COMMISSIONER OF INCOME TAX versus MUSSADILAL RAM BHAROSE

Citation: [1987] 2 S.C.R. 67 · Decided: 28-01-1987 · Supreme Court of India · Bench: SABYASACHI MUKHERJI · Disposal: Dismissed

Judgment (excerpt)

COMMISSIONER OF INCOME TAX 
v. 
A 
MUSSADILAL RAM BHAROSE 
"' ' 
JANUARY 28, 1987. 
[SABYASACHI MUKHARJI AND S. NATARAJAN, JJ.] 
B 
Income Tax Act, 1961, s.271(1) (c)-Assessee-Concealment of 
·particulars of his income or furnishing inaccurate particulars-Assessee 
-; 
to prove that failure to file correct return of income did not arise from 
\ 
fraud, gross or wilful neglect to the satisfaction of assessing authority. 
-:t 
The Income-tax Officer rejected the account books of the res- c 
pondeet-assessee on the ground that the sales and expenses were not 
verified and. the margin of profit shown was low. He adopted the net 
" 
profit rate at 8% thereby computing the profit at Rs.60,800 and the 
total income was computed at Rs.60936 after addition of Rs. !36 for 
interest receipts. On appeal the Appellate Assistant Commissioner con-
D 
firmed this order of the Income-tax Officer. As the total income re-
turned was less than 80% of the correct income computed, he held that 
the case fell within the ambit of s.271( 1) of the Act, and issued a show 
cause notice under section 274 read with section 271 to the assessee. It 
was contended on behalf of the assessee before the Appellate Assistant 
. .t 
Commissioner (i) that the assessee did not conceal the particulars of 
E 
income nor furnish inaccurate particulars; (ii) that the income returned 
was based on the books of account maintained in the regular course of 
business; (iii) that the assessee could only declare the income as re-
fleeted in the books of account; (iv) that the difference between the 
returned income and the assessed income did not arise from any frand 
I' 
or gross or unlawful neglect on the part of the ;issessee; and (v) that it 
F 
could not be considered in the circumstances that the assessee came 
within the mischief of s.27 l{l)(c) of the Act. The Appellate Assistant 
Commissioner rejected these contentions, confirmed the order of the 
Income-tax Officer and in view of the Explanation to section 27 !( l) 
levied a penalty of Rs.8,300 under section 271( l)(c) read with section 
274(2) of the Act. 
G 
The respondeet-assessee went up in appeal to the Tribunal which 
1 
cancelled the penalty order and finally determined the income of the 
assessee at Rs.SO, 750 holding: (a) that the assessee had maintained 
certain types of books of account and had honestly believed that the 
same were sufficient for the true ascertainment of his profits and, from 
H 
67 
68 
SUPREME COURT REPORTS 
[1987] 2 S.C.R. 
A 
the facts he disclosed, it could not be said that he had been grossly or 
wilfully negligent in filing the return of income and as such there was no 
fraud; (b) that the difference between ·the income retnrned and the 
income assessed arose mainly on account of excess profit, in view of the 
various defects in the account books and the application of a higher 
B 
profit rate on. estimated turruover. 
The application of the appellant-revenue seeking reference under 
s.256( !) of the Act, was rej~ded by the Tribunal on the ground that no 
j-
question of law arose. 
The apP,ellaet-revenDE: went before the High Court under section 
C 256(2) of the Act seeking a reference on the question of cancelling the 
penalty imposed under sec.27 t( l)(c) of the Act, and this application was 
also dismissed on the ground that the finding of the Tribunal that the 
assessee acted honestly nollwithstanding the defective nature of the 
account books maintained by him was a finding of fact and therefore no 
0 
question of law arose. 
Dismissing the appeal of the appellant-revenue, this Court, 
HELD: 1. I If the Income tax Officer and the Appellate Assistant 
Commissioner were satisfied that the assessee had concealed the parti-
culars of his income or furnished inaccurate particulars of such income, 
E he can direct that such person should pay by way of a penalty the 
amount indicated in sub-clauise (ii) of clause (c) of section 27 1( I). 
l.2 Under the law as it stood prior to the amendment of 1964, the 
onns was on the revenne to 1~rove that the assessee had furnished inac-
F cnrate particulars or had coHicealed the income. Difficulties were found 
to prove the positive elemeE1t required for concealment under the law 
prior to amendment. This positive element had to be established by the 
revenue. To obviate that difficulty, the explanation was added. The 
-effect of the Explanation is that where the total income returned by any 
person is less th;m 80% of the total fncome

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