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TMI Blog1991 (7) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... ompleted on an agreed basis. For the purpose of levying penalty under s. 271(1)(c) for the four years under appeal, the ITO had considered the following amounts as concealed income of the assessee: . . Rs. Asst. yr. 1980-81: Excess Bank Charges claimed 6,541 . Interest on FDs 3,406 . . 9,947 Asst. yr. 1981-82 Addition for low GP and GP on undisclosed sales 79,206 . Interest on FDs 4,091 . . 83,297 Asst. yr. 1982-83 Addition for low GP and GP on undisclosed sales 87,783 . Interest on FDs 2,932 . . 90,615 Asst. yr. 1983-84 Addition for low GP and GP on undisclosed sales 34,610 . Interest on FDs 65 . . 34,675 Show cause notice under s. 274 r/w s. 271(1)(c) was issued by the ITO. The explanation filed by the assessee was, however, rejected. The ITO gave a finding that the assessee was guilty of conscious concealment and, therefore, is liable to pay penalty under s. 271(1)(c). For the reason recorded by him in his penalty order the levied penalties under s. 271(1)(c) as under: Asst. yr. Penalty levied . Rs. 1980-81 7,500 1981-82 1,00,000 1982-83 1,00,000 1983-84 40,000 3. On being aggrieved, the assessee preferred appeal to the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271(1)(c) r/w Expln. 1 to s. 271(1)(iii), 5. The learned departmental representative draws our attention to the decision of the Kerala High Court in the case of CIT vs. K. Mahim (1984) 39 CTR (Ker) 337 :(1984) 149 ITR 737 (Ker), and points out that revised return filed by the assessee will not save it from the penalty provisions in view of the fact that the enhanced income was admitted by the assessee after the concealment had already been detected. In the opinion of the learned departmental representative, the above decision squarely covers the case of the Department. Similarly, reliance was also placed on the decision of the Calcutta High Court in the case of Kumar Jagadish Chandra Sinha vs. CIT (1982) 26 CTR (Cal) 323: (1982) 137 ITR 722 (Cal), in which similar view was expressed, that the revised return showing the correct income does not exonerate an assessee from the penal consequences. The learned departmental representative has also adverted to the decision of the Nagpur High Court in the case of Waman Padmanabh Dande vs. CIT (1952) 22 ITR 339 (Nag). In the said decision, it had been held that where an assessee intentionally submitted an incorrect return but he sought per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 818 (AP)is not applicable to the facts of the case. He also submits that the other decisions. viz., Murari Lal & Ors. vs. ITO (1985) 48 CTR (P&H) 127: (1985) 154 ITR 227 (P&H) and (1985) 152 ITR 231 are not all fours with the facts of the assessee's case. The learned departmental representative therefore, concludes that the CIT(A) was in error in cancelling the penalty orders of the ITO. 8. On the other hand, the learned counsel for the assessee, Sri S. Ravi, strongly opposed the contentions of the learned departmental representative. He took us through the assessment orders and penalty orders of the ITO and pointed out that the ITO has levied the penalty under s. 271(1)(c) on the basis of findings in the assessment proceedings. The findings in the assessment proceedings, he asserts, are not conclusive for the purpose of imposition of penalty. In this connection, he relies on certain decisions to which we will come shortly. 9. The learned counsel also contended that the admission in the assessment proceedings does not constitute admission of guilt on the part of the assessee, for the purpose of penalty under s. 271(1)(c). He points out that the assessee had filed the returns of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings to our notice that the assessee had admittedly filed the sales-tax returns correctly and, therefore, there was no reason for the assessee to falsify the returns of income-tax. This fact goes to show that the assessee was not aware of the mistakes and discrepancies in the books of account and, therefore, the learned counsel supports the decision of the CIT(A). 12. In reply the learned departmental representative contends that the factum of concealment was already detected by the ITO as a result of which the proceedings under s. 148 were initiated and, therefore, nothing should be made out of the agreement of the assessee. The assessee at that stage, had no other option but to agree to be assessed on the higher income and, therefore, the learned departmental representative prays that the order of the CIT(A) should be vacated and the penalty orders of the ITO restored. 