CASE LAWS DETAILS
DECIDED BY: ITAT, MUMBAI `B’ BENCH MUMBAI , IN THE CASE OF: Chem pure Vs. ITO, APPEAL NO: ITA Nos. 451 to 453/M/2006, DECIDED ON May 7, 2010 4.
13. A conspectus of the Explanation makes it clear that the statute visualized the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. In essence, the Explanation is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. The rationale behind this view is that the basic facts are within the special knowledge of the assessee. Section 106 of the Indian Evidence Act, 1872, gives statutory recognition to this universally accepted rule of evidence. There is no discretion conferred on the Assessing Officer as to whether he can invoke the Explanation or not. Explanation 1 comes into operation when, in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the Assessing Officer or the first appellate authority, or an explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which particulars have been concealed. As per the provision of Explanation 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same and material to the computation of his income have been disclosed by him will be on the person charged with concealment. The explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation; it should not be a fantastic or fanciful one. As indicated above, the consequence follows as a matter of law. The burden is on the assessee. If he fails to discharge that burden, the presumption that he had concealed the income or furnished inaccurate particulars thereof is available to be drawn. The issue relating to “bonafide” and “false” returns in imposing penalty on the assessee under section 43 of the Madhya Pradesh General Sales Tax Act, 1958, and section 9(2) of the Central Sales Tax Act, 1956 have been examined by the Apex Court in the case of Cement Marketing Co. of India Ltd. V .Assistant Commissioner of Sales Tax  4 Taxman 44 (SC), 124 ITR 15 (SC). Facts in brief of this case were that the assessee-company effected certain transactions of sale of cement in accordance with the provisions of the Cement Control Order during the assessment period 1-8-1971 to 31-7-1972. The amount of freight included in the “free on rail destinations railway station” was paid by the purchasers and hence the assessee deducted from the price shown in the invoices sent to the purchasers. In the course of its assessment to sales tax under the Madhya Pradesh General Sales Tax Act, 1958 and the Central Sales Tax Act, 1956, the assessee did not include the said amount of freight in its taxable turnover on the ground that it did not form part of the sale price. In his two separate assessment orders, one under the Central Sales Tax Act, 1956, and the other under the Madhya Pradesh General Sales Tax Act, 1958, the Assistant Commissioner, however, included the same in the taxable turnover for levying tax. He also imposed heavy penalty on account of the assessee’s failure to disclose the same in its taxable returns. On direct appeal to the Supreme Court held as under:-.
“5. The next question that arises for consideration is whether the Assistant Commissioner was right in imposing penalty on the assessee for not showing the amount of freight as forming part of the taxable turnover in its returns. The penalty was imposed under section 43 of the Madhya Pradesh General Sales Tax Act, 1958 and section 9(2) of the Central Sales Tax Act, 1956, on the ground that the assessee had furnished false returns by not including the amount of freight in the taxable turnover disclosed in the returns. Now, it is difficult to see how the assessee could be said to have filed “false” returns, when what the assessee did, namely, not including the amount of freight in the taxable turnover, was under a bona fide belief that the amount of freight did not form part of the sale price and was not includible in the taxable turnover. The contention of the assessee throughout was that on a proper construction of the definition of “sale price” in section 2(o) of the Madhya Pradesh General Sales Tax Act, 1958, and section 2(h) of the Central Sales Tax Act, 1956, the amount of freight did not fall within the definition and was not liable to be included in the taxable turnover. This was the reason why the assessee did not include the amount of freight in the taxable turnover in the returns filed by it. Now, it cannot be said that this was a frivolous contention taken up merely for the purpose of avoiding liability to pay tax. It was a highly arguable contention which required serious consideration by the court and the belief entertained by the assessee that it was not liable to include the amount of freight in the taxable turnover, could not be said to be mala fide or unreasonable. What section 43 of the Madhya Pradesh General Sales Tax Act, 1958, requires is that the assessee should have filed a “false” return and a return cannot be said to be “false” unless there is an element of deliberateness in it. It is possible that even where the incorrectness of the return is claimed to be due to want of care on the part of the assessee and there is no reasonable explanation forthcoming from the assessee for such want of care, the court may, in a given case, infer deliberateness and the return may be liable to be branded as a false return. But where the assessee does not include a particular item in the taxable turnover under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as a “false” return inviting imposition of penalty. This view which is being taken by us is supported by the decision of this Court in Hindustan Steel Ltd. v. State of Orissa  25 STC 211, where it has been held that: “…Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute….” It is elementary that section 43 of the Madhya Pradesh General Sales Tax Act, 1958, providing for imposition of penalty is penal in character and unless the filing of an inaccurate return is accompanied by a guilty mind, the section cannot be invoked for imposing penalty. If the view canvassed on behalf of the revenue were accepted, the result would be that even if the assessee raises a bona fide contention that a particular item is not liable to be included in the taxable turnover, he would have to show it as forming part of the taxable turnover in his return and pay tax upon it on pain of being held liable for penalty in case his contention is ultimately found by the Court to be not acceptable. That surely could never have been intended by the Legislature.
