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TMI Blog1976 (5) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment he initiated penalty proceedings under s. 271(1)(c) of the Act as, in his opinion, the assessee has concealed particulars of its income. 3. Pursuant to the service of show cause notice, the assessee explained before the ITO that there was totalling mistake on account of mistake of the Munim. The learned ITO after hearing the assessee passed the following order: "The assessee filed his return declaring an income of Rs. 26,173. The assessment in this case was however completed at an income of Rs. 47,170 only. During the course of assessment proceedings a notice under s. 274 r/w s. 271(1)(c) was issued requiring the assessee to show cause why the penalty under s. 271(1)(c) should not be imposed upon him as he concealed particulars of his income. The assessee has replied that the mistake has happened due to wrong totalling by the Munim. The contention raised by the assessee is not correct as the partners are responsible for the affairs of the firm and they should have checked the total before filing his return of income. The default of the assessee is thus clearly established and I, therefore, impose a penalty of Rs. 21,000. 4. Being aggrieved with the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a case of concealing particulars of income. Mens rea is not an essential ingredient of the proceedings under s. 271(1)(c) of the Act. The element of "deliberate" attempt on the part of the appellant and the onus of the Department to prove that mental element is not there. The assessee has every right to dispel or repel the charge made against him. In the instant case he has failed to do so. He is guilty of concealing particulars of income to the extent of Rs. 20,993. The minimum penalty being equal to this amount, the penalty imposed by the ITO is confirmed". Consequently, he dismissed the appeal. 5. Before us on behalf of the assessee on further appeal it was contended that the finding of the learned AAC is incorrect and is not supported by the material on record. It was further contended that there was no conscious suppression of profit by the assessee. As a matter of fact, on account of the totalling mistake the correct sales and purchases could not be shown and it was due to the mistake committed by the munim. It was also explained that all the sales and purchases were duly recorded in the books of account maintained in the ordinary course of the business and as such ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legislature did not intend to levy penalty on those who lacked the capacity of correct anticipation. It was also contended that entirety of circumstances and the conduct of the assessee right from the very beginning till the imposition of the penalty go to show that there was no conscious concealment of income by the assessee. According to the learned counsel for the assessee there is nothing on the record to show that the conduct of the assessee has been contumacious or dishonest. In support of his contention, the learned counsel also relied on the ration of decision in the cases of Additional CIT Punjab vs. Karnail Singh V. Kaleran (94 ITR 505), Anwar Ali (76 ITR 696), Hindustan Steel Ltd. s. State of Orissa (83 ITR 26, and CIT, Madras vs. Khoday Eswarsa and Sons (1972) 83 ITR 369 : (1972) CTR (SC) 295. 7. The learned Departmental Representative supported the order of the AAC. According to him, the returned income is less than 80 per cent of the finally assessed income as such Explanation to s. 271(1)(c) is applicable in the present case. Thus, according to him, it is for the assessee to show that there was no fraud or gross or wilful neglect on the part of the assessee in not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Departmental Representative, the matter was not agitated before the Tribunal. The assessee at the stage of the Tribunal did not raise any objection regarding the applicability of Explanation. Thus it was contended that the said decision would not be helpful to the Department. Thus it was contended that in the present case Explanation to s. 271(1)(c) may not be applied. The learned counsel for the assessee to meet the charge under explanation to s. 271(1)(c). So at this stage the said Explanation could not be applied. It was also contended that in the case of Noor Mohd. Sons and Gem palace, Supra, the assessee, before the Tribunal never raised the objection that Explanation to s. 271(1)(c) may not be applied because it was not applied before the ITO or the AAC. Thus, it was contended that these decisions on this point are not helpful to the Revenue. 9. In the alternative, it was contended that even if it may be held that explanation in s. 271(1)(c) is applicable, in that case, the assessee was able to show that there were preponderance of probabilities which go to show that there was no fraud or gross or wilful neglect on the part of the assessee in not returning the assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITO imposed the penalty under substantive section. Similarly the learned AAC also sustained the penalty under the main section. It means that neither the ITO nor the AAC applied the Explanation to s. 271(1)(c). Since the Explanation was not applied as such the ITO has not processed the income. In the case of Nav Bharat Automobiles, supra, a similar situation arose and the Revenue for the first time before the Tribunal wanted to invoke the Explanation to s. 271(1)(c) but the same was refused by the Tribunal and when the matter went before the Hon ble Delhi High Court raised to plea that Explanation to s. 271(1)(c) for the first time before it. In the case of Narang Co., supra, also the Revenue fo the first time before the Hon ble High Court it was held that the Tribunal was right in not permitting the Revenue to invoke the Explanation to s. 271(1)(c) raised the plea that Explanation to s. 271(1)(c) was applicable. The Hon ble High Court held that this plea was not raised either before the taxing authorities or before the Tribunal. It was also held that even if the revenue was allowed to take up the plea no penalty under Explanation to s. 271(1)(c) could be imposed because, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not leviable either under substantive section or under Explanation thereto. 