No s. 271(1)(c) penalty if explanation given by the assessee is unproved but not disproved

Addition u/s 68 of the Act was made by the Assessing Officer when the assessee himself offered to include this amount in his total income and consented to pay the tax. Another addition of Rs. 1 lakh was also made when the assessee voluntarily preferred to include Rs. 1 lakh to his total income. The contention of the counsel of the assessee is that the assessee voluntarily surrendered and consented to pay tax to avoid further litigation and to buy peace of mind. Per contra, the DR has raised an objection that when the assessee failed to establish genuineness of agricultural income, then he surrendered to the tax authorities and this amounts to conscious concealment on the part of assessee.

After careful consideration of above submissions, we also observe that in the case of Commissioner of Income Tax vs Upendra V. Mithani (supra), the Hon’ble High Court of Bombay has held that if the assessee gives an explanation which is unproved but not disproved i.e. it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee’ s case is false, then the penalty is not imposable. In the present case, the assessee voluntarily surrendered before the tax authorities and consented to pay the tax and the explanation of the assessee remained unproved but it cannot be said as disproved. Further in the case of National Textile vs Commissioner of Income Tax(supra), the Hon’ble High Court of Gujarat has held that the provisions of section 68 are enabling provisions for making additions where the assessee fails to give an explanation regarding cash credit or where the explanation is not to the satisfaction of the Assessing Officer. Their Lordships further held that such addition would not automatically justify imposition of penalty u/s 271(1)(c) r/w Explanation 1 thereto of the Act. It was also held that in order to justify levy of penalty, there must be some material or circumstances leading to a reasonable conclusion that the amount does not represent assessee’ s income and the circumstances must show that there was a conscious concealment or act of furnishing of inaccurate particulars. From a bare reading of section 271, it is clear that the provisions of Explanation 1 to section 271 of the Act do not make the assessment order conclusive evidence that the amount assessed was, in fact, the income of the assessee and that the assessee did not satisfactorily explain the cash credits by producing evidence and documents. 8. In the case in hand, we observe that the assessee consented to pay tax to avoid further litigation and to buy mental peace and instead of offering further explanation, the assessee voluntarily surrendered before the tax authorities and paid the tax imposed by the Assessing Officer in regard to the impugned addition. In absence of further appeal to the Commissioner of Income Tax(A) or to the Tribunal, the quantum assessment order has reached to its finality but the assessment order is not conclusive evidence that the amount assessed was in fact the income of the assessee and it cannot be presumed that there was a conscious concealment or act of furnishing of inaccurate particulars by the assessee. Accordingly, respectfully following the judgement of Hon’ble High Court of Gujarat in the case of National Textile vs Commissioner of Income Tax(supra) we hold that the penalty is not imposable in the present case and the Assessing Officer imposed penalty on erroneous assumptions which was wrongly confirmed by the Commissioner of Income Tax(A).