Sh. Kamal Kant Jain, Chandigarh V. ACIT, Chandigarh

ITA 178/CHANDI/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68442 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-07-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 13-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: SAPANDEEP SHARM A
• Keywords: Unexplained cash credit; Gift; Search and seizure; Onus to prove
• Section: 68; 56; 28; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, JM ITA NO. 178/CHD/2013 ASSESSMENT YEAR : 2003-04 KAMAL KANT JAIN V A.C.I.T. C-3(1) SCO 17, SECTOR 22-D CHANDIGARH CHANDIGARH AAOPJ 5310J (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SAPANDEEP SHARMA RESPONDENT BY: SHRI N.K. SAINI DATE OF HEARING 11.7.2013 DATE OF PRONOUNCEMENT 26.8.2013 O R D E R PER T.R.SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 1.11.20112 OF THE LD. CIT(A), CHANDIGARH. 2 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE ASSESSING OFFICER HAS ERRONEOUSLY LEVIED P ENALTY U/S 271(1) (C) OF THE I.T. ACT AMOUNTING TO RS. 2,0 3,671.00 FOR CONCEALMENT OF INCOME ALLEGEDLY ON RECEIPT OF RS. 6 ,46,575/- RECEIVED AS GIFT FROM FRIENDS BASED IN U.S.A., JUST ON THE FACE OF IT, IGNORING THE LEGAL SIDE OF THE MATTER. IT MA Y BE POINTED OUT THAT THIS HONBLE COURT HAD REJECTED THE APPEAL ON THE ISSUE VIDE PARA 36 OF ITS ORDER DATED 29.09.2010 IN APPEAL NO. 320/CHD/2010 FOR LACK OF EVIDENCE. 2 THAT THE LEARNED CIT(A) HAS NOT GONE INTO THE APP LICATION OF QUASI-CRIMINAL PROCEEDINGS TO THE FACTS OF THIS CASE IN AS MUCH AS THE LACK OF EVIDENCE MAY BE GOOD CASE FOR L EVY OF TAX AND NOT GOOD FOR LEVY OF PENALTY. 3 THAT THE APPELLANT FILED EVIDENCE AT EVERY STAGE AND NEVER CONCEALED ANY FACT OR INCOME. A GIFT FROM ABR OAD IS NOT INCOME IN ANY SENSE AND LACK OF SATISFACTION ON EVI DENCE DOES NOT WARRANT PENAL ACTION. 4 THAT THE ORDER OF LOWER AUTHORITIES ARE ILLEGAL A ND ARBITRARY AND DESERVES TO BE QUASHED. 2 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASS ESSEE HAS RECEIVED TWO CREDIT ENTRIES IN THE BANK ACCOUNT OF THE ASSESSEE AMOUNTING TO RS. 1 LAKH AND RS. 5,46,575/-. ON ENQ UIRY IT WAS STATED THAT THESE TWO AMOUNTS REPRESENT THE AMOUNTS OF GIFTS RECEIVED FROM THE FRIENDS. A SUM OF RS. 1 LAKH WAS STATED TO HAVE BEEN RECEIVED FROM SHRI AMRIT DILAWARI AND RS. 5,46,575/- FROM SHRI CHARNJIT P. SINGH. A STATEMENT OF THE AS SESSEE WAS RECORDED WHEREIN SHRI KAMAL KANT JAIN STATED THAT S HRI AMRIT DILAWARI IS A FRIEND BUT HE DID NOT KNOW WHERE HE W AS LIVING PRESENTLY. IN RESPECT OF SHRI CHARANJIT P. SINGH IT WAS STATED THAT HE WAS RESIDING IN AMERICA, PERHAPS IN VIRGINI A. WHEN THE ASSESSEE WAS ASKED ON WHAT OCCASION THE GIFTS WERE RECEIVED IT WAS STATED THAT THE GIFTS WERE RECEIVED BECAUSE THE ASSESSEE WAS IN A FINANCIAL CRISIS AND WAS HELPED BY HIS FRI ENDS. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THESE EXPL ANATIONS AND THE GIFTS WERE TREATED BOGUS IN VIEW OF THE DECISIO N OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF LAL CHAND KA LRA V. CIT, 22 CTR 135 AND THE DECISION OF HON'BLE SUPREME COURT IN CASE OF SUMATI DAYAL V CIT, 214 ITR 801. THE ASSES SEE COULD NOT SUCCEED BEFORE THE LD. CIT(A) AND FILED THE APP EAL BEFORE THE TRIBUNAL. HOWEVER, THE TRIBUNAL ALSO DISMISSED THE APPEAL OF THE ASSESSEE IN THIS REGARD AND CONFIRMED THE AD DITION OF THESE BOGUS GIFTS U/S 68 OF THE ACT. IN RESPONSE T O THE SHOW CAUSE NOTICE IN RESPECT OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT, IT WAS STATED AS UNDER: THE CASES PERTAIN TO THE BLOCK PERIOD AS A SEQUEL OF SEARCH & SEIZURE OPERATION ON 27.10.2006. IT IS SETTLED LA W THAT THE ADDITIONS AS WELL AS THE PENAL ACTION ARE RESTRICTE D TO THE INCOME DETECTED DURING THE SEARCH. THESE PROCEEDING S CANNOT 3 TAKE THE PLACE OF REVIEW AND RE-ASSESSMENT. THE PRO CEEDINGS ARE WITHOUT APPLICATION OF MIND AND PERFUNCTORY. IN ANY CASE IT IS SUBMITTED THAT NO PENALTY FOR CON CEALMENT AND FILING INACCURATE DETAILS OF INCOME IS CALLED FOR A CCORDING TO THE SUBMISSION MADE HEREUNDER YEAR-WISE. ASSTT. YEAR 2003-04 AS PER THE ORDER OF THE ITAT, THE ADDITIONS ON ACCO UNT OF ALV OF VACANT PROPERTIES ARE COVERED UNDER THE SAID ORD ER AND YOU HAVE YET TO GIVE EFFECT OF THE ORDER OF THE HONBLE TRIBUNAL, NO PENALTY CAN BE LEVIED ON THIS ACCOUNT. SECOND ADDITION WHICH SURVIVED IS ON ACCOUNT OF GIF T RECEIVED. UNDER THE INCOME TAX ACT, THE GIFT BECAME INCOME WI TH EFFECT FROM 1.4.2005 DUE TO AMENDMENT OF SECTION 156 OF IN COME TAX ACT. THE CHARACTER OF GIFT WAS NOT INCOME OF THE IN COME TAX ACT DURING THE FINANCIAL YEAR 2002-03. THEREFORE, N O CONCEALMENT PROCEEDINGS CAN BE EXERCISED FOR ASSESS MENT YEAR 2003-04. 