13. We have heard the parties to the dispute. In our view, it is settled law that in order to justify the levy of penalty under s. 271(1)(c), two factors must co-exist, viz., (i) there must be some materials or circumstances leading to a reasonable conclusion that the amount does represent the assessee's income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by their Lordships that the proceedings for the levy of penalty for concealment are quite clearly in the nature of criminal proceedings. Unless the charge is established or proved, the person charged goes scot-free and he cannot be called upon to establish his innocence. The facts must establish a high degree of probability of the assessee being guilty of the charge against him and nothing more and nothing less. Imaginary possibility ought not to be assumed to weaken the conclusion which is the result of a fair inference from the materials on record. (d) Yet again, the Madras High Court in the case of CIT vs. V.L. Balakrishanan (1981) 21 CTR (Mad) 326: (1981) 130 ITR 138 (Mad), held that it is well settled that from the mere fact that the explanation of the assessee was found to be false in the assessment proceedings, it would not follow that the ingredients necessary for levying a penalty under s. 271(1)(c) of the IT Act are established. Though it is not in all cases that fresh materials should be produced in the penalty proceedings in order to justify the levy of penalty and that the material produced at the assessment stage could be relied on. the findings give by the authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se before us, no such admission was ever made by the assessee. In this connection, we draw support from the following judicial pronouncements: (a) The Apex Court in the case of Sir Shadilal Sugar & General Mills Ltd. & Anr. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC), held "From the assessee agreeing to additions to his income, it does not allow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission, i.e., when the assessee realises the true position, it does not dispute certain disallowances but that does not absolve the Revenue from proving the mens rea of quasi-criminal offences." It is, therefore, authoritatively laid down by the Supreme Court that mere agreement on the part of an assessee for addition does not automatically lead to levy of penalty under s.271(1)(c). (b) The Madras High Court in the case of CIT vs. Prakasam Readymade stores (1983) 140 ITR 601 (Mad), held that the penalty under s. 271(1)(c) r/w Explanation was not justified in a case where the assessee agreed to the addition. The brief facts of that case were as follows. In the course of assessment proceedings for the asst. yr. 1972-73, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence of the Explanation to s. 271(1) (c). The explanation provides that where, in respect of any material facts to the computation of total income, the assessee, (a) fails to offers an explanation or offers an explanation which is found to be false and (b) offers an explanation which is unsubstantiated and fails to prove that all the material facts have been disclosed, he should be deemed to have concealed the particulars of that amount which is consequently added or disallowed in the assessment. In our view, the judicial mind will so construe this explanation as to harmonise it with basic principles of justice and fairness. The explanation to s. 271(1) (c) was also examined by various Courts. It has been held that even under the Explanation, the concealment for the purpose of s. 271(1)(c) must be a conscious concealment. In this regard, we place reliance on the decision of the Jurisdictional High Court in the case of Addl. CIT vs. Burugupally China Krishnanmurty & Ors. In the said decision, their Lordships have held (as per head note) : " It is now well settled that penalty proceedings are penal in character and the onus is on the Department to show that a particular receipt or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disregard on the part of the partners for the purpose of levy of penalty under s. 271(2)(c). The revenue, in the case before us, has brought no material on record to substantiate it. 17. To summarise, the ITO has levied the penalty on the assessee for the assessment years under appeal only on the basis of his findings in the assessment proceedings which he is not legally entitled to do. The findings in the assessment proceedings alone are not enough for the purpose of quasi-criminal proceedings under s. 271(1)(c). His penalty order is absolutely silent on the issue whether the assessee is guilty of conscious concealment. We are of the considered view that for the incompetence, lethargy, sickness and senility of the Accountant, the assessee cannot be punished under the provision of s. 271(1)(C). We are also of the view that it was a case of bona fide mistake which was not within the knowledge of the partners. Had it not been so, the correct return for sale-tax which the ITO has made the basis for his assessment orders, would not have been filed by the assessee. In view of the above, we are of the view that the CIT(A) was justified in cancelling the penalty orders. We, therefore, up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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