance of probability is sufficient to prove a negative fact. What the Explanation demands or requires of the assessee is the discharge of the onus of proof of a negative fact, namely, that there has been no active concealment or fraud or wilful neglect on the part of the assessee. Where the onus is on one to prove a negative fact, direct evidence, generally and ordinarily, may be hardly possible. It is, however, too well settled that circumstances of mere suspicion will not warrant the conclusion of fraud. If the broad probabilities of the explanation offered are such as may be believed, though not sufficient for conclusive proof, the onus to prove such a negative fact can well be said to have been discharged by the assessee. He may discharge this onus by
placing the facts found in the assessment order to show that the facts found therein had not in the least given an inkling as to fraud or gross or wilful neglect on the part of the assessee and. therefore, it must be held without proof of any other fact that there was no fraud committed by the assessee in his failure to return the correct income nor was he acting grossly or wilfully negligently. Then the onus shifts back to the Revenue authorities to prove with reference to some positive cogent material, the act of fraud on the part of the assessee for the purpose of bringing into play the provisions of Clause (c) of Section 271(1) of the Act. The proof must be such as to create belief and not merely suspicion. A rational belief cannot be discarded because it is not conclusively made out. Fraud in all cases implies a wilful acton the part of one whereby another is sought to be deprived, by illegal or inequitable means, of what he is entitled to. The Revenue must have been sought to be deprived by such illegal means of what it is entitled to.
12. This being the settled legal position, let me now turn to the findings of fact in the instant case. There is no finding that the assessee had concealed any item of income from its account books. Some amounts of cash credit were not found to be satisfactory by the Department. Even so in appeal and on further appeal to the Tribunal, the assessee went on getting some more and more relief. With regard to the cost of construction of the house, the amount expended over the construction as explained by the assessee was discarded on estimate, although it is true that one of the reasons for it was that according to the valuer of the assessee himself the amount estimated to have been expended, would come to Rs. 45,000 and odd whereas the assessee has claimed to have spent a sum of Rs. 36,000 over the construction. These were all the discrepancies. With regard to these discrepancies, the assessment order of the ITO, the first appellate order of the AAC and further the appellats order of the Tribunal go to show that the explanation of the assessee was not accepted in full with regard to these particulars. There is no finding either in the order regarding the quantum of assessment or in the order of the IAC that there was wilful concealment or gross or wilful neglect on the part of the assessee amounting to fraud. The assessee had offered an explanation. That explanation was not accepted as true. All the same, a reasonable view can be taken of the explanation being probably true. If that be -so, the question of active concealment or gross or wilful neglect within the meaning of Section 271(1)(c) does not arise and the onus shifts back again to the Department and the law as laid down in the case of CIT v. Anwar Ali [1970] 76 ITR 696 (SC) would still govern the field. The Revenue autho-ties have not been able to discharge that onus. I thus find no infirmity in the orders of the Tribunal. The questions referred to this court for the assessment year 1964-65 is answered in the negative, in favour of the assessee and against the Revenue as also the question referred for the assessment year 1965-66. Both the questions-are thus answered in favour of the assessee and against the Revenue. On the facts and in the circumstances of the case, the assessee is entitled to the award of costs. I accordingly award a consolidated cost of Rs. 500 payable to the assessee by the Department.
Ashwini Kumar Sinha, J.
13. I agree.