4 THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE ABOVE REPLY AND OBSERVED THAT THE ONUS WAS ON THE ASSESSE E TO ESTABLISH THE CREDIT WORTHINESS OF THE PERSONS AND SINCE THE GENUINENESS OF THE GIFTS HAS NOT BEEN ESTABLISHED A CCORDINGLY HE LEVIED A PENALTY U/S 271(1)(C) OF THE ACT. 5 ON APPEAL IT WAS MAINLY STATED THAT IT WAS NOT EA SY TO REMEMBER THE LONG ADDRESS OF A FOREIGN COUNTRY AND THAT IS WHY THE ADDRESS COULD NOT BE GIVEN. IT WAS FURTHER STA TED THAT SINCE THE PROVISION REGARDING TAXATION OF GIFTS BY SECTIO N 56 WAS INTRODUCED W.E.F. 1.4.2005 THEREFORE, THE SAME COU LD NOT BE TREATED AS CONCEALED INCOME. 6 THE LD. CIT(A) DID NOT FIND FORCE IN THE SUBMISSI ONS AND REFERRED TO EXPLANATION (1) OF SECTION 271(1)(C). THE LD. CIT(A) DECIDED THE ISSUE AGAINST THE ASSESSEE VIDE PARA 5. 1 WHICH IS AS UNDER: 5.1 THUS, WHEN THE ASSESSEE HAS CONCEALED PARTICUL ARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS, CONDITI ONS LAID DOWN IN EXPLANATION-1 (SUPRA) HAVE TO BE EXAMINED. IN THE INSTANT CASE, THE ADDITION ON ACCOUNT OF GIFTS WAS MADE 4 BECAUSE THE APPELLANT COULD NOT PROVE CREDITWORTHIN ESS OF THE PERSONS AND THE GENUINENESS OF TRANSACTIONS. THE AD DITION MADE WAS CONFIRMED BY HONBLE ITAT, CHANDIGARH BY H OLDING THAT THE APPELLANT FAILED TO DISCHARGE HIS ONUS OF ESTABLISHING CREDITWORTHINESS OF THE PERSONS AND EVEN PROVING TH E GENUINENESS OF THE TRANSACTIONS. AS THE EXPLANATION GIVEN BY THE APPELLANT REGARDING ADDITION MADE ON ACCOUNT OF SO CALLED GIFTS IS NOT SATISFACTORY, THE AMOUNT IS TO BE TREA TED AS INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED . THE ARGUMENT OF THE LD. COUNSEL THAT THE ADDITION ITSEL F COULD NOT HAVE BEEN MADE SINCE GIFT IS NOT TO BE TREATED AS I NCOME DURING THE YEAR UNDER CONSIDERATION U/S 56 OF THE A CT IS NOT ACCEPTABLE BECAUSE IN THIS CASE THE ADDITION HAS NO T BEEN MADE U/S 56(2)(VI) OF THE ACT, BUT ON ACCOUNT OF UN EXPLAINED CREDIT IN THE GARB OF GIFTS. IN VIEW OF THIS DISCUS SION, IT IS HELD THAT ASSESSING OFFICER HAS RIGHTLY LEVIED CONCEALME NT PENALTY ON THE ADDITION MADE OF RS. 6,46,575/- AND HER ACTI ON IN THIS REGARD IS UPHELD. 7 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE MAINLY SUBMITTED THAT THE GIFTS WERE RECEIVED BECAUSE THE ASSESSEE WAS IN FINANCIAL DIFFICULTIES. HIS CLOSE FRIENDS H AVE HELPED HIM. HE ALSO STRONGLY RELIED ON THE WRITTEN SUBMISSIONS WHICH CONTAINED SOME CASE LAWS. 8 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE ST RONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT FURNISHED PROPER DOCUMENT S IN THE ASSESSMENT PROCEEDINGS TO SUBSTANTIATE THE GIFTS. IN THE PENALTY PROCEEDINGS NO EXPLANATION HAS BEEN GIVEN T HEREFORE, LEVY OF PENALTY WAS JUSTIFIED. 9 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY . THE WRITTEN SUBMISSIONS FIELD BY THE LD. COUNSEL OF THE ASSESSEE READS AS UNDER: THERE WAS A SEARCH AND SEIZURE OPERATION AT THE RES IDENCE AND BUSINESS PREMISES OF THE APPELLANT. THE APPELLA NT HAD ONLY SOURCE OF INCOME AS PARTNER OF M/S NIKKA MAL B ABU RAM & SONS. THE INCOME TAX RETURN REQUIRED TO BE FILED U/S 153 A OF THE INCOME TAX ACT WAS DULY FILED AT AN INCOME O F RS. 5 2,09,444.00 TO WHICH ADDITIONS WERE MADE BY ASSESSI NG OFFICER ON ACCOUNT OF A.L.V., HOUSEHOLD EXPENSES AN D GIFTS RECEIVED BY THE APPELLANT. THE SAME WERE UPHELD BY THE C.I.T. (APPEALS). AGGRIEVED THE APPELLANT WENT TO THE HON, BLE INCOME TAX APPELLATE TRIBUNAL WHICH WHILE DELETING SOME AD DITIONS CONFIRMED THE ADDITIONS OF GIFTS AMOUNTING TO RS. 6 ,46,575.00 WITH NO MENTION ABOUT PENALTY PROCEEDINGS. IN OTHER WORDS THE ADDITION OF GIFTS WAS CONFIRMED BUT PENALTY WAS NOT CONFIRMED BY THE HONBLE INCOME TAX APPELLATE TRIBUNAL. THE OVERZEALOUS OFFICER DID NOT EVEN GIVE A PROPER CHAN CE TO THE APPELLANT AND PASSED AN EX-PARTE ORDER JUST BASED O N THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/ S 153 A READ WITH SECTION 143(3). WHEREAS IT IS VERY CLEAR LAW THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE TWO DISTINCT AND SEPARATE PROCEEDINGS. AGGRIEVED THE AP PELLANT FILED AN APPEAL WITH THE LEARNED C.I.T. (APPEALS) C HANDIGARH. THE C.I.T.(APPEALS) ALSO DID NOT CONSIDER ANY EVIDE NCE OR GROUNDS OF APPEAL WHICH WERE FILED AT EVERY STEP AN D AGAIN RELIED UPON THE ORDER PASSED BY THE ASSESSING OFFIC ER WHO HIMSELF HAS NOT TAKEN ANY EVIDENCE ON RECORD AND IN ITIATED PENALTY PROCEEDINGS JUST BASED ON A STATEMENT OF TH E APPELLANT RECORDED BY HIM IN LUDHIANA WHICH WAS TOTALLY MISIN TERPRETED BY THE ASSESSING OFFICER AS THE QUESTION WAS ASKED IN PUNJABI & HINDI AND WRITTEN DOWN IN ENGLISH BY HIM. GROUNDS OF APPEAL:- 1. THE LEARNED C.I.T. (APPEALS) HAS NOT GONE INTO T HE APPLICATION OF QUASI-CRIMINAL PROCEEDINGS TO THE FA CTS OF THE CASE AS MUCH AS IT IS VERY CLEAR LAW THAT PENALTY PROCEEDINGS ARE DISTINCT FROM THE ASSESSMENT PROCEEDINGS AND AR E IN THE NATURE OF QUASI-CRIMINAL PROCEEDINGS, (KUSHAN LAL SHIV CHAND RAI VS C.I.T., PUNJAB AND HARYANA HIGH COURT. PAGE NO. 21-26 OF PAPER BOOK.) FURTHER THE ASSESSING OFFICER WHILE