G.D. Agrawal, Accountant Member
1. This appeal by the assessee is directed against the order of the CIT(A), Faridabad, who partly confirmed the penalty levied Under Section 271(1)(c).
2. The facts of the case are that the assessee filed the return declaring income of Rs. 25,000. The AO completed the asst. at the income of Rs. 1,79,950. The additions made included the addition of cash credit amounting to Rs. 1,54,702. On appeal before the CIT(A), the CIT(A) upheld the addition of cash credit to the tune of Rs. 1,53,702 and allowed the relief of only Rs. 1,000. Against the sustained addition the assessee had moved the appeal to the ITAT which by its order dated 20th Feb., 1989 upheld the addition to the tune of Rs. 23,000 only in respect of the following credits :
Smt. Phula Devi Rs. 1,0.000 Shri Ganpat Rai Rs. 10,000 Shri Ram Parkash Rs. 3,000 ----------- Total Rs. 23,000
3. The AO had initiated penalty proceedings Under Section 271(1)(c) for addition of cash credit of Rs. 1,54,702. He being not satisfied with the explanation of the assessee levied penalty Under Section 271(1)(c) amounting to Rs. 1,05,580 vide his order dated 2-3-1987. In appeal, the CIT(A) restricted the penalty to the extent of addition upheld by the I..T.A.T. in quantum appeal. Accordingly, he reduced the penalty from Rs. 1,01,580 to Rs. 10,490. The assessee is in appeal against the upholding of the penalty to the tune of Rs. 10,490.
3.1 At the time of hearing, the learned counsel for the assessee has submitted that no penalty Under Section 271(1)(c) was leviable, in this case, for the following reasons :
(a) The additions were made Under Section 68 of the Income-tax Act which is only a deeming provision. The fiction as provided in Section 68 will enable the AO to make the addition but the applicability of Section 68 cannot be extended for levying penalty Under Section 271(1)(c) of the Act.
(b) Before any penalty Under Section 271(1)(c) can be levied, the AO has to establish that there was concealment of income by the assessee.
(c) Even on facts the assessee has proved the credit as it filed the affidavit of Smt. Phula Devi and Ram Parkash and to establish the credit in the case of Shri Ganpat Rai, an agreement to sell was also filed. He submitted that there was a long time gap between the credit of amount and the assessment proceedings. Because of this long time gap the creditors could not be produced during the assessment proceedings. He also submitted that in any case it was only the inability of the assessee to prove the credit to the satisfaction of the AO but it was not at all a case of concealment.
3.2 The ld. DR submitted that the assessee did not discharge the burden of proving the credit which lay upon it. In this respect, she relied upon the decision of the Calcutta High Court in the case of CIT v. Precision Finance (Pvt.) Ltd.  208 ITR 465. She submitted that the assessee had filed the affidavit only in respect of two creditors. In respect of Ganpat Rai no evidence was filed. She also submitted that the additions were confirmed by the Tribunal after appreciating all the facts. Thus, she submitted that the order of the CIT(A) be upheld.
3.3 We have carefully considered the arguments of both the sides. The first and the main thrust of the assessee’s argument is that the additions for the cash credit could have been made only because of the provision of Section 68 which is a deeming provision. Since, in respect of Section 271(1)(c) there is no such deeming provision and, therefore, the unexplained cash credit cannot be treated as concealed income for the purpose of Section 271(1)(c). We are unable to agree with this argument of the learned counsel. If there is a credit in the books of an assessee and the assessee is unable to explain such credit satisfactorily the addition could be made therefor even without the provision of Section 68 of the Income-tax Act. The Hon’ble Supreme Court had the occasion to consider this issue under the Indian Income-tax Act, 1922 (where no provision similar to Section 68 was there) in the case of Lakhmichand Bay Nath v. CIT  35 ITR 416. Their Lordships have held: ” That as the credits were found in the business accounts of the appellant and the explanation as to how the amounts came to be received was rejected by the income-tax authorities, the income-tax authorities were entitled to treat the credit as business receipts chargeable to tax. When an amount is credited in business books, it is not an unreasonable inference to draw that it is a receipt from business”. Therefore, Section 68 enacts a deeming provision which is in effect only a statutory recognition of what was the law even prior to enactment of 1961 Act.
