2002 (9) TMI 27 - HC - Income Tax

Penalty - A notice under section 274 read with section 271(1)(c) was issued on March 31, 1989. In response, the assessee by its letter dated December 5, 1990, denied that it has suppressed the income. It also denied that it had furnished inaccurate particulars of income. - we are of the view that the matter needs to be remanded back to the Tribunal. The reasons are obvious. The entire case has proceeded on the basis that the Explanation has not been invoked by the Department. By reason of the Explanation, the burden is on the assessee to prove the circumstances stated in the Explanation and on his failure to prove those circumstances, the assessee is deemed to have concealed particulars of his income or he is deemed to have furnished inaccurate particulars of income. Once the Explanation is held to be an integral part of the section 271(1)(c), then the burden will shift to the assessee and in that light, the Tribunal will have to consider the facts of this case de novo.

Summary

Issues involved:
Appeal against cancellation of penalty under section 271(1)(c) of the Income-tax Act, 1961 based on under-valuation of closing stock, fictitious expense claim, suppression of sale consideration, and failure to cross-examine a witness. Interpretation of the Explanation to section 271(1)(c) and its applicability in penalty proceedings.

Analysis:
The High Court of BOMBAY heard an appeal by the Department against the cancellation of a penalty levied under section 271(1)(c) of the Income-tax Act, 1961. The case involved a builder who had under-valued closing stock, claimed a fictitious expense for extra work, and suppressed sale consideration. The Assessing Officer found discrepancies and levied a penalty, which the assessee appealed. The Tribunal ruled in favor of the assessee, citing the absence of invoking the Explanation to section 271(1)(c) by the Assessing Officer during penalty proceedings. The Tribunal based its decision on a Bombay High Court judgment, which was later overruled by the Supreme Court in a different case. The Supreme Court clarified that the Explanation is integral to section 271(1)(c) and does not require separate invocation. The High Court noted the need to remand the case back to the Tribunal for reconsideration in light of the Supreme Court's ruling.

The High Court emphasized that the burden of proof shifts to the assessee under the Explanation, and failure to prove circumstances therein leads to deeming concealment of income. The Tribunal's decision was based on the now-overruled Bombay High Court judgment, not considering the Explanation's integral nature. The High Court refrained from expressing an opinion on the case's merits and directed the Tribunal to reevaluate the matter considering the Explanation's applicability as per the Supreme Court's ruling. The case was remitted to the Tribunal for a fresh decision in accordance with the law, setting aside the previous Tribunal's judgment.

In conclusion, the High Court allowed the appeal, setting aside the Tribunal's decision, and remanded the case for reconsideration in light of the Supreme Court's interpretation of the Explanation to section 271(1)(c). No costs were awarded in the matter.