GIVING APPEAL E FFECT DID NOT ACKNOWLEDGE ANY EVIDENCE BY WAY OF BANK STATEME NTS, AFFIDAVIT ETC. ENCLOSED AT PAGE NO. 1 TO 5 OF PAPER BOOK AND ONLY REPEATED THE ORDERS OF THE PREVIOUS ASSESSING OFFICER WHEREAS CLEARLY CERTAIN PRINCIPLES ARE LAID DOWN IN LAW TO JUDGE WHETHER THERE WAS CONCEALMENT OR NOT DEFINI TE FINDING ABOUT CONCEALMENT IS NECESSARY IN CASE OF INCOME TO HIGHER FIGURE BY THE ASSESSING OFFICER DOES NOT AUTOMATICA LLY WARRANT AND INFERENCE OF CONCEALMENT IMPLIES SOME DELIBERAT E ACT ON THE PART OF THE ASSESSEE IN WITHHOLDING THE TRUE F ACT FROM AUTHORITIES. (C.I.T. VS K.R. CHINNI KRISHNA CHETTY 245 ITR 121 (MADRAS HIGH COURT). IT IS DIFFERENT MATTER THAT TH E SAME HAS NOT BEEN CONSIDERED AS GIFT RELIANCE ALSO PLAYED O N THE CASE OF HINDUSTAN STEEL LIMITED VS STATE OF ORISSA (83 I TR 26. SUPREME COURT) AND K.C. BUILDERS & ANOTHER VS. A.C. I.T 265 ITR 562. SUPREME COURT. THEREFORE THE PENALTY U/S 2 71(1)(C) IS UNCALLED FOR. 2. THE C.I.T. HAS ERRED IN STATING THAT THESE AMOUN TS WERE UNEXPLAINED CREDIT IN THE GARB OF GIFTS. THE LEAR NED C.I.T. WAS PROVIDED WITH ALL THE EVIDENCE AND THE FACT WAS ALSO BROUGHT TO HIS NOTICE THAT ALL TRANSACTIONS WAS THR OUGH PROPER BANKING CHANNEL AND THERE WAS NO CONCEALMENT INVOLV ED. THE ASSESSING OFFICER AND THE C.I.T. HAVE GONE BEYOND T HE 6 JURISDICTION AND IMPOSED PENALTY WHEREAS THE HONBL E TRIBUNAL MAY HAVE UPHELD THE ADDITION BUT NO MENTION IS THER E ABOUT PENALTY IN CASE OF UNEXPLAINED CASE CREDITS AND IN THE CASE OF NATIONAL TEXTILES VS C.I.T. (249 ITR 125 (GUJARAT H IGH COURT) THE ORDER CLEARLY STATES THAT WHERE THERE IS FAILUR E BY THE ASSESSEE TO GIVE AN EXPLANATION ON WHERE EXPLANATIO N IS NOT TO THE SATISFACTION OF THE ASSESSING OFFICER, HOWEVER THE ADDITION MADE ON THIS ACCOUNT WOULD NOT AUTOMATICALLY JUSTIF Y THE IMPOSITION OF PENALTY U/S 271(1)(C) OF I.T.ACT. 3. THAT THE APPELLANT FILED EVIDENCE AT EVERY STAGE AND NEVER CONCEALED ANY FACT OR INCOME. THE ASSESSING OFFICER HAS TOTALLY IGNORED THE ORDER OF ITAT AND ALL THE EVID ENCE ON RECORD AND ERRONEOUSLY IMPOSED PENALTY WHICH WAS UP HELD BY THE C.I.T. WITHOUT GOING INTO THE MERITS OF THE CAS E. IN THE CASE OF C.I.T VS. J.K. SYNTHETICS LIMITED DELHI HIGH COU RT THE HONBLE HIGH COURT HAS CLEARLY STATED THAT PENALTY PROCEEDINGS ARE DIFFERENT FROM THE ASSESSMENT PROCE EDINGS (ENCLOSED AT PAGE NO. 27-30 OF THE PAPERBOOK. FURT HER IN THE CASE OF HUNDUM INDUSTRIES LIMITED THE HONBLE ITAT STATES THAT THE DISALLOWANCE MADE BY ASSESSING OFFICER MA Y GIVE TO SUSPICION SUFFICIENT TO MAKE AN ADDITION BUT NOT SU FFICIENT TO JUSTIFY PENALTY U/S 271(1)(C) OF THE IT ACT.(ENCLO SED AT PG. NO. 31-35 OF THE PAPERBOOK. FURTHER THE APPELLANT COULD HAVE GONE INTO THE APPEAL AGAINST THE ADDITIONS BUT DUE TO BA D HEALTH AND OTHER PERSONAL REASONS CHOSE TO PAY TAX ON THE ADDI TIONS TO BUY PEACE AND SETTLE THE LITIGATIONS BUT THAT DOES NOT MEAN THAT THERE WAS CONCEALMENT. IN THE CASE OF HANDUM I NDUSTRIES LIMITED THE HONBLE TRIBUNAL CLEARLY STATES THAT P ENALTY CANNOT BE IMPOSED ON THE GROUND THAT THE ASSESSEE ACCEPTED THE ADDITION IN QUANTUM APPEAL FOR THE REASON BEST KNOW N TO HIM. IT IS PRAYED THAT THE PENALTY U/S 271(1)(C) OF I.T. ACT IS UNCALLED FOR AND TOTALLY AGAINST THE LAW AS THERE W AS NEVER ANY WILLFUL CONCEALMENT DONE BY THE APPELLANT AND ALL T HE EVIDENCE WAS AVAILABLE WITH THE ASSESSING OFFICER AND THE C. I.T. BUT WAS TOTALLY IGNORED BY THEM. IT IS THEREFORE PRAYED THAT THE PENALTY IMPOSED BY THE ASSESSING OFFICER AND C.I.T. DESERVED TO BE DELETED AND THE APPELLANT BE GIVEN THE RELIEF HE DESERVES. SD/- COUNSEL FOR APPELLANT 10 FIRST SUBMISSIONS MADE IN THE WRITTEN SUBMISSION S IS THAT THE TRIBUNAL HAS DELETED SOME OF THE ADDITIONS BUT CONF IRMED THE ADDITION IN RESPECT OF GIFTS AMOUNTING TO RS. 6465 75/- WITH NO MENTION ABOUT THE PENALTY. 7 11 WE FIND NO FORCE IN THESE SUBMISSIONS. THE LD. COUNSEL OF THE ASSESSEE HAS HIMSELF CONTENDED THAT PENALTY PROCEED INGS ARE INDEPENDENT AND SEPARATE FROM QUANTUM APPEAL PROCEE DINGS. THEREFORE, WHILE ADJUDICATING THE QUANTUM APPEAL, THE TRIBUNAL HAD NO OCCASION TO EXAMINE THE ISSUE OF LEVY OF PENALTY . THEREFORE, THE ORDER OF THE TRIBUNAL IN QUANTUM APPEAL WOULD HAVE NO IMPACT ON THE PENALTY PROCEEDINGS. 