2001 (7) TMI 283 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) for assessment year 1984-85.
2. Validity of the explanation provided by the assessee for the excess stock of silver ornaments.
3. The agreement between the assessee and the department regarding the assessment and penalty.
4. The burden of proof for the levy of penalty under section 271(1)(c).
5. Justification for the levy of penalty on the basis of agreed assessment.

Detailed Analysis:

1. Levy of Penalty Under Section 271(1)(c) for Assessment Year 1984-85:
The primary issue in this appeal is the imposition of a penalty amounting to Rs. 17,25,000 under section 271(1)(c) for the assessment year 1984-85. The penalty was imposed due to the alleged concealment of income by the assessee.

2. Validity of the Explanation Provided by the Assessee for the Excess Stock of Silver Ornaments:
During a search and seizure operation, 2,970.580 kgs of silver ornaments were found, out of which 2,394.680 kgs were seized. The assessee claimed that the excess stock belonged to more than 600 individuals who had given their ornaments for remaking. The Assessing Officer initially accepted the explanation for 537.980 kgs and considered the rest as unexplained, leading to an addition of Rs. 72,39,100. The CIT (Appeals) directed a fresh assessment, requiring detailed examination of each witness's statement and providing the assessee an opportunity to rebut statements made behind their back.

3. The Agreement Between the Assessee and the Department Regarding the Assessment and Penalty:
The assessee proposed an assessment on an agreed basis to save time and avoid litigation, offering to accept the assessment and pay taxes, interest, and penalty, provided no prosecution would be launched. However, despite this agreement, the department initiated prosecution after one-and-a-half years, leading the assessee to appeal against the penalty order.

4. The Burden of Proof for the Levy of Penalty Under Section 271(1)(c):
The main argument from the assessee's counsel was that in the absence of any Explanation to Section 271(1)(c) being invoked, the burden of proof lies on the revenue to establish mens rea and that the jewellery belonged to the assessee, as per the Supreme Court's ruling in CIT v. Anwar Ali [1970] 76 ITR 696. The revenue, on the other hand, argued that the assessee failed to provide a list of persons who allegedly brought the jewellery during the search and that the explanation was concocted.

5. Justification for the Levy of Penalty on the Basis of Agreed Assessment:
The Tribunal noted that the Assessing Officer had partially accepted the assessee's claim based on the statements of witnesses. However, for 580.621 kgs of silver ornaments, the witnesses categorically denied giving any ornaments to the assessee. The Tribunal held that the onus had been discharged by the revenue for this portion, and the penalty under section 271(1)(c) was justified to this extent. For the remaining unexplained stock, the Tribunal found that the penalty was not justified as the addition was made on an agreed basis, and there was no material to disprove the assessee's claim. The Tribunal referred to the Supreme Court's decision in Sir Shadilal Sugar & General Mills Ltd v. CIT [1987] 168 ITR 705, which held that penalty cannot be sustained merely on the basis of an agreed assessment.

Conclusion:
The Tribunal modified the order of the CIT (Appeals) and directed the Assessing Officer to recompute the penalty only with reference to the addition of 580.621 kgs of silver ornaments. The penalty for the remaining additions was deleted. The appeal of the assessee was partly allowed.