3.4 The other argument of the assessee’s counsel that the AO must positively establish concealment of income by the assessee, before levying the penalty Under Section 271(1)(c), is probably based on the renowned decision of Hon’ble Supreme Court in the case of CIT v. Anwar Ali  76 ITR 696. In that case their Lordships have held, That in the absence of cogent material evidence, apart from the falsity of the respondent’s explanation from which it could be inferred that the respondent had concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the source and that the disputed amount was a revenue receipt, the penalty could not be imposed”. The above decision of the Hon’ble Supreme Court was given while considering the penalty levied Under Section 28(1)(c) of the Indian Income-tax Act, 1922. The provisions of Section 28(1)(c) were in pari materia with the provisions of Section 271(i)(c) of the Income-tax Act, 1961 as originally enacted. However, by the Finance Act, 1964, Explanation 1 was inserted to Section 271(1)(a). The Hon’ble Supreme Court had the occasion to consider the effect of Explanation 1 in the case of CIT v. Mussadilal Ram Bharose  165 ITR 14. Their Lordships have observed as under :-
Where the total income returned by the assessee is less than 80 per cent of the total income as assessed, the Explanation to Section 271(1)(c) of the Income-tax Act, 1961, shifts the burden to the assessee to show that the difference was not owing to fraud or gross or wilful neglect on his part. This onus is rebuttable. If, in an appropriate case, the Tribunal or the fact-finding body is satisfied on relevant and cogent material on record and draws an inference thereupon that the assessee was not guilty of gross or wilful neglect or fraud, then, in such a case, the assessee cannot come within the mischief of the Section and suffer penalty. The conclusion of the Tribunal is a conclusion of fact and no question of law arises.
The burden placed upon the assessee is not discharged by any fantastic explanation. Nor is it the law that any and every explanation by the assessee must be accepted. It must be an explanation acceptable to the fact-finding body.
3.5 In the case of CIT v. K.R. Sadayappan  185 ITR 49, the Hon’ble Supreme Court again had the occasion to consider this issue. In this case, an addition of Rs. 18,750 was made by the ITO as undisclosed income and the penalty Under Section 271(1)(c) was initiated. The IAC imposed the penalty of Rs. 18,750 holding that the assessee had not discharged the burden cast upon him by the Explanation to Section 271 (1)(c) of the Act. On appeal, the Income-tax Appellate Tribunal following the decision of the Hon’ble Supreme Court in the case of Anwar Alt (supra) cancelled the penalty. An application Under Section 256(1) was also rejected by the Tribunal. An application Under Section 256(2) was also rejected by the High Court. On SLP to Supreme Court, their Lordships allowed the revenue’s petition and held as under :
Allowing the appeal, that the moment it was found that the income returned was less than 80 per cent of the income assessed, the onus to prove that it was not the failure of the assessee that caused the difference shift to the assessee. But the onus was rebuttable by cogent, reliable and relevant material. Since, however, no such material was indicated either by the Tribunal or by the High Court, the High Court was in error in not correctly applying the principle of law laid down by the Suprem Court in CIT v. Mussadi lal Ram Bharose 165 ITR 14.
3.6 The Hon’ble Supreme Court again considered the impact of explanation upon the applicability of Anwar Ali’s case in the case of CIT v. Jeevan Lal Sah  205 ITR 244 and held as under :
Where the Explanation has made a difference is while deciding that question the presumption created by it has to be applied, which has the effect of shifting the burden of proof. The rule regarding burden of proof enunciated in CIT v. Anwar Ali  76 ITR 696 (SC), is no longer valid. Whether it is a case of undisclosed or unexplained cash deposit or any other concealment the standard is the same. The principle enunciated in Anwar Ali’s case that mere rejection of the explanation of the assessee is not sufficient for levying penalty no longer holds goods and it is no longer necessary that the Department must go further and establish that there was conscious concealment of particulars of income or a deliberate failure to furnish accurate particulars. The cases to which the Explanation attracted is have to be decided in the light of the law enunciated in the cases – Mussadilal Ram Bharose (1987] 165 ITR 14 (SC) and Sadayppan [ 185 ITR 49 (SC).