12 THE LD. COUNSEL OF THE ASSESSEE HAS RELIED ON TH E DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF KRIS HAN LAL SHIV CHAND RAI V. CIT, 88 ITR 293 (PH). IN THAT CASE TH E ASSESSEE HAD SURRENDERED CERTAIN AMOUNTS OF CREDITS ON THE BASIS OF HUNDIES SHOWN IN THE NAMES OF THIRD PARTY AND THE SAME WAS ACCEPTED BY THE ITO. THEREAFTER PENALTY PROCEEDINGS WERE STARTED. IT WAS CONTENDED THAT IA.C. REFUSED TO GIVE OPPORTUNITY TO PROVE SUCH CREDITS AND LEVIED THE PENALTY. THE PENALTY WAS DEL ETED BY THE HON'BLE HIGH COURT ON THE BASIS THAT I.A.C COULD NO T DENY THE ASSESSEE ITS RIGHT TO PROVE THE FACT OF SURRENDER O F SUCH PAYMENT AND THAT SO CALLED PAYMENT WAS IN FACT WRONG AND TH E SURRENDER WAS MADE SOLELY TO AVOID BOTHERATION AS STATED BY THE A SSESSEE. IN THIS ORDER ITSELF IT WAS OBSERVED THAT PENALTY PROCEEDIN GS ARE DISTINGUISHED FROM THE ASSESSMENT PROCEEDINGS WHICH WAS IN THE NATURE OF QUASI CRIMINAL PROCEEDINGS. IT WAS ALSO OBSERVED THAT THERE CAN BE MANY REASONS FOR SURRENDER BUT IT DOES NOT MEAN THAT IT WAS INCOME OF THE ASSESSEE AND FOR THIS RELIANCE WA S PLACED BY THE COURT ON ITS EARLIER JUDGMENT IN CASE OF GUMANI RAM SIRI RAM V. CIT, (PH). WE FIND THAT THEORY OF DELETING PENALT IES BECAUSE THE ASSESSEE MAY HAVE 100 REASONS FOR SUCH SURRENDER WA S ORIGINALLY APPROVED BY THE HON'BLE APEX COURT IN CASE OF SIR S HADILAL SUGAR 8 AND GENERAL MILLS LTD. AND ANOTHER V. CIT, 168 ITR 705 (S.C) . HOWEVER THIS POSITION IS APPLICABLE BEFORE THE INSE RTION OF EXPLANATION (1) TO SECTION 271(1)(C) OF THE ACT. T HIS HAS BEEN EXPLAINED BY THE HON'BLE APEX COURT ITSELF IN THE L ATER DECISION IN CASE OF K.P. MADHUSUDHANAN V CIT, 251 ITR 99 (S.C). THE HON'BLE SUPREME COURT OBSERVED AT LAST PARA AS UNDER: LEARNED COUNSEL FOR THE ASSESSEE THEN DREW OUR ATTE NTION TO THE JUDGEMENT OF THIS COURT IN SIR SHADILAL SUGAR A ND GENERAL MILLS LTD. V. CIT[1987] 168 ITR 705. HE SUBMITTED T HAT THE ASSESSEE HAD AGREED TO THE ADDITIONS TO HIS INCOME REFERRED TO HEREINABOVE TO BUY PEACE AND IT DID NOT FOLLOW THER EFROM THAT THE AMOUNT THAT WAS AGREED TO BE ADDED WAS CONCEALE D INCOME. THAT IT DID NOT FOLLOW THAT THE AMOUNT AGRE ED TO BE ADDED WAS CONCEALED INCOME IS UNDOUBTEDLY WHAT WAS LAID DOWN BY THIS COURT IN THE CASE OF SIR SHADILAL SUGA R AND GENERAL MILLS LTD. [1987] 168 ITR 705 AND THAT, THE REFORE, THE REVENUE WAS REQUIRED TO PROVE THE MENS REA OF A QUA SI- CRIMINAL OFFENCE. BUT IT WAS BECAUSE OF THE VIEW TA KEN IN THIS AND OTHER JUDGMENTS THAT THE EXPLANATION TO SECTION 271 WAS ADDED. BY REASON OF THE ADDITION OF THAT EXPLANATIO N, THE VIEW TAKEN IN THIS CASE CAN NO LONGER BE SAID TO BE APPL ICABLE. THE ABOVE CLEARLY SHOWS THAT AFTER INSERTION OF EXP LANATION (1) TO SECTION 271(1)(C) OF THE ACT THE PENALTY CANNOT BE DELETED MERELY BECAUSE ASSESSEE HAD SURRENDERED THE PARTICULAR ITE M OF INCOME FOR BUYING PEACE. IN ANY CASE IN THE CASE BEFORE US, NO SURRENDER WAS MADE AND GIFT WAS DETECTED BY THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. 13 THE NEXT DECISION RELIED IS IN CASE OF CIT V. K. R. CHINNI KRISHNA CHETTY (MAD) 246 ITR 121 (CITATION GIVEN IN THE WRITTEN SUBMISSIONS WAS 245 ITR 121) AND THERE WAS NO SUCH JUDGMENT. HOWEVER, TO BE FAIR TO THE ASSESSEE AFTER GREAT LAB OUR WE WERE ABLE TO LOCATE THE JUDGMENT AT 246 ITR 121). IN THAT CA SE THE ASSESSEE HAD DEBITED A SUM OF RS. 70,000/- TOWARDS COST OF F ACTORY BUILDING, ITO WAS OF THE OPINION THAT THE AMOUNT SHOWN TOWARD S FACTORY BUILDING EXPENDITURE WAS ON THE LOWER SIDE, THEREFO RE, THE MATTER 9 WAS REFERRED TO THE VALUATION CELL WHICH ESTIMATED HIGHER AMOUNT TOWARDS COST OF CONSTRUCTION AND ACCORDINGLY THE A SSESSING OFFICER MADE ADDITION TOWARDS SUCH UNDISCLOSED EXPENDITURE ON CONSTRUCTION. WHEN THE MATTER TRAVELED TO THE TRIB UNAL IT REDUCED THE ADDITION TO RS. 40,000 ON ESTIMATED BASIS. PEN ALTY WAS DELELTED BY THE TRIBUNAL FIRSTLY BY OBSERVING THAT THERE WAS NO REQUIREMENT TO SHOW THE EXPENDITURE AS THE RETURN FORM HAD NO SUCH COLUMN. THE DELETION OF PENALTY WAS CONFIRMED BY THE HON'BLE HI GH COURT AND HELD COLUMN READS AS UNDER: HELD, THAT UNDER SECTION 271(1)(C) OF THE ACT, THE ASSESSING AUTHORITY IS GIVEN THE DISCRETION TO LEVY A PENALTY IF THERE IS CONCEALMENT OF PARTICULARS OF INCOME AND EVEN AS RE GARDS THE QUANTUM OF THE PENALTY THERE IS A DISCRETION. THAT DISCRETION WAS AVAILABLE TO THE TRIBUNAL AS WELL WHEN IT CONSI DERED THE MATTER IN APPEAL. OF GREATER IMPORTANCE IS THE NECE SSITY FOR A DEFINITE FINDING THAT THERE IS CONCEALMENT, AS WITH OUT SUCH A FINDING OF CONCEALMENT, THERE CAN BE NO QUESTION OF IMPOSING ANY PENALTY. THE MERE REVISION OF THE INCOME TO A H IGHER FIGURE BY THE ASSESSING AUTHORITY DID NOT AUTOMATICALLY WA RRANT AN INFERENCE OF CONCEALMENT OF THE EXPENDITURE ON THE CONSTRUCTION. THE ADDITION TO THE INCOME OF THE ASS ESSEE BASED ON THE REPORT OF THE VALUER WAS RIGHTLY REGAR DED BY THE TRIBUNAL AS BEING INSUFFICIENT FOR RECORDING A FIND ING OF CONCEALMENT OF INCOME. CONCEALMENT IMPLIES SOME DEL IBERATE ACT ON THE PART OF THE ASSESSEE IN WITHHOLDING THE TRUE FACTS FROM THE AUTHORITIES. THE FACT THAT THE VALUER ASSE SSED THE BUILDING AT A FIGURE HIGHER THAN THE ONE REPORTED B Y THE ASSESSEE DID NOT BY ITSELF LEAD TO THE INFERENCE TH AT THERE HAD BEEN CONCEALMENT. THERE WAS NO EVIDENCE TO SHOW THA T THE ASSESSEE HAD DELIBERATELY CONCEALED THE COST OF CON STRUCTION. THE ASSESSEE WAS NOT REQUIRED TO REPORT THE PROGRES S OF THE CONSTRUCTION AS THE RETURN DID NOT REQUIRE HIM TO D O SO. THEREFORE, THE LEVY OF PENALTY UNDER SECTION 271(1) (C) OF THE ACT WAS NOT VALID. 