JUDGMENT [ENTITY], J.
1. This reference has been made by the Income-tax Appellate Tribunal under [SECTION] of the [ACT], in pursuance of the order of this court dated May 5, 1988. The questions which have been referred to this court are as follows :
"(1) Whether, on the facts and in the circumstances of the case, there was material before the Tribunal to hold that the assessee had not discharged its burden to rebut the presumption of concealment and to restore the penalty cancelled by the Appellate Assistant Commissioner ?
(2) Whether, on the facts and circumstances of the case, the Tribunal was justified in overlooking the explanation dated February 2, 1987, filed before the Income-tax Officer, ignored by him but considered by the Appellate Assistant Commissioner ?"
The relevant facts are that the assesses had filed its return showing an income of Rs. 1,990 from brick-kiln business. The assessment was completed on a total income of Rs. 12,000. During the assessment proceedings for the assessment year 1975-76, the statement on oath of [ENTITY], a partner of the assessee-firm, was recorded. He admitted that he had valued the closing stock at the market rate of Rs. 32,901. A perusal of the accounts revealed that the value of bricks numbering 2,90,000, which were inside the kiln, had not been taken into consideration by the assessee. In that case, the valuation of the closing stock would be Rs. 55,026 and, as such, there was an escapement from income of Rs. 22,135. Accordingly, action was taken under [SECTION] of the Act and assessment was completed on a total income of Rs. 24,320 on October 7, 1978. Notice was issued to the assessee under [SECTION] of the Act to show cause why penalty be not imposed on him. The assessee did not file any written reply. The Income-tax Officer took the view that the provisions of [SECTION] were attracted and the minimum penalty payable was Rs. 22,330 and the maximum penalty payable would be Rs. 44,660. So he imposed a penalty of Rs. 22,330 on the assessee.
2. The assessee preferred an appeal against the order of the Income-tax Officer imposing penalty. The Appellate Assistant Commissioner held that it is not a fit case for imposition of penalty. He observed as follows :
"In the instant case, it is clear that there is reconciliation of the opening and the closing stock which has, after consideration by one Income-tax Officer, resulted in an income of Rs. 12,000 as against Rs. 1,990 shown by the assessee. It is not the case of Income-tax Officer that the assessee had not placed before him the true facts. In fact, he has shown the closing stock of the bricks in the kiln and he also declared the sales fully in the subsequent year of the closing stock brought forward as opening stock during the year 1975-76, when there was no manufacturing of bricks but the Income-tax Officer worked out the income earned in the subsequent year. I feel convinced that there was no intention on the part of the assessee to evade the legitimate tax liability and by omission, in truth, there is either no tax advantage obtained. The Income-tax Officer has not brought on record any material which would show that the assessee had wilfully or deliberately omitted to disclose the value of closing stock and in the light of these facts, I hold that it is not a fit case for imposition of penalty which is hereby cancelled and the appeal is allowed."
The order of the Appellate Assistant Commissioner was set aside by the Income-tax Appellate Tribunal in the appeal preferred by the Department. The Tribunal held that the facts narrated above reveal that the income disclosed in the original return is much less than what was disclosed in the revised return. It is, therefore, evident that while furnishing the original return, the assessee had concealed his correct income. The Tribunal further held on the basis of the statement of the assessee's partner that the assessee had undervalued the closing stock since the value of the bricks lying inside the kiln comes to Rs. 55,026 while the value of such bricks was disclosed at Rs. 32,901. The motive for undervaluation, in the view of the Tribunal, can be only to conceal the correct income. The Tribunal also held that the mere fact that in the subsequent year tax had been paid taking into account the price fetched on sale can be of little assistance to the assessee because on that basis it cannot be held that the assessee had not concealed his income during the year under consideration. The Tribunal also held that the assessee did not offer any explanation in response to the notice issued by the Income-tax Officer under [SECTION] of the Act. Thus, the Tribunal came to the conclusion that the Income-tax Officer was right in levying the penalty and the Appellate Assistant Commissioner had committed an error in cancelling the same. The appeal was allowed and the order of the Income-tax Officer imposing penalty was restored.
