1997 (1) TMI 122 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Alleged concealment of income by the assessee.
3. Mens rea (intention) to conceal income.
4. Reasonableness of the assessee's explanation.
5. Burden of proof in penalty proceedings.

Issue-wise Detailed Analysis:

1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961:
The appeals were instituted by the assessee against the order of the CIT (Appeals) for the assessment years 1979-80 to 1985-86. The CIT (Appeals) confirmed the imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961, without considering the facts that the assessee did not have any mens rea to conceal the income. The Assessing Officer (AO) reopened the assessments under section 147, as the assessee did not disclose all material facts necessary for his assessments. Penalty proceedings under section 271(1)(c) were initiated, and penalties were imposed for each assessment year in question.

2. Alleged concealment of income by the assessee:
The AO found that the assessee received royalty from Calcutta Book House (CBH) during the previous years relevant to these assessment years but did not disclose this income. The assessee admitted the mistake as due to oversight, explaining that he was under the impression that the certificate regarding royalty from Book Syndicate Pvt. Ltd. included royalty from CBH. The AO rejected this explanation as unreasonable, concluding that the assessee deliberately suppressed the receipts of royalty by concealing the particulars of his income. The CIT (Appeals) upheld this view, stating that it was improbable for the assessee to continuously fail to declare this additional money over several years.

3. Mens rea (intention) to conceal income:
The learned counsel for the assessee argued that there was no mala fide intention or mens rea in this case. The assessee, a renowned professor and honest taxpayer, believed that the single certificate covered the total royalty from both companies owned by the same person. The mistake was genuine and due to a misunderstanding, not an intentional act of concealment. The learned departmental representative contended that ignorance or oversight is no excuse for concealment, and the penalty was rightly imposed.

4. Reasonableness of the assessee's explanation:
The Tribunal considered the explanation provided by the assessee and the evidence, including certificates from CBH and bank statements. The repeated omission over several years led the AO and CIT (Appeals) to conclude that the mistake was not bona fide. However, the Judicial Member dissented, arguing that the benefit of doubt should go in favor of the assessee, who did not have professional assistance and genuinely believed the certificate from Book Syndicate included all royalties.

5. Burden of proof in penalty proceedings:
The Judicial Member emphasized that the burden of proof in penalty proceedings is on the revenue to prove concealment. The revenue failed to provide concrete evidence contradicting the assessee's explanation. The Judicial Member highlighted that penalty provisions must be strictly construed, and in cases of doubt, the interpretation should favor the taxpayer. The Third Member agreed with this view, stating that the default was a mere omission, not deliberate concealment, and the penalty should not be imposed.

Conclusion:
The Tribunal, by majority decision, concluded that the assessee should be given the benefit of doubt and the penalties for concealment of income under section 271(1)(c) should be canceled. The appeals of the assessee were dismissed by the initial order, but the dissenting opinion and the Third Member's agreement led to the conclusion that the penalty was not justified.