14 THEREFORE ABOVE HEAD NOTE CLEARLY SHOWS THAT PEN ALTY WAS DELETED BECAUSE HON'BLE COURT WAS OF THE OPINION TH AT THERE SHOULD BE A DELIBERATE CONCEALMENT OF SUCH INCOME. MOREOV ER, THE VALUE OF CONSTRUCTION WAS OF A MATTER OF OPINION AND DOES NO T SHOW THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS. AS OBSERVE D EARLIER AFTER INSERTION OF EXPLANATION (1) IN THE ACT, IT IS NO M ORE NECESSARY THAT 10 THE ASSESSEE SHOULD HAVE DELIBERATE INTENTION OF CO NCEALING BECAUSE EXPLANATION (1) IS A LEGAL FICTION WHICH ST ATES THAT THAT ASSESSEE WOULD DEEM TO HAVE CONCEALED PARTICULARS O F HIS INCOME IN THE CIRCUMSTANCES SET OUT IN THE EXPLANATION. IN F ACT THE ISSUE OF DELIBERATE CONCEALMENT AS WELL AS MENSREA WAS CONSI DERED BY THE LARGER BENCH OF THE HON'BLE SUPREME COURT AFTER A D OUBT WAS EXPRESSED BY A DIVISION BENCH OF HON'BLE APEX COURT REGARDING CORRECTNESS OF THE VIEW EXPRESSED IN CASE OF DILIP N. SHROFF V JCIT AND ANOTHER, 291 ITR 519 (S.C). HON'BLE CONSTITUTI ONAL BENCH CONSIDERED AND DISCUSSED THIS ISSUE IN CASE OF UNIO N OF INDIA AND OTHERS V. DHARMENDRA TEXTILES PROCESSORS AND OTHERS , 306 ITR 277 (S.C) AND OVERRULED THE DECISION OF DILIP N SHROFF (SUPRA). IT IS OBSERVED AT PARA 27 AS UNDER: THE EXPLANATIONS APPENDED TO SECTION 271(1)(C) OF THE INCOME-TAX ACT ENTIRELY INDICATE THE ELEMENT OF STR ICT LIABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GIVING INACC URATE PARTICULARS WHILE FILING THE RETURN. THE JUDGMENT IN DILIP N SHROFFS CASE (2007) 8 SCALE 304 (S.C) HAS NOT CONS IDERED THE EFFECT AND RELEVANCE OF SECTION 276C OF THE INCOME- TAX ACT. THE OBJECT BEHIND THE ENACTMENT OF SECTION 271(1)(C ) READ WITH THE EXPLANATIONS INDICATES THAT THE SAID SECTION HA S BEEN ENACTED TO PROVIDE FOR A REMEDY FOR LOSS OF REVENUE . THE PENALTY UNDER THAT PROVISION IS A CIVIL LIABILITY. WILFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTR ACTING CIVIL LIABILITY AS IS THE CASE IN THE MATTER OF PROSECUTI ON U/S 276C OF THE INCOME-TAX ACT. MOREOVER IN CASE OF CIT V. K.R. CHINIKRISHNA (SUPRA ) THE ADDITION WAS MADE ON ACCOUNT OF UNDISCLOSED INCOME IN COST OF CONSTRUCTION WHICH WAS VALUED AT HIGHER AMOUNT BY VALUATION CELL AND ADDITION WAS RESTRICTED BY THE TRIBUNAL WHICH CLEARLY SHOW T HAT ADDITION WAS ON THE BASIS OF ESTIMATE AND THEREFORE, PERHAPS PE NALTY WAS NOT JUSTIFIED ON THIS ACCOUNT ALSO. 15 NEXT DECISION RELIED ON IN THE WRITTEN SUBMISSIO NS IS IN CASE OF HINDUSTAN STEEL LTD. V CIT, 83 ITR 26 (S.C). IN TH AT CASE THE ASSESSEE-COMPANY WAS REGISTERED UNDER THE ORISSA SA LES TAX ACT, 11 1947. THE ASSESSEE-COMPANY INITIALLY ERECTED A FAC TORY BUILDING ETC. FOR STEEL PLANT AND THE SOME OF THE WORK WAS D ONE THROUGH CONTRACTORS. HOWEVER, THE ASSESSEE-COMPANY SUPPLIE D TO THE CONTRACTORS FOR USE IN CONSTRUCTION BRICKS, COAL, C EMENT, STEEL ETC. A QUESTION AROSE WHETHER SUCH SUPPLY WOULD MEAN TO SALE UNDER THE ORISSA SALES TAX ACT. ULTIMATELY SUCH SUPPLY W AS HELD TO BE SALE. HOWEVER, SINCE PENALTY WAS ALSO LEVIED AND T HE HON'BLE SUPREME COURT IN RESPECT OF PENALTY OBSERVED AT PA GE 29 AS UNDER: UNDER THE ACT PENALTY MAY BE IMPOSED FOR FAILURE T O REGISTER AS A DEALER: SECTION 9(1), R.W.S 25(1)(A) OF THE AC T. BUT THE LIABILITY TO PAY PENALTY DOES NOT ARISE MERELY UPON PROOF OF DEFAULT IN REGISTERING AS A DEALER. AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI-CRIMINAL PROCEEDINGS, AND PENALTY WILL N OT ORDINARILY BE IMPOSED UNLESS THE PARTY OBLIGED, EI THER ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST, OR ACTED IN CONS CIOUS DISREGARD OF ITS OBLIGATION. PENALTY WILL NOT ALSO BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETHER PENA LTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIG ATION IS A MATTER OF DISCRETION OF THE AUTHORITY TO BE EXERCIS ED JUDICIALLY AND ON A CONSIDERATION OF ALL THE RELEVANT CIRCUMST ANCES. EVEN IF A MINIMUM PENALTY IS PRESCRIBED, THE AUTHOR ITY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED I N REFUSING TO IMPOSE PENALTY, WHEN THERE IS A TECHNICAL OR VENIAL BREACH OF THE 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. THOSE IN CHARGE OF THE AFFAIRS OF THE COMPANY IN FAILING TO REGISTER THE C OMPANY AS A DEALER ACTED IN THE HONEST AND GENUINE BELIEF THAT THE COMPANY WAS NOT A DEALER. GRANTING THAT THEY ERRED , NO CASE FOR IMPOSING PENALTY WAS MADE OUT. AFTER ABOVE OBSERVATION THE HON'BLE COURT DISCUSSED VARIOUS TERMS FOR THE MEANING OF BUSINESS AND ULTIMATELY HELD THA T VARIOUS INTERPRETATIONS ARE POSSIBLE, THEREFORE, NON PAYME NT OF TAX WAS MERELY A TECHNICAL BREACH. IT IS TO BE NOTED THAT LOT OF WATER HAS FLOWN UNDER THE GANGES AFTER THIS DECISION BECAUSE INITIALLY HON'BLE COURT WAS OF THE OPINION THAT UNLESS AND UNTIL THER E IS A DELIBERATE INTENTION OF CONCEALMENT, PENALTY CANNOT BE IMPOSED . AS FAR AS INCOME-TAX ACT IS CONCERNED, ORIGINALLY THE SAME PO SITION PREVAILED. 