HIGH COURT OF ALLAHABAD
CIT v/s. Km. Sonali Jain
IT APPEAL NO. 88 OF 2008
JULY 29, 2011
1. This income tax appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) has been preferred by the individual assessee against the order of the Income Tax Appellate Tribunal, Lucknow Bench dated 20.7.2007 passed in Income Tax Appeal No. 258/LUC/2006 concerning penalty in connection with assessment year 2001-02.
2. The respondent assessee for the relevant assessment year filed her income tax return on 31.7.2001 disclosing income of Rs. 1,34,696/-. She thereafter revised her return on 28.3.2002 and declared her income to be Rs. 3,84,696/- by adding additional income of Rs. 2,50,000/- which was earlier shown as gift received from Ashok Jain.
3. The assessment order was passed under Section 143(3) of the Act on 28.2.2003 and her taxable income was assessed to be Rs. 6,34,696/- by further including Rs. 2,50,000/- shown to have been received as gift from Smt. Usha Jain and surrendered during assessment proceedings. The appeal of the assessee against the assessment order was dismissed.
4. Simultaneously, penalty proceedings under Section 271(1)(c) of the Act were initiated and a show cause notice was issued on 19.3.2004. The assessee submitted her reply to the show cause notice stating that there is no inaccurate disclosure or any concealment on her part. She has bona fidely disclosed the gift of Rs. 2,50,000/- received by her from Ashok Jain as her income in her revised return and has further made a surrender of Rs. 2,50,000/-which she received as gift from Smt. Usha Jain.
5. The Assessing Officer vide vide order dated 31.3.2004 rejected the explanation of the assessee and imposed a penalty of Rs. 1,50,000/-. The appeal against the same was dismissed on 17.1.2006. However, the tribunal vide impugned order dated 20.7.2007 allowed the second appeal holding that the authorities below have not given any finding as to why the explanation furnished by the assessee was false or untrue.
6. The revenue being aggrieved by the waiver of the penalty as imposed by the assessing officer, has preferred this appeal raising the following substantial questions of law:
(1) Whether on the facts and in the circumstances of the case, the Hon’ble Tribunal was justified in law in cancelling the penalty u/s 271(1)(c) without appreciating that the surrender of income on account of bogus gift by the assessee partly by filing a revised return and partly by surrender before the Ld. CIT(A) was not voluntary but was only after the scam of giving and accepting bogus gifts was detected by the Investigation Wing of the Department.
(2) Whether on the facts and in the circumstance of the case, the Hon’ble Tribunal was justified in law in cancelling the said penalty u/s 271(1)(c) by relying on the surrender made by the assessee in the revised return without appreciating that the act of concealment by the assessee was completed while filing the original return by the assessee and the same could not have been corrected by the assessee by filing another return which was not even a revised return within the meaning of provisions of Section 139(5) of the Act.
(3) Whether on the facts and in the circumstances of the case, the Hon’ble Tribunal was justified in law in cancelling the aforesaid penalty by improperly appraising the evidence on record and in erroneously coming to the conclusion that the surrender of bogus loan by the assessee was a voluntary act.
7. In substance, the appeal only raises a solitary question of law as to whether under the facts and circumstances, the tribunal was justified in law in cancelling the penalty imposed under Section 271(1)(c) of the Act.
8. The relevant portion of Section 271(1)(c) of the Act with relevant explanation 1 is reproduced below:
“271. (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person –
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or
he may direct that such person shall pay by way of penalty, –
Explanation 1.- Where in respect of any facts material to the computation of the total income of any person under this Act. –
(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) for the Commissioner to be false, or
(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him,
then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.”
The aforesaid provision contemplates for levy penalty where the income tax authorities are satisfied that the assessee has concealed particulars of his income or has furnished inaccurate particulars of such income. Therefore, concealment of income and furnishing of inaccurate particulars of income are the two essential ingredients for the imposition of penalty. According to Explanation, where any person fails to offer an explanation or explanation furnished by him is found to be false or where he is unable to substantiate and fails to prove such explanation to be bona fide then, the amount added or disallowed in computing the total income of such person for the purpose of clause (c) of Section 271(1) of the Act be deemed to represent the income in respect of which the particulars have been concealed.
The aforesaid explanation is said to have been added w.e.f. 1.4.1976 vide Taxation Laws (Amendment) Act, 1975 in view of the decision of the Apex Court in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT  168 ITR 705/33 Taxman 460 (SC) (SC) wherein the assessee agreed for certain additions in his income to buy peace and the amount on being so added was not held to be concealed income as mens rea was not proved.
9. In K.P. Madhusudhanan v. CIT  251 ITR 99/118 Taxman 324 (SC) relying upon Sir Shadilal Sugar General Mills Ltd. (supra), a submission was advanced on behalf of the assessee that he had agreed for certain additions to his income to buy peace which did not mean that the amount so agreed to be added was concealed income. The Supreme Court noting the above argument, observed that it was on account of the view taken in Sir Shadilal Sugar & General Mills. Ltd. (supra) and other judgments that the Explanation to Section 271 was added and by reason of such addition the view taken in the case of Sir Shadilal Sugar & General Mills. Ltd. (supra) can no longer be said to be applicable.