3. Learned counsel for the Department has raised a preliminary objection that the reference is not legally maintainable since the questions which have been referred by the Tribunal are questions of fact. In [PRECEDENT], to which our attention has been drawn by learned counsel, various authorities on the subject were reviewed and the position that emerged from the authorities was summed up as follows :
(1) When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal is open to reference to the court.
(2) When the point for determination is a mixed question of law and fact, while the finding of the Tribunal on the facts found is final, its decision as to the legal effect of those findings is a question of law which can be reviewed by the court.
(3) A finding on a question of fact is open to attack as erroneous in law when there is no evidence to support it or if it is perverse.
(4) When the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of fact.
In our opinion, the questions which have been referred by the Tribunal are covered by item No. 2 stated above. While the finding of the Tribunal on the facts involved in the case may be final, the legal effect of those findings is to be determined as to whether, on the basis of those findings, it can be said that there has been concealment of income or furnishing of inaccurate particulars of income within the meaning of [SECTION]. Moreover, we are of the view that we cannot go beyond the order of this court dated May 5, 1988, in pursuance of which the questions have been referred by the Tribunal. The other cases reported in [PRECEDENT], [PRECEDENT] and [PRECEDENT], which have been relied upon on behalf of the Department, are distinguishable on facts. We, therefore, hold that the preliminary objection has no force.
4. Learned counsel for the assessee has urged that the assessee has not concealed the particulars of his income nor furnished inaccurate particulars of such income and is not liable for the imposition of any penalty under [SECTION] of the Act. It is only on account of the method of accounting adopted by the assessee, it was submitted, that the value of the bricks in the kiln was not shown in the return and was, after sale shown as the value of the opening balance in the return for the subsequent year. Learned counsel also urged that it is not required that the assessee shall submit a written explanation in the proceedings under [SECTION] and hence no adverse inference can be drawn against the assessee on account of his failure to submit a written reply.
5. On the other hand, it is contended on behalf of the Department that the assessee had no grievance against the assessment in respect of the escaped income. The assessee did not prefer any appeal and accepted the quantum of tax which was assessed on the basis that the value of the bricks in the kiln had not been shown in the return and the correct income was not disclosed. It is implicit in the conduct of the assessee, it was so contended, that he had concealed particulars of his income and so penalty was rightly imposed under [SECTION] on him.
6. Now, penalty may be imposed on an assessee under [SECTION] if the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceeding under the Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In 1964, an Explanation was added to [SECTION] which, in so far as it is material for the purposes of this case, provides that 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 sub-section. In 1976, the Explanation was again amended and this amendment came into force with effect from April 1, 1976. But since the matter relates to the assessment years 1974-75 and 1975-76, the provisions of the Explanation which were in force at that time will have to be taken into consideration in view of the decision in [PRECEDENT].
7. The combined effect of the provisions of [SECTION] and the Explanation is that first of all it should be proved that the assessee had failed to return the correct income and then it is open to the assessee to show that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. If the assessee succeeds in proving this fact affirmatively then no penalty can be imposed but if the assessee does not succeed in proving the said fact, then it will be deemed that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. The burden lies on the assessee to prove the fact that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. No special mode of proving is given in the section and so the same may be proved by the assessee like any other fact. In other words, it is open to the assessee either to give a positive explanation and adduce evidence -to substantiate the same or without giving any positive explanation or producing evidence to establish from the materials on record that the failure to return the correct income was not caused by any fraud or gross or wilful neglect on his part. When the Explanation to [SECTION] provides that "unless he proves", the emphasis is obviously on proof of the fact and not on the furnishing of an explanation, much less a written explanation. The question how the burden of proof can be discharged was dealt with in [PRECEDENT]. It was observed as follows (at page 1318) :
"The rules of evidence pertaining to burden of proof are embodied in [SECTION] of the [ACT]. The phrase 'burden of proof has two meanings one the burden of proof as a matter of law and pleading and the other the burden of establishing his case ; the former is fixed as a question of law on the basis of the pleadings and is unchanged during the entire trial, whereas the latter is not constant, but shifts as soon as a party adduces sufficient evidence to raise a presumption in his favour. The evidence required to shift the burden need not necessarily be direct evidence, that is, oral or documentary evidence or admissions made by the opposite party, it may comprise circumstantial evidence or presumption of law or fact . . . Briefly stated, the burden of proof may be shifted by presumptions of law or fact, and presumptions of law or presumptions of fact may be rebutted not only by direct or by circumstantial evidence but also by presumptions of law or fact."
