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TMI Blog2003 (9) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A) cancelled the penalty levied by the AO. Now the Department is in appeal before us by raising the issue that the learned CIT(A) has wrongly cancelled the penalty amounting to Rs. 33,250 levied by the AO under the provisions of s. 271(1)(c) of the Act. 3. At the time of hearing, Smt. Surabhi Ahluwalia, Departmental Representative was present for the Department and Shri U.C. Jain was present on behalf of the respondent-assessee. 4. We have heard the rival submissions, perused the evidence on record, gone through the decisions relied upon before us as well as the relevant provisions of law. 5. The learned Departmental Representative fully relied on the penalty order passed by the AO and further submitted that since the assessee was unable to explain the cash credit, the assessee filed inaccurate particulars in the return of income filed by it. And the assessee has concealed the income to avoid payment of tax. 6. On the other hand, Shri U.C. Jain has taken two limbs of arguments before us first being that the assessee filed return of loss, meaning thereby there was no income available in the hands of the assessee to be taxed and so there is no question of evasion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this Third Member case the learned Judicial Member found that there was no dispute that during the course of assessment proceedings, the assessee had offered to surrender the loss claimed at Rs. 36,80,600 and agreed to be assessed at nil income and the AO according to the offer made by the assessee had completed the assessment at nil income. He also found that the assessee at no stage of assessment proceedings or penalty proceedings has either proved that the loss suffered by him is true, fair and genuine or has submitted any explanation that the claim of loss is verifiable from the books of account and vouchers including the stock register. The assessee has only contended that the surrender of loss was on agreed basis to avoid further litigation and to purchase peace. In the penalty proceedings the assessee had not produced the books of accounts in order to justify the claim of loss. The assessee s explanation that the surrender of loss was on agreed basis was not found acceptable by the AO and the CIT(A) while holding that there was a concealment of income. The learned Judicial Member, thus, confirmed the order of the learned CIT(A), sustaining the penalty order. 10. The ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, the total loss was computed at Rs. 2,29,600. Penalty proceedings were initiated in respect of concealment of income to the extent of Rs. 1,25,319 (which is the difference of two losses, one declared by the assessee and the other computed by the AO). The assessee s explanation that the mistake was committed because of the part-time accountant was not accepted and the other explanations were also not accepted. So, the order of the penalty was upheld. So, in the light of the facts mentioned above, the headnote is misleading, which gives the effect that in any and every case where declared loss is reduced, penalty must be imposed. We would further explain the legal position vis a vis, the facts of a given case in this respect in the latter part of our order. 16. Although there are two opinions regarding the decision of the Hon ble Supreme Court in the case of CIT vs. Anwar Ali one opinion is being that even after insertion of the Explanation, the Supreme Court s decision in Anwar Ali s case which laid down that before a person can be visited with a penalty for concealment, etc., the Department must prove that the amount in question was the income of the assessee and that he had co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be a straight jacket formula for deduction of these defaults of concealment or of furnishing inaccurate particulars of income and indeed concealment of particulars of income and inaccurate particulars of income may, at times, overlap, as, for example, when 1/2 of the income particulars is not at all disclosed that would amount to concealed income while the remaining 1/2, which is in fact disclosed, would not be complete disclosure would amount to inaccurate particulars of income, as regards that constituent item. However, we would like to make it amply clear that in case the returned loss is further reduced in a loss or any additions are made on the positive side by increasing the taxable income, do not, ipso facto give a connotation that a penalty is to be levied under s. 271(1)(c) of the Act. Had that been the position, the legislature, in its wisdom could have clearly used the words "that in any and every case where the returned income is enhanced after computation of income penalty should be levied, but the legislature, in its wisdom, has definitely made out some room for excuse or exoneration in bona fide cases, particularly keeping in mind the ignorance of majority of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and source of the aforesaid sum, he explained it as follows: (i) Loan from Shri Babu Ram on 6th March, 1966 Rs. 15,000 (ii) Loan from Jain Bullion Company against pledged ornaments on 10th March, 1966 Rs. 10,000 (iii) Sale proceeds of silver coins sold to M/s Vinod Kumar Jain on 8th March, 1966 Rs. 23,374 23. The ITO, during assessment proceedings, did not accept the evidence produced by the assessee in respect of the loans mentioned at sl. Nos. (i) and (ii) and also in relation to the claim on sale of silver coins. He added the entire sum of Rs. 48,500 as income from undisclosed sources. On appeal before the first appellate authority, the same was confirmed. On further appeal, the Tribunal deleted Rs. 23,374 on the ground that the evidence, both documentary and oral, were produced by the assessee in respect of sale of silver coins for Rs. 23,374 was satisfactory. 24. The Tribunal, however, did not accept the explanation in respect of the alleged loans and found that they were not genuine. In the meantime, proceedings under s. 271(1)(c) of the Act were initiated for concealment of income. The assessee s primary stand was that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, the "Evidence Act"), gives statutory recognition to this universally accepted rule of evidence. There is no discretion conferred on the AO as to whether he can invoke the Explanation or not. Explanation 1, which primarily concerns the case at hand, automatically comes into operation when, in respect of any facts material to the computation of the total income of any person, there is failure to offer an explanation or the explanation is offered which is found to be false by the AO or the first appellate authority, or an Explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which the particulars have been concealed. As per the proviso to Expln. 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same and material on the computation of his income have been disclosed by him will be on the person charged with concealment. Mere failure to substantiate the explanation is not enough to warrant penalty. The Revenue has to establish that the explanation offered was not substantiated. The proviso to Expln. 1 is concerned on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 : (1990) 185 ITR 49 (SC). At the p. 249 of the said case, it was observed as follows: "It is true that the presumption that arose was a rebuttable presumption that there was concealment of income and if there was cogent material to rebut the evidence that was acceptable, then the presumption would not stand. In the instant case, the falsity of the explanation given by the assessee has been accepted by the Tribunal. The Tribunal stated that in the instant case, no doubt the ITO was justified in saying that not only the explanation was not convincing but false because there was no cash available to the assessee for payment of the extra money paid. Therefore, no explanation was put forward as to wherefrom the extra money came. If that was the position and the further presumption was followed that the assessee has concealed the income and that can be rebutted only by cogent and reliable evidence. No such attempt in this case was made. In that view of the matter, in our opinion, it cannot be said that in this case, the Tribunal was justified in rejecting the claim and penalty may be imposed. The presumption raised as aforesaid, that is to say, that the assessee was guilty of fraud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the materials. If such a fact-finding body bearing the aforesaid principles in mind