10. However, despite above amendment and addition of Explanation to Section 271 creating a legal fiction, in the case of K.C. Builders v. Asstt. CIT  265 ITR 562/135 Taxman 461 the Supreme Court considering the penalty provision of Section 271(1)(c) of the Act held that the mere omission from the return of an item of receipt neither amounts to concealment nor to deliberate furnishing of inaccurate particulars of income, unless and until there is some evidence to show or circumstances are found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid imposition of tax thereon. In other words, element of mens rea was held to be inherent in concealment/furnishing of inaccurate particulars of income for the purpose of imposing penalty.
11. A similar view has been taken by their Lordships of the Supreme Court in the case of Dilip N. Shroff v. Jt. CIT  291 ITR 519/161 Taxman 218 (SC). The Apex Court in the above case, while dealing with the phrases “concealment of income” and “inaccurate furnishing of particulars” as used under Section 271(1)(c) of the Act and making a distinction between the two phrases held that both the phrases relate to deliberate act on the part of the assessee and mere omission or negligence would not constitute a deliberate act. It was also held that by reason of concealment or furnishing of inaccurate particulars alone the assessee does not ipso fact become liable for penalty under Section 271(1)(c) of the Act. Imposition of penalty is not automatic. Its levy is discretionary and the discretion is required to be exercised by the authorities keeping relevant factors in mind, some of which are inherent in the nature of penalty proceedings.
12. The Supreme Court in T. Ashok Pai v. CIT  292 ITR 11/161 Taxman 340 (SC) laid down that the order imposing penalty is quasi criminal in nature and the burden lies on the department to establish that the assessee has concealed income. The burden of proof in penalty proceedings varies from that in the assessment proceedings, a finding in an assessment proceeding that a particular receipt is part of income cannot automatically be adopted as the basis for imposing penalty. In penalty proceedings, the authorities must consider the matter afresh as the question of imposition of penalty has to be considered from a different angle. It further lays down that in the context of levying penalty under Section 271(1)(c) of the Act concealment or furnishing of inaccurate income signifies a deliberate omission on the part of the assessee and, such deliberate omission either be for the purpose of concealment of income or furnishing of inaccurate particulars.
13. In the light of the above legal position, if we examine the facts of the present case, we find that the assessee-respondent while filing her initial return of income disclosed her income to be Rs. 1,34,696/- in the relevant assessment year and the said return finds mention of receiving gift of Rs. 2,50,000/- from Ashok Jain. In the revised return the said amount of gift was declared as part of her income. Thus, there was no concealment in respect of above amount in filing the return. She further surrendered a sum of Rs. 2,50,000/- as additional income which was also received by her as gift from one Smt. Usha Jain. In this manner her taxable income was computed to be Rs. 6,34,696/- by adding the aforesaid two amounts of Rs. 2,50,000/- each as finally disclosed.
14. The assessing authority treated the above disclosure/surrender by the assessee-respondent of the two gifts of Rs. 2,50,000/- each as an act of compulsion on her part on account of the fact that the department had detected the racket of making of fake gifts for evading tax and further that the gift received by Smt. Usha Jain was not from any blood relative.
15. Admittedly, the aforesaid gifts were received by the assessee-respondent through account payee cheques. The first gift was from the relative. The other gift was from a family friend but the same could not have been disbelieved on the ground that it was not from a blood relative as there is no legal bar in receiving a gift from a person outside the family.
16. The assessee-respondent had produced Smt. Usha Jain, who also was an individual assessee to income tax, before the assessing officer. Her statement was also recorded. She accepted having made a gift to the assessee-respondent and proved the source of the gift by furnishing statement of her saving bank account. The explanation so furnished by the assessee-respondent was not found to be false and in fact no positive evidence was adduced the falsify the same.
17. In view of above, neither the assessee-respondent failed to furnish any explanation regarding the material facts for computation of her income nor the explanation so furnished by her was false. At least there is no finding to this effect. At the same time, the assessee-respondent having surrendered the above gifts as part of her income just in order to buy peace of mind, may be on realising that she may also be ultimately affected by the racket of gift deeds busted by the department without any such thing being deducted in respect of her return or gifts, cannot be said to have failed to prove or substantiate her explanation regarding the to be bona fides of the two transactions.
18. Accordingly, the assessee is not a person who has failed to offer an explanation or the explanation offered by her was found to be false or that she was unable to substantiate the explanation or that the transactions were not bona fide so as to attract the deeming provision contained in Explanation 1(B) to Section 271(1)(c) of the Act. Therefore, the amount added to her income would not be deemed to be income in respect of which particulars had been concealed.
19. In the above situation, if the tribunal has come to a conclusion and recorded a finding that there is no primary evidence to establish that the assessee has concealed her income or furnished inaccurate particular, no exception to the same can be taken.
20. The above finding is a finding of fact and in view of the same it cannot be held that the surrender/disclosure on the part of the assessee-respondent was not voluntarily.
21. Apart from the above, there is no finding by the assessing or first appellate authority that there was a deliberate concealment of income or inaccurate furnishing of return on the part of the assessee-respondent with the intention to evade proper tax.
22. This being the situation no penalty was liable to be imposed in exercise of power under Section 271(1)(c) of the Act upon the assessee-respondent and the same has rightly been cancelled/deleted by the respondent.
23. The question of law raised above is answered in affirmative in favour of the assessee-respondent and against the revenue.
24. The appeal as such is held to be devoid of merits and is dismissed with no orders as to costs.