6. We are, therefore, of the view that the assessee could not be said to have filed “false” returns when it did not include the amount of freight in the taxable turnover shown in the returns and the Assistant Commissioner was not justified in imposing penalty on the assessee under section 43 of the Madhya Pradesh General Sales Tax Act, 1958, and section 9(2) of the Central Sales Tax Act, 1956.
7. We, accordingly, reject the appeals insofar as they are directed against the inclusion of the amount of freight in the taxable turnover of the assessee but allow the appeals insofar as they relate to imposition of penalty and set aside the orders passed by the Assistant Commissioner imposing penalty on the assessee.”
14. If we apply the above discussions to the facts of the case under consideration we find that the assessee had tried to substantiate its claim by filing affidavit and other material in quantum matter. In quantum matter the CIT(A) vide order sheet dated 9th January, 2003 asked the assessee to produce Mr. Rizvi for examination but the assessee failed to do so. The AO has also mentioned in the remand report, which was reproduced by the CIT (A) in quantum order in Para No. 7 that summons u/s 131 dated 11.10.01 issued to Mr. Rizwi but the same was not complied by Mr. Rizwi. It was submitted by the AO that the assessee has not availed opportunity as he did not impress upon Shri Rizwi to attend before the AO. The grievance of the revenue is that the assessee has failed to produce party. It may be noted that when the assessee filed complete details of the party, the revenue authorities have ample power including issue of summon under section 131 of the Act whereas the assessee has no such power under the Act to bring the party personally to produce before the AO. It appears from the record that revenue authorities did not exercise such power u/s 131. If we consider the facts of the case under consideration from the point of view of a businessman for that purposes we would like to refer a general human probability/ tendency in business circle. That when transactions with a particular party are over that party may not ready to cooperate in giving information which were exactly asked by the AO to the assessee which were to collect from the party by the assessee. As stated above that under these circumstances the revenue authorities have ample such powers under the Act and if they are not exercising such powers, the assessee cannot be blamed for concealing particulars and or furnishing inaccurate particulars of income. Further, the business is managed through employees /staff in that circumstances the assessee may more interested in cost then parties to whom it was purchased. In respect of quantum matter if the assessee failed to submit such material information to substantiate their claim addition could be sustained but this aspect of human probability tendency of non-cooperation by the parties after business transaction is over, is required to be considered while deciding bonafide aspect of the assessee in penalty matter u/s 271(1) (c) of the Act. The case of the assessee falls under the essence of part B of the explanation. The assessee offered reasonable explanation. The AO has not given finding based on some contradictory evidence to disapprove that explanation offered by the assessee which the assessee 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. Penalty u/s 271(1) (c) cannot be levied unless the case is strictly covered by the provisions of section 271(1) (c). There is no finding that that the assessee has concealed particulars of income or furnished inaccurate particulars of income, discussed above. Under the circumstances, it cannot be held that the AO has found that the assessee has concealed particulars of income or furnished inaccurate particulars of income.