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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 ..... evying 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the assessee had agreed for the enhanced income to be assessed on the basis of concealment already deleted by the ITO and, therefore, the fact of concealment was proved. Alternatively, the learned departmental representative s contend that the assessee is liable for penalty under s. 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 consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c)of the IT Act. 7. The learned departmental representative has also argued that the decisions of the various High Courts/ Supreme Court relied upon the by the CIT(A) are not relevant to the issue. In particular, the decision of the Andhra Pradesh High Court in (1985) 44 CTR (AP)21:(1985) 153 ITR 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asstt. Commr. of Sales Tax Ors. (1980) 124 ITR 15 (SC), the learned counsel points out that the return cannot be false unless there is an element of deliberateness in it. The learned counsel points out that in the case of the assessee, the returns were not correct in view of bona fide mistakes. He brings 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those findings cannot operate as res judicata, because the considerations that arise in penalty proceedings are different from those in assessment proceedings. (b) The Madras High Court in the case of P.K. Kalasami Nadar vs. CIT (1962) 46 ITR 1056 (Mad) gave more or less the same finding. ITR was laid down 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 lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne,bona fide mistake on the part of the Accountant. The income was also surrendered by the assessee with a view to buy peace and to avoid litigation. Penalty under s. 271(1)(c) cannot be automatically levied unless the assessee has confessed that the additional income represented its concealed income. In the case 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot out of place to mention that nowhere the Revenue has brought out that the assessee agreed that the additional income offered for taxation was its concealed income. The ratio of the decisions adverted to above, therefore, fully supports the case of the assessee. We have also examined the case of the Revenue with reference 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 deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some of the partners regarding some fact for the purpose of the IT Act could not be imputed to the partnership firm as a whole for the purposes of the Act, whether for assessment or penalty". The ratio of that decision, therefore, supports the proposition that the Revenue has to establish contumacious conduct and wilful 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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