Madhya Pradesh High Court
Addl. Commissioner Of Income-Tax vs Motisingh on 16 April, 1982
Equivalent citations: [1983]144ITR133(MP)
JUDGMENT G.P. Singh, C.J.
1. The questions of Jaw referred by the Income-tax Appellate Tribunal, on the direction of this court, are as follows :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no gross or wilful neglect on the part of the assessee and that the Explanation to Section 271(1)(c) is not attracted ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalty of Rs. 19,200 levied under Section 271(1)(c) by invoking the Explanation to Section 271(1)(c) ? "
2. The reference arises out of penalty proceedings for the assessment year 1964-65. The assessee is an HUF doing the business in civil engineering contracts. The income was returned at Rs. 21,571. The income was assessed finally in appeal at Rs. 40,733. The assessee did not maintain any books of account. The IAC in penalty, proceedings held that the assessee had concealed the income within the meaning of the Explanation to Section 271(1)(c) as the income returned was less than 80 per cent. of the income assessed. He also held that the income was being estimated every year in the absence of any books of account and still the assessee persisted in not maintaining the accounts which in fact meant that there was gross or wilful neglect on his part in returning the correct income. The Tribunal did not, in terms, raise the presumption under Section 271(1)(c). It, however, held that the assessee had not been negligent grossly or wilfully in returning the income, nor was there any question of fraud involved in the case.
3. It has been held by this court in Hansraj Aggarwal v. Addl. CIT, [1979] 119 ITR 688 (MP), that the Explanation to Section 271(1)(c) also applies to a case of best judgment assessment. This case has been followed in subsequent cases. Because the income returned by the assessee was less than 80 per cent. of the income finally assessed, the Explanation was attracted. It was then 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. In the instant case, the Tribunal should have first raised the presumption under the Explanation and then considered whether the assessee had been successful in rebutting the presumption by showing that there was no case of fraud or gross or wilful neglect on his part in returning the correct income. The Tribunal has stated that the margin of profit was estimated at 5 per cent. for the low income co-operative housing society contract because of certain specific reasons. Those reasons have not been stated by the Tribunal and we are, therefore, unable to judge whether the finding of the Tribunal that the assessee was hot grossly or wilfully negligent in submitting the return is correct or not. In our opinion, the Tribunal should first raise the presumption under the Explanation and then see, after scrutinizing all relevant material, whether the presumption has been rebutted.
4. For the reasons given above, we answer the questions as follows :
(1) The Explanation to Section 271(1)(c) was attracted. The Tribunal should have raised the presumption under the Explanation and then seen whether, in the circumstances of the case, the assessee had proved that there was no gross or wilful neglect on his part.
(2) The Tribunal was not justified in cancelling the penalty. The Tribunal will have to re-examine that question by invoking the Explanation to Section 271(1)(c).
5. There will be no order as to costs of this reference.