Both the Income-tax Officer and the Appellate Tribunal have taken the view in the present case that the assessee has concealed the income during the year under consideration. This view has been taken on the basis that the value of the bricks numbering 2,90,000 which were inside the kiln were not shown by the assessee in the return. It has been found by the Appellate Assistant Commissioner that the assessee had shown the closing stock of the bricks in the kiln and had also fully declared the sales of the closing stock of the bricks in the kiln brought forward as opening stock in the subsequent year. The Appellate Tribunal has not interfered with these findings. They are to prove that the failure of the assessee to return the correct income did not arise from any fraud or any gross or wilful neglect on the part of the assessee. Had there been any fraud or gross or wilful neglect, the assessee would not have shown the closing stock of the bricks in the kiln and would not have declared the sale of the closing stock of bricks brought forward as opening stock in the subsequent year. It was not necessary for the assessee to evolve a theory by way of explanation and to adduce affirmative evidence to prove the same. It was enough for the assessee to say that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part and that this fact was proved from the circumstances established from the materials on record. If any further explanation was needed the assessee could rightly point out that the bricks in the kiln had no market value and hence the value of 2,90,000 bricks in the kiln were not included in the return.
8. It may be mentioned that in CIT v. [ENTITY] [PRECEDENT], the provisions of [SECTION] of the [ACT], were considered. [SECTION] of that Act contained corresponding provisions relating to imposition of penalty as are to be found in [SECTION] of the [ACT]. The first point which fell for determination was whether the imposition of penalty is in the nature of a penal provision. It was observed that the determination of the question of burden of proof will depend largely on the penalty proceeding being penal in nature or being merely meant for imposition of additional tax. It was noticed that there was a conflict of views in the various High Courts where and this was set at rest by their Lordships of the Supreme Court who held that one of the principal objects in enacting [SECTION] is to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the Legislature considers to be against public interest. The next question which was considered was when proceedings under [SECTION] are penal in nature, what would be the nature of the burden upon the Department for establishing that the assessee was liable to payment of penalty. The view taken by [ENTITY] C. J. in [PRECEDENT] was approved, viz., that the gist of the evidence under [SECTION] is that the assessee has concealed the particulars of his income or has deliberately furnished inaccurate particulars of such income and, therefore, the Department must establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on record, except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income. The decision in [ENTITY]'s case [PRECEDENT] was followed by the Supreme Court in [PRECEDENT]. There is clear authority in [PRECEDENT] also. The view taken was that mere omission will not amount to concealment or deliberate furnishing of inaccurate particulars unless the omission is attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon.
9. We have accordingly come to the conclusion that, on the facts and circumstances of this case, it cannot be said that the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income within the meaning of [SECTION] and that the Income-tax Appellate Tribunal has erred in law in taking a contrary view and in imposing penalty on the assessee on the basis of such an erroneous view. In our opinion, the assessee had discharged its burden under the Explanation to [SECTION] of the Act on the basis of the materials on record and no penalty could be legally imposed upon him under that section. The reference is answered accordingly.