12 ORIGINALLY IN THE 1922 ACT SECTION 28 WHICH AUTHORI ZES THE LEVY OF PENALTY CONTAINED THE WORD DELIBERATELY IN SUB-SEC (3) FOR IMPOSING THE PENALTY FOR CONCEALMENT. RELEVANT SECTION READ S AS UNDER: PENALTY FOR CONCEALMENT OF INCOME OR IMPROPER DIST RIBUTION OF PROFITS (1) IF THE ITO, THE APPELLANT ASSISTANT LD. COMMISSIONER OR THE APPELLATE TRIBUNAL IN THE COURS E OF ANY PROCEEDINGS UNDER THIS ACT, IS SATISFIED THAT IN PE RSON-------- (A)--------------------- (B)--------------------- (C) AS CONCEALED PARTICULARS OF HIS INCOME OR DELIBERATELY FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. SAME POSITION PREVAILED IN THE ORIGINAL SECTION 271 IN 1961 ACT AND THE SAME READ AS UNDER: 271 FAILURE TO FURNISH RETURNS, COMPLY WITH THE NOTICE, CONCEALMENT OF INCOME ETC. -----(1) IF THE ITO OR T HE APPELLANT ASSISTANT LD. COMMISSIONER IN THE COURSE OF ANY PRO CEEDINGS UNDER THIS ACT, IS SATISFIED THAT ANY PERSON----- (A)------------------ (B)----------------- (C) AS CONCEALED PARTICULARS OF HIS INCOME OR DELIBERATELY FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. BECAUSE OF THE EXPRESSION DELIBERATELY IT WAS EARLIER BELIEVED THAT UNLESS AND UNTIL SOME INCOME WAS INTENTIONALLY CONC EALED BY A PERSON, PENALTY CANNOT BE IMPOSED. BECAUSE OF THE E XPRESSION DELIBERATELY IT WAS HELD IN CASE OF CIT V. ANWAR ALI, 76 ITR 696, THAT PENALTY PROCEEDINGS ARE PENAL IN NATURE AND EV EN IF EXPLANATION OF THE ASSESSEE IS FALSE, IT DOES NOT NECESSARILY G IVE RISE TO THE INFERENCE THAT DISPUTED AMOUNT IS INCOME. THE HEAD NOTE IN THIS CASE READS AS UNDER: PROCEEDINGS U/S 28 OF THE INCOME-TAX ACT, 1922 ARE PENAL IN CHARACTER. THE GIST OF THE OFFENCE U/S 2891)(C) IS THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOM E OR DELIBERATELY FURNISHED INACCURATE PARTICULARS OF S UCH INCOME AND THE BURDEN IS ON THE DEPARTMENT TO ESTABLISH TH AT THE RECEIPT OF THE AMOUNT IN DISPUTE CONSTITUTES INCOME OF THE ASSESSEE. IF THERE IS NO EVIDENCE ON THE RECORD E XCEPT THE 13 EXPLANATION GIVEN BY THE ASSESSEE, WHICH EXPLANATIO N HAS BEEN FOUND TO BE FALSE, IT DOES NOT FOLLOW THAT THE RECEIPT CONSTITUTES HIS TAXABLE INCOME. IT WOULD BE PERFECTLY LEGITIMATE TO SAY THAT THE MERE FACT THAT THE EXPLA NATION OF THE ASSESSEE IS FALSE DOES NOT NECESSARILY GIVE RIS E TO THE INFERENCE THAT THE DISPUTED AMOUNT REPRESENTS INCOM E. FROM THIS POSITION IT BECOMES CLEAR THAT BECAUSE OF THE EXPRESSION DELIBERATELY THE COURTS WERE OF THE OPINION THAT EVEN IF EXPLANATION OF THE ASSESSEE WAS FALSE THE BURDEN STILL LIES WIT H THE REVENUE TO PROVE BEYOND DOUBT THAT THE ASSESSEE HAS CONCEALED PARTICULARS OF INCOME BEYOND DOUBT. THE PARLIAMENT AMENDED THE LA W BY OMITTING THE EXPRESSION DELIBERATELY IN SUB-SECTION (C) WH ICH WAS OMITTED BY FINANCE ACT, 1964. AFTER SUCH OMISSION AN EXPLANAT ION WAS ALSO INSERTED WHICH READS AS UNDER: EXPLANATION WHERE THE TOTAL INCOME RETURNED BY ANY PERSON IS LESS THAN EIGHTY PER CENT OF THE TOTAL INCOME (H EREINAFTER IN THIS EXPLANATION REFERRED TO AS THE CORRECT INCOME) AS ASSESSED UNDER SECTION 143 OR SECTION 144 OR SECTIO N 147(REDUCED BY THE EXPENDITURE INCURRED BONA FIDE B Y HIM FOR THE PURPOSE OF MAKING OR EARNING ANY INCOME INCLUDE D IN THE TOTAL INCOME BUT WHICH HAS BEEN DISALLOWED AS A DED UCTION), SUCH PERSON SHALL, UNLESS HE PROVES THAT THE FAILUR E TO RETURN THE CORRECT INCOME DID NOT ARISE FROM ANY FRAUD OR ANY GROSS OR WILLFUL NEGLECT ON HIS PART, BE DEEMED TO HAVE CONC EALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME FOR THE PURPOSES OF CLAUSE (C) OF THIS SUB- SECTION. AFTER INSERTION OF ABOVE EXPLANATION, THE DECISIONS WERE STILL RENDERED ON THE LINES OF INTENTION OF THE ASSESSEE. FOR THE SAKE OF BREVITY WE ARE NOT DISCUSSING ALL THE DECISIONS BUT EXPLANATION WAS FURTHER AMENDED BY TAXATION LAWS (AMENDMENT) ACT, 1 975. THE EXPLANATION (1) WAS SUBSTITUTED AS UNDER: EXPLANATION 1 WHERE IN RESPECT OF ANY FACTS MAT ERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT: (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE (ASSESSING) OFFIC ER OR THE LD. COMMISSIONER (APPEALS) (OR THE LD. COMMISSIONER ) TO BE FALSE, OR 14 (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE (AND FAILS TO PROVE THAT SUCH EXPLANAT ION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AN D MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCL OSED BY HIM), THEN THE AMOUNT ADDED OR DISALLOWED IN COMPUTING TH E TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL FOR THE PURPOSES OF CLAUSE (C) OF THIS SUB-SECTION BE DEEME D TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULA RS HAVE BEEN CONCEALED. PROVIDED THAT NOTHING CONTAINED IN THIS EXPLANATION SHALL