17. Now we would like to discuss the point in question on merit. The assessee filed the return on 26th July, 1972 declaring an income of Rs. 26,173. On 8th Feb., 1974 the ITO in assessment proceedings issued notice under s. 143(2) for 20th Feb., 1974. On that date the ITO made order sheet entry as under : "Present Sh. Champalal with Shri N.M. Gulechha, A.R. produced rokar, Khata, Jama Nakal Bahi. Deals in cloth on semi wholesale basis. The G.P. rate declared is 5.4 per cent as against last year s 6.7 per cent. Asked to furnish evidence reg. Low G.P. Case adj. to 22nd Feb., 1974." This order sheet is signed by the partner as well as by the authorised representative, On 22nd Feb., 1974 the partner alongwith his representative appeared. The assessee furnished reasons for low gross profit rate. On that date for the first time the ITO found as under : "Present Sh. Champalal with Sh. N.M. Gulecha, Reasons for low G.P. rate furnished. Totals of sales purchases do not tally. A/C books impounded under s. 131. The ITO issued notice to the assessee to explain regarding the difference in sales and purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the ITO. The learned ITO, as stated above, did not say that the explanation of the assessee was false or was not correct. The ITO was of the view that the partners were responsible for the affairs of the firm and they should have checked the totalling before filing the return of income. The assessee gave consistent and clear explanation before the ITO that an account of the totalling mistake by the Munim the correct total could not be given. When the ITO did not find the explanation of the assessee as false, there was no occasion for the assessee to produce further evidence. 20. We may point out that both the partners along with the authorised representative appeared before the ITO and they gave clear statement which was recorded on the order sheet. At that time they clearly stated that the mistake was due to totalling done by the munim. When this statement was given by the partners the ITO never cross examined them at the time of completing the assessment or prior to it. The explanation of the assessee could not be said to be unreasonable or against the reality of the situation. The assessee explained before us that in the ordinary course the totals are made by the Munim and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in penalty proceedings as discussed in detail. While passing penalty order the learned ITO did not challenge the explanation of the assessee. Thus the explanation given by the assessee before the authorities below practically remained unchallenged. It is different matter that the explanation of the assessee given by it was not acceptable to the Department. The authorities below applied main section namely, 271(1)(c) in imposing the penalty. Under these circumstances, it is for the Department to establish that the disputed amount was income of the assessee in the year of the account and the assessee consciously failed to disclose the same in the return. In support of this finding we are fortified by the ratio of decision in the cases of Anwar Ali and Khoday Eswarsa, Supra. The learned AAC was not right in holding that after the word deliberate was deleted from the main section, the burden of proof to prove the concealment of income was shifted to the assessee. The learned AAC did not say that in the present case Explanation to s. 271(1)(c) of the Act is applicable. The learned AAC only applied the main s. 271(1)(c). Under these circumstances, he wrongly placed burden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn was also filed. In these copies there was mistake in the totalling. But the fact remains that in the copy also all the sales and purchases were duly recorded. So actually there was no suppression of sales or purchases. The mistake was on account of totalling. Such a mistake is not ruled out on the facts and in the circumstances of the case. If we view the explanation of the assessee in the context and in view of the facts and circumstances of the case, as discussed above, in our opinion, there could not be any doubt that the mistake in the totalling was a bonafide mistake and it was not intentional. In any view of the matter, after rejecting the explanation given by the assessee, on behalf of the Revenue no material was placed on the record to establish that the assessee in conscious disregard of its obligation failed to disclose correct income. 26. In view of the facts and circumstances of the case. We are satisfied that no penalty under the main section viz., 271(1)(c) is leviable on the assessee. 27. Even if for the sake of arguments, if may be taken that in the present cases the Explanation to s. 271(1)(c) is attracted, in that case also in our opinion no penalty is levi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot accepted but the circumstances do not lead to the reasonable and positive inference that the assessee s case is false, the Explanation cannot help the Department because there would be no material to show that the amount in question was the income of the assessee. On the other hand, whether the income returned is less than 80 per cent of the income assessed and the amount assessed is proved by the Department to represent the income of the assessee, the Explanation puts the burden squarely on the assessee to show that there was no fraud or gross or wilful neglect on his part in furnishing his return of income. (b) Alternatively, even treating the Explanation as dealing with both the ingredients (i) and (ii) set out above, where the circumstances do not lead to reasonable and positive inference that the assessee s explanation is false, the assessee just be held to have proved that there was no fraud or gross or wilful neglect on his part. Even in this view of the matter the Explanation cannot justify the leve of a penalty. Absence of proof acceptable to the Department cannot be equated with fraud or wilful neglect. A fortiori, no penalty can be levied in cases of more inadverten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impact of all the facts which affords the answer". The Hon ble High Court further observed as under: "The explanation only gives rise to a rebuttable presumption and has the effect of placing the burden of proof on the assessee which formerly, before the explaination was introduced, was on the Department." In the case of Noor Mohd Co., Supra, the Hon ble High Court held that it is the totality of circumstances which will determine whether the presumption has or has not been rebutted. 30. So if we consider the principles of law laid down in the aforesaid decisions, in our opinion, the assessee in order to discharge its initial onus is not required to adduce any positive material. If the assessee is able to show preponderance of probabilities in its favour, the initial burden under the Explanation shall be discharged. 31. We have discussed in detail the statements and the explanation of the assessee given from time to time right from the very beginning. The explanation given by the assessee was not disputed. As a matter of fact, on other grounds the explanation was not accepted. The conduct of the assessee right form the very beginning has been consistent and there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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