3.7 The Explanation 1 considered in the above decisions of the Hon’ble Supreme Court has again been substituted by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1-4-1976. The Explanation existing at the relevant time, in the appeal before us, was as under :
Explanation 1 : Where is respect of any facts material to the computation of the total income of any person under this Act,-
(A) such person fails to offer an explanation or offers an explanation which is found by the Officer…to be false.
(B) such person offers an explanation which he is not able to substantiate.
then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of Clause (c) of this Sub-section be deemed to represent the income in respect of which particulars have been concealed.
3.8 After careful reading of the above Explanation, it is evident that the Explanation has three limbs. The assessee shall be deemed to have concealed the particulars of his income, if his case falls within any of the three limbs which are as under :
(i) The assessee fails to offer an explanation
(ii) Assessee offers an explanation but revenue found the explanation as false
(iii) Assessee offers an explanation but he is not able to substantiate it.
3.9 Thus, if any addition is made to the income of the assessee and the assessee could not offer any explanation with regard to such item of addition, in assessment proceedings and also in penalty proceedings, then the assessee shall be deemed to have concealed the particulars of his income to the extent of such addition. The revenue will have no further responsibility to prove that the addition represents the concealed income of the assessee.
3.10 When the assessee offers an explanation with regard to any item of addition of disallowance and the revenue found the explanation as false, the assessee shall be deemed to have concealed the particulars of his income to that extent Thus, to make the assessee liable for penalty under this limb of explanation, burden is upon the revenue to prove that explanation offered by the assessee is false. The revenue may prove the explanation of the assessee false by bringing positive material on record or by showing that explanation of the assessee is unbelievable or by showing that the evidence furnished by the assessee himself falsifies his explanation. However, the degree of proof required by the revenue is only preponderance of probabilities as insisted upon in the civil cases and not ‘prove beyond doubt’ which is insisted upon in criminal cases.
3.11 When the assessee offers an explanation, notwithstanding the fact that the revenue has not proved this explanation as false, the assessee has further responsibility ‘to substantiate’ his explanation. If he fails to substantiate his explanation, he shall be deemed to have concealed the particulars of his income. Here, in our opinion the phrase ‘to substantiate’ will not mean to prove beyond doubt. The degree of proof required for assessment proceedings and penalty proceedings will be different. If the phrase to substantiate is interpreted to prove beyond doubt then the penalty will be compulsorily leviable in every case of addition/disallowance, which is not the intention of the Legislature. When, on preponderance of probabilities, the explanation given by the assessee is a plausible explanation, the assessee shall be deemed to have substantiated his explanation, for the purpose of penalty proceedings, notwithstanding the fact that such explanation was not accepted during the quantum proceedings.
3.12 In the light of the above interpretation of the explanation, let us examine the justification or otherwise of the penalty levied. In the case of Smt. Phula Devi, a credit of Rs. 10,000 was shown. The assessee filed her affidavit confirming the amount deposited with the assessee-firm. The AO did not accept the credit that she is an ordinary housewife, she could not be in a position to save and keep this amount in cash in her own chest. Thus, in this case, the assessee gave an explanation for credit in his books of accounts and the explanation was not found to be false but was not accepted on mere presumption. Since, the assessee has filed the affidavit of the creditor, we hold that the assessee has substantiated its explanation, for the purpose of penalty. Accordingly in respect of credit of Smt. Phula Devi, the penalty is not leviable.
3.13 In the case of Ganpat Rai, the assessee has not filed any evidence to prove the credit except a copy of agreement to sell dated 14-2-1980 according to which Shri Ganpat Rai had received a sum of Rs. 15,000 on 13-2-1980. However, as per assessee’s own explanation filed before us, we find that the amount was credited in assessee’s books on 3-8-1979. The amount received in February 1980 cannot explain the credit in August 1979 the expenditure is totally unbelievable. Thus, the assessee is unable to substantiate his explanation. Accordingly, the penalty regarding credit of Shri Ganpat Rai is upheld.
3.14 In the case of Shri Ram Parkash, the assessee has filed the affidavit. However, when the AO got it verified at the address given by the assessee in the affidavit no such person of this name was found in the said locality. Thereafter, the assessee could not give any other evidence. Thus, here also the assessee could not substantiate the explanation given for credit of Shri Ram Parkash. In view of the foregoing reasons, we direct that the penalty be levied for the concealment of Rs. 13,000 only.
4. In the result, the appeal is partly allowed.