APPLY TO A CASE REFERRED TO IN CLAUSE (B) IN RESPECT OF ANY AMOUNT ADDED OR DISALLOWED AS A RESULT OF THE REJECTION OF ANY EXPLANATION OFFERED BY SUCH PERSON, IF SUCH EXPLANA TION IS BONAFIDE AND ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCL OSED BY HIM. PROVISO WAS AMENDED BY TAXATION LAWS (AMENDMENT ACT AND MISCELLANEOUS PROVISIONS) ACT 1986 W.E.F. 10.9.1986 . COMMENTING ON THIS EXPLANATION THE HON'BLE SUPREME COURT IN CA SE OF K.P. MADHUSUDANAN V CIT (SUPRA) OBSERVED AS UNDER: THE EXPLANATION TO SECTION 271(1)(C) IS A PART OF SECTION 271. WHEN THE ASSESSING OFFICER OR THE APPELLATE ASSISTA NT COMMISSIONER ISSUES A NOTICE U/S 271, HE MAKES THE ASSESSEE AWARE THAT THE PROVISIONS THEREOF ARE TO BE USED AG AINST HIM. THESE PROVISIONS INCLUDE THE EXPLANATION. BY VIRTU E OF THE NOTICE U/S 271 THE ASSESSEE IS PUT TO NOTICE THAT, IF HE DOES NOT PROVE, IN THE CIRCUMSTANCES STATED IN THE EXPLA NATION, THAT HIS FAILURE TO RETURN HIS CORRECT INCOME WAS NOT DU E TO FRAUD OR NEGLECT, HE SHALL BE DEEMED TO HAVE CONCEALED THE P ARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF, AND, CONSEQUENTLY BE LIABLE TO THE PENALTY UNDER THE SE CTION. NO EXPRESS INVOCATION OF THE EXPLANATION TO SECTION 27 1 IN THE NOTICE U/S 271 IS NECESSARY BEFORE THE PROVISIONS O F THE 14EXPLANATION ARE APPLIED. THE ABOVE CLEARLY SHOWS THAT AFTER INSERTION OF THI S EXPLANATION THE BURDEN HAS BEEN SHIFTED TO THE ASSESSEE TO PROVE TH AT HE HAS NOT CONCEALED THE PARTICULARS OF INCOME AND IF SUCH EXP LANATION IS FOUND TO BE BONAFIDE THEN PENALTY CANNOT BE LEVIED BUT IF NO EXPLANATION IS GIVEN OR THE EXPLANATION IS FOUND TO BE FALSE THEN PENAL CONSEQUENCES WILL FOLLOW. WE MAY AGAIN POINT OUT TH AT WHATEVER 15 DOUBTS WERE THERE REGARDING REQUIREMENT OF MENSREA OR DELIBERATENESS HAVE BEEN REMOVED BY THE CONSTITUT ION BENCH OF HON'BLE SUPREME COURT IN CASE OF UNION OF INDIA AND OTHERS V DHARMENDRA TEXTILE PROCESSORS &B OTHERS (SUPRA). A S POINTED OUT ABOVE IN THIS CASE IT WAS CLEARLY HELD THAT PENALTY PRESCRIBED U/S 271(1)(C) IS NO DOUBT CIVIL LIABILITY BUT SINE IT I S PRESCRIBED UNDER THE ACT THE ELEMENT OF STRICK LIABILITY HAS TO BE INFER RED. 16 THE NEXT CASE RELIED ON IN THE WRITTEN SUBMISSIO NS IS THAT OF NATIONAL TEXTILE V CIT (SUPRA). IN THIS CASE THE A DDITION WAS MADE IN RESPECT OF RS. 80,000/- OF UNEXPLAINED CASH CRE DITS AND RS. 90,000/- ON ACCOUNT OF SECURED CREDITS. ON THIS A DDITIONS PENALTY WAS ALSO LEVIED. WHEN THE MATTER TRAVELED TO THE H ON'BLE HIGH COURT IT WAS OBSERVED AS UNDER: THE PROVISIONS OF SECTION 68 OF THE INCOME-TAX ACT, 1961, PERMITTING THE ASSESSING OFFICER TO TREAT UNEXPLAIN ED CASH CREDITS AS INCOME ARE ENABLING PROVISIONS FOR MAKIN G CERTAIN ADDITIONS WHERE THERE IS FAILURE BY THE ASSESSEE TO GIVE AN EXPLANATION OR WHERE THE EXPLANATION IS NOT TO THE SATISFACTION OF THE ASSESSING OFFICER. HOWEVER THE ADDITION MADE ON THIS COUNT WOULD NOT AUTOMATICALLY JUSTIFY IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961 , BY RECOURSE ONLY TO EXPLANATION 1 BELOW SECTION 271(1) (C). IN ORDER TO JUSTIFY THE LEVY OF PENALTY, TWO FACTOR S MUST CO- EXIST, (I) THERE MUST BE SOME MATERIAL OR CIRCUMSTA NCES LEADING TO THE REASONABLE CONCLUSION THAT THE AMOUN T DOES REPRESENT THE ASSESSEES INCOME. IT IS NOT ENOUGH F OR THE PURPOSE OF PENALTY THAT THE AMOUNT HAS BEEN ASSESSE D AS INCOME, AND (II) THE CIRCUMSTANCES MUST SHOW THAT T HERE WAS ANIMUS, I.E., CONSCIOUS CONCEALMENT OR ACT OF FURNI SHING OF INACCURATE PARTICULARS ON THE PART OF THE ASSESSEE. EXPLANATION 1 TO SECTION 271(1)(C) HAS NO BEARING ON FACTOR NO. 1 BUT HAS A BEARING ONLY ON FACTOR NO. 2. THE EXPLANATION DOES NOT MAKE THE ASSESSMENT ORDER CONCLUSIVE EVIDENCE THAT THE A MOUNT ASSESSED WAS IN FACT THE INCOME OF THE ASSESSEE. NO PENALTY CAN BE IMPOSED IF THE FACTS AND CIRCUMSTANCES ARE E QUALLY CONSISTENT WITH THE HYPOTHESIS THAT THE AMOUNT DOES NOT REPRESENT CONCEALED INCOME WITH THE HYPOTHESIS THAT IT DOES. IF THE ASSESSEE GIVES AN EXPLANATION WHICH IS UNPROVED BUT NO DISPROVED, I.E., IT IS NOT ACCEPTED BUT CIRCUMSTANC ES DO NOT LEAD TO THE REASONABLE AND POSITIVE INFERENCE THAT THE ASSESSEES CASE IS FALSE, THE EXPLANATION CANNOT HE LP THE DEPARTMENT BECAUSE THERE WILL BE NO MATERIAL TO SHO W THAT THE AMOUNT IN QUESTION WAS THE INCOME OF THE ASSESSEE. 16 ALTERNATIVELY, TREATING THE EXPLANATION AS DEALING WITH BOTH THE INGREDIENTS (I) AND (II) ABOVE, WHERE THE CIRCUMSTA NCES DO NOT LEAD TO THE REASONABLE AND POSITIVE INFERENCE THAT THE ASSESSEES EXPLANATION IS FALSE, THE ASSESSEE MUST BE HELD TO HAVE PROVED THAT THERE WAS NO MENS REA OR GUILTY MI ND ON HIS PART. EVEN IN THIS VIEW OF THE MATTER THE EXPLANATI ON ALONE CANNOT JUSTIFY LEVY OF PENALTY. ABSENCE OF PROOF AC CEPTABLE TO THE DEPARTMENT CANNOT BE EQUATED WITH FRAUD OR WILL FUL DEFAULT. THE ABOVE OBSERVATION OF HON'BLE HIGH COURT HAVE BE EN MADE WITHOUT NOTICING THE DECISION OF HON'BLE SUPREME CO URT IN CASE OF K.P. MADHUSUDANAN V CIT (SUPRA). THE HON'BLE SUPRE ME COURT HAS CLEARLY HELD THAT THE EXPLANATION OF INSERTION OF E XPLANATION (1) THE BURDEN WOULD SHIFT TO THE ASSESSEE TO PROVE THAT HE HAS NOT CONCEALED THE INCOME. THEREFORE, THE DECISION OF HON'BLE SUPREME COURT WOULD PREVAIL AGAINST THIS DECISION. 