The scope of section 28(1)(c) of the Indian I.T.Act,1922. - Income Tax - 198/CBDT

INSTRUCTION NO 198/CBDT, Dated: August 14, 1970 Section(s) Referred: 271(1)(c) Statute: Income - Tax Act, 1961 The recent decision of the Supreme Court in the case of CIT, West Bengal, vs. Anwar Ali (76 ITR 696) has set at rest the conflict of judicial opinion on the scope of section 28(1)(c) of the Indian I.T.Act,1922, and in particular about the levy of penalty in cases where cash credits are treated as the income of the assessee. The Supreme Court has held that -- (i) the ITO cannot impose a penalty for concealment of income merely because the explanation of the assessee in respect of cash credits is false or unsatisfactory. (ii) any finding given in the assessment order in respect of cash credits is not conclusive evidence for the purpose of imposing a penalty and there must be some evidence or cogent reason to come to the conclusion that the impunged amount represented the assessee's income. (iii) it must be proved that the assessee had consciously concealed his income or had deliberately furnished in accurate particulars thereof. The Board desires that all pending proceedings u/s.28(1)(c) of the I.T.Act,1922 where the above conditions are not satisfied should be dropped. In cases where penalties u/s.28(1)(c) have already been imposed in respect of cash credits and appeals or reference applications are pending, the same may be withdrawn or conceded, as the case may be, if there is no evidence or cogent reason to come to the conclusion that the amount represented the income of the assessee. 2. So far as the penalties u/s.271(1)(c) of the I.T.Act,1961 are concerned, it is true that after 1-4-62 if the explanation of the assessee in respect of the cash credit is found to be false, the impunged amount would be deemed to be income u/s.68 of the I.T.Act,1961, but there is absolutely no difference between section 271(1)(c) of the new Act and section 28(1)(c) of the old Act. The observations of the Supreme Court that a penalty cannot be imposed merely because the explanation of the assessee is false and the further observation that it must be proved that the assessee had deliberately concealed or furnished inaccurate particulars of his income would, therefore, apply equally to penalties u/s.271(1)(c). Instructions contained in the preceeding paragraph should, therefore, be followed in such cases also. 3.In cases where returns of income have been filed after 1-4-64 and cash credits have been brought to tax because the assessee's explanation is found to be unsatisfactory, the legal position is different. An explanation to section 271(1)(c) was introduced and the word 'deliberately' before the words "furnished inaccurate particulars of such income" was deleted from the aforesaid date. The explanation of section 271(1)(c) provides for imposition of penalty in respect of income which is deemed to be concealed apart from the income that may be held to have been concealed on the basis of evidence. After the said date a penalty would also be leviable u/s.271(1)(c) where inaccurate particulars are furnished even though such an action might not be deliberate. The aforesaid decision of the Supreme Court would therefore, not apply in such cases.