1986 (7) TMI 171 - AT - Income Tax

Summary

Issues:
1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Ownership of self-occupied property and non-disclosure of income.
3. Claim of notional income and ignorance of law as an excuse for statutory default.
4. Application of the Explanation to section 271(1)(c) and burden of proof on the assessee.

Detailed Analysis:
1. The judgment deals with an appeal against the levy of a penalty of Rs. 4,000 under section 271(1)(c) of the Income-tax Act, 1961. The assessee, an individual, had omitted to declare income from a self-occupied property and an annuity refund in his return, leading to the penalty. The Income-tax Appellate Tribunal (ITAT) considered the explanations provided by the assessee and the Assessing Officer's findings to determine the validity of the penalty.

2. The issue of ownership of the self-occupied property was raised during the appeal before the Commissioner (Appeals). The assessee claimed that he was not the legal owner of the property until 1970, despite residing in it and enjoying its benefits. The Commissioner rejected this argument, stating that the factual circumstances did not support the claim of non-ownership before 1970, thereby upholding the penalty on this ground.

3. The argument of notional income and ignorance of law as a defense for statutory default was also presented. The ITAT discussed the relevance of ignorance of law and cited the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. to emphasize that ignorance of law cannot be used as an excuse for non-compliance with statutory requirements. The ITAT rejected the plea of ignorance of law as a valid defense in this case.

4. The ITAT analyzed the application of the Explanation to section 271(1)(c) regarding the burden of proof on the assessee. It noted that the burden on the assessee was to show preponderance of probabilities to explain the omission of income items. The ITAT found merit in the assessee's argument that the burden stood discharged as there was no intention to conceal the small income items, given the total income disclosed. The ITAT held that the Assessing Officer failed to provide evidence of mens rea, leading to the cancellation of the penalty based on the Explanation.

In conclusion, the ITAT allowed the appeal, canceling the penalty imposed under section 271(1)(c) based on the failure to establish the requisite mens rea and the discharge of the burden of proof by the assessee as per the Explanation to the section.