Case Law Details
RELEVANT PARAGRAPH
As per the provisions of section 271(1)(c) the penalty under this section is leviable if the AO is satisfied in the course of any proceeding under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income.
The penalty proceedings and the assessment proceedings both are different. Explanation 1to section 271(1)(c) in respect of any fact relating to the computation of total income states that the amount added or disallowed in computing the total income of an assessee shall be deemed to be the income in respect of which particulars have been concealed. This deeming provision for concealment is not absolute one.
Explanation 1 to section 271(1)(c) provides that an amount added or disallowed in computing the total income of a person falling under clause (A) or (B) of Explanation 1 refers to two situations in which presumption of concealment created by Explanation1 is available. The first situation is where the assessee, in respect of any facts material to the computation of his total income, fails to offer an explanation or offers an explanation which is found by the AO or the Commissioner to be false. The second situation is where the assessee, in respect of any facts material to the computation of his total income, offers an explanation which he is able to substantiate and also fails to prove that such explanation was bona fide and that all the facts relating to the computation of total income have been disclosed by him. The prescription available under Explanation I cannot be drawn unless the case of the assessee falls under either of the clauses, viz., clause (A) or clause (B).
The presumption under Explanation I is rebuttable and not conclusive. The assessee can submit the explanation as the onus shifted on the assessee to prove that he has not concealed the particulars of the income. The assessee in this case has duly submitted the explanation. No cogent material or evidence was brought to cur knowledge which may prove that the Revenue has detected the concealment or the explanation submitted by the assessee as false one. Even there is no material which may prove that the assessee was not able to substantiate its explanation. Merely the addition has been made in the assessment in our opinion the assessee can not be entrusted with the penalty by simply invoking Explanation I.
The explanation submitted by the assessee, in our opinion, proved that the assessee has discharged his onus and has rebutted the presumptions available to the Revenue under Explanation I to section 27l(l)(c). This explanation given by the assessee cannot be regarded to be a false explanation until and unless, m our opinion, the Revenue proves that the explanation given by the assessee is false. In our opinion, no penalty u/s 271(1)(c) can be imposed on the assessee.
In the case of National Textiles v. CIT [2001] 249 ITR 125 (Guj.) the question before the Hon’ble Gujarat High Court was about the levy of penalty u/s 271(l)(c) in respect of the addition made u/s 08 by recourse to Explanation 1 below section 27l(l)(c). In this case the Hon’ble Gujarat High Court while holding (lie imposition of penalty was not justified observed.-
“In order to justify the levy of penalty, two factor* must co-exist, CO there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee’s income. It is not enough for the purpose of penalty that the amount has been assessed as income, and (ii) the circumstances must show that there was animus, i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. Explanation ! to section 271( 0(C) has no bearing on factor No. J but has a bearing only on factor No.3. The Explanation does not make the assessment order I conclusive evidence that the amount assessed was in fact the income of the assessee. No penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount (Joes not represent concealed income with the hypothesis that it does. 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 ease is false, the Explanation cannot help the Department because there will be no, material to show that the amount in question was the income of the assessee. Alternatively, treating the Explanation as dealing with both the ingredients (i) and (ii) above, where the circumstances do not lead to the reasonable and positive inference that the assessee’s explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. liven in this view of the matter the Explanation alone can not justify levy of penalty. Absence of proof acceptable to the Department cannot he equated with fraud or willful default.”
In our opinion, even if the Tribunal has confirmed the addition does not mean that the assessee has concealed the income or has furnished inaccurate particulars of such income. When a dis allowance is made merely on an estimate basis, the penalty cannot automatically be imposed. Similar view was taken by the Hon’ble Rajasthan High Court in the case of ShiljUi! Tak v. CIT [2004] 251 ITR 373. Similar view has been taken by the Hon’ble Jurisdictional High Court in the ease of Nuvjivan Oil Mills v CIT{252 ITR 4l7 (Guj.)where the AO has estimated the turnover and made the addition on the basis of such estimate, It was held that Explanation I to section 27l(l)(c) is not applicable and the penalty could not be levied. Even the Hon’ble Punjab & Haryana High Court has also taken the similar view in the case of CIT v. M. M. Rice Mills 253 ITR 17 (P&H), when the addition was mad-e on estimate basis.
