2001 (9) TMI 15 - HC - Income Tax

The appellant has sought to challenge the order passed by the Income-tax Appellate Tribunal sustaining the levy of penalty under section 271(1)(c) in respect of additions made in the income of the appellant as a result of cash found in his possession the source of which was not explained to the satisfaction of the assessing authority. - In view of the finding reached by the Revenue in penalty proceedings independently about not furnishing of explanation by the assessee in penalty proceedings and explanation on record to be false the Explanation springs to life in the penalty proceedings. Therefore levying of penalty in our opinion has rightly been upheld by the Tribunal. The answer being self-evident and primarily being dependent on appreciation of evidence no substantial question of law arises in the facts and circumstances of this appeal for consideration of this court.

Summary

Issues Involved:
1. Legality of the penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of the explanation provided by the assessee regarding the source of the cash.
3. Application of section 69A of the Income-tax Act, 1961.
4. Necessity of specific notice for invoking Explanation 1 to section 271(1)(c).

Detailed Analysis:

1. Legality of the penalty under section 271(1)(c) of the Income-tax Act, 1961:
The appellant challenged the order of the Income-tax Appellate Tribunal which sustained the levy of penalty under section 271(1)(c) for concealment of income. The penalty was imposed due to the addition of Rs. 2,30,000 to the appellant's income, which was found in his possession and deemed unexplained by the assessing authority. The penalty proceedings were terminated by holding the appellant guilty of concealing particulars of income, resulting in a penalty of Rs. 1,05,208. The Tribunal and the Commissioner of Income-tax (Appeals) affirmed this order.

2. Validity of the explanation provided by the assessee regarding the source of the cash:
The assessee initially admitted to the Customs authorities that the cash was his own, acquired through the purchase and sale of contraband gold. However, he later retracted this statement and claimed the money was borrowed from five different third parties. The assessing authority conducted a detailed inquiry and found that the alleged lenders were not in a position to lend the stated amounts, and their financial status did not support the claim. The explanation was found to be false, and the penalty was upheld on the grounds that the assessee failed to provide a valid explanation.

3. Application of section 69A of the Income-tax Act, 1961:
Section 69A was invoked to treat the unexplained cash found in the possession of the assessee as his income for the relevant assessment year. The assessing authority, after a thorough investigation, rejected the assessee's explanation and deemed the amount as income from undisclosed sources. This led to the initiation of penalty proceedings under section 271(1)(c) for concealment of income.

4. Necessity of specific notice for invoking Explanation 1 to section 271(1)(c):
The assessee contended that the penalty could not be sustained without a specific notice of intention to invoke Explanation 1 to section 271(1)(c). However, the court clarified that the provisions of section 69A could not be directly used for penalty proceedings under section 271(1)(c). Instead, Explanation 1 to section 271(1)(c) automatically comes into operation when the conditions mentioned in clause (A) or (B) are met. The court held that no specific notice is required to invoke the statutory provision, as it operates by its own force once the conditions are established.

Conclusion:
The court dismissed the appeal, affirming the penalty imposed under section 271(1)(c). The findings of fact by the assessing authority, Commissioner of Income-tax (Appeals), and the Tribunal were based on a reasonable appreciation of evidence, and no substantial question of law arose for reconsideration. The statutory provisions of Explanation 1 to section 271(1)(c) were held to come into effect automatically, without the need for a specific notice, once the conditions were met.