17 THE NEXT DECISION RELIED ON IS THAT OF CIT V. J. K. SYNTHETIC LTD. (SUPRA) IS ALSO NOT VERY RELEVANT BECAUSE THAT DECI SION WAS RENDERED IN RESPONSE TO A REVIEW PETITION. IT SEEMS ORIGINA LLY THE TRIBUNAL DELETED THE PENALTY BY OBSERVING THAT THE ASSESSEE HAD DISCHARGED ONUS TO PROVE THAT THE DIFFERENCE WAS NOT OWING TO A FRAUD, OR WILLFUL NEGLECT. THEREFORE, HON'BLE HIGH COURT IN THE REV IEW PETITION HELD THAT NO SUBSTANCE QUESTION ARISES. IN FACT THE DEC ISION DO NOT LEAD TO ANY CONCLUSION IN ANY DIRECTION. 18 THE NEXT DECISION RELIED ON IS THAT OF HANDUM IN DUSTRIES LTD. ITAS NO. 1486 & 1487/HYD/2010. FOLLOWING WRITTEN S UBMISSIONS IN THAT CASE HAVE BEEN RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE: IN THE PRESENT CASE BEFORE US, THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER MAY GIVE RISE TO SUSPICION SUFFIC IENT TO MAKE THE ADDITION FOR THE PURPOSE OF ASSESSMENT BUT NOT SUFFICIENT ENOUGH TO JUSTIFY LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. THE ASSESSING OFFICER SHOULD SHOW THAT THE PLEA OF THE ASSESSEE IS FALSE OR THAT THE ASSESSEE HAS COMMITTED SOME FRAUD OR GROSS WILLFUL NEGLIGENCE ON HIS PART TO BRING ABOUT CONCE ALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF HIS INCOME. PENALTY CANNOT BE IMPOSED ON THE GROUND THAT THE AS SESSEE HAS ACCEPTED THE ADDITION IN QUANTUM APPEAL FOR THE REASONS 17 BEST KNOWN TO HIM. THEREFORE, PENALTY LEVIED IS HE REBY DELETED IN BOTH THE YEARS UNDER CONSIDERATION. WE HAVE PERUSED THE WRITTEN SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. IT IS NOT CLEAR FROM WHERE HE HAS EXTRAC TED THIS JUDGMENT BECAUSE THE FACTS ARE NOT MENTIONED. MOREOVER IT SE EMS IN THAT CASE RELIANCE WAS PLACED ON THE CASE OF HINDUSTAN STEELS V STATE OF ORISSA (SUPRA). WE HAVE ALREADY NOTED THAT LOT OF CHANGES HAVE TAKEN PLACE IN THE LIGHT OF THAT DECISION. THEREFO RE, THIS DECISION IS OF NO HELP. IN THE PAPER BOOK ONE MORE DECISION HA S BEEN FILED IN CASE OF CIT V. BALBIR SINGH, 304 ITR 125 (PH). IN THAT CASE THE ASSESSEE HAS RECEIVED CERTAIN GIFTS WHICH WERE NOT ACCEPTED BY THE DEPARTMENT. IN THE PENALTY PROCEEDINGS THE TRIBUNA L DELETED THE PENALTY AND THAT FINDING HAS BEEN CONFIRMED BY HON' BLE HIGH COURT. IN THAT CASE THE TRIBUNAL HAD RELIED ON THE DECISIO N OF HINDUSTAN STEELS V STATE OF ORISSA (SUPRA) WHICH WE HAVE ALRE ADY DEALT ABOVE, IT IS NOT RELEVANT IN THE PRESENT FACTS BECAUSE OF THE CHANGES MADE IN THE LAW. 19 NOW COMING TO THE FACTS IN CASE BEFORE US, THE A SSESSEE HAS RECEIVED TWO GIFTS AMOUNTING TO RS. 1 LAKH FROM AMR IT DILAWARI AND RS. 5,46,575/- FROM SHRI CHARANJEET P. SINGH. ADMI TTEDLY THESE PERSONS ARE NOT RELATED TO THE ASSESSEE. DURING TH E ASSESSMENT PROCEEDINGS THE STATEMENT OF THE ASSESSEE WAS RECOR DED IN WHICH THE ASSESSEE WAS ASKED TO GIVE THE ADDRESSES OF SUC H DONEES. IT MAY BE TRUE THAT THE ASSESSEE MAY NOT REMEMBER THE FULL ADDRESSES BUT ATLEAST THE PERSONS WHO IS GIVING A SUM OF RS. 1 LAKH AND RS. 5,46,575/-, HE SHOULD HAVE KNOWN THE STATE OR CITY OF U.S.A. WHERE SUCH DONEES WERE LIVING. THIS CLEARLY SHOWS THAT T HE GIFTS ARE BOGUS. FURTHER A QUESTION WAS ASKED THAT ON WHAT O CCASION THE GIFTS WERE GIVEN. THE ASSESSEE HAD STATED THAT THE GIFTS WERE 18 RECEIVED BECAUSE THE ASSESSEE WAS IN A GREAT FINAN CIAL DIFFICULTY. THIS IS TOTALLY WRONG. BEFORE US, COPY OF BANK STA TEMENT HAS BEEN FILED BY THE ASSESSEE. FIRST GIFT IS SHOWN TO HAVE RECEIVED ON 29.10.2002. ON THAT DATE BALANCE IN THE SAVING BANK ACCOUNT WAS RS. 42,17,965/- AND IN FACT STATEMENT HAS BEEN FILE D FROM PERIOD 10.8.202 BEFORE US THROUGHOUT AUGUST TO OCTOBER, 20 02 THERE HAS BEEN A BALANCE RANGING FROM RS. 40 LAKHS TO RS. 58. 95 LAKHS. THE SECOND GIFT WAS RECEIVED ON 16.1.2003 AND BEFORE RE CEIPT OF GIFT, BANK BALANCE IN SAME ACCOUNT IS RS. 12,33,939/-. I N OUR OPINION, HUGE BANK BALANCE IN THE SAVING BANK ACCOUNT IN THE FINANCIAL YEAR 2002-03 CLEARLY SHOW THAT THE ASSESSEE WAS NOT IN A NY FINANCIAL DIFFICULTY AND THEREFORE, IT IS CLEAR THAT THESE A RE BOGUS GIFTS. THEREFORE, THE EXPLANATION GIVEN BY THE ASSESSEE I S TOTALLY FALSE AND ACCORDINGLY EXPLANATION (1) TO SECTION 271 (1) (C) WOULD NOT BE ATTRACTED. IN OUR OPINION, THIS IS A FIT CASE FOR LEVY OF PENALTY AND WE UPHOLD THE ORDER OF THE LD. CIT(A). 20 IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.8.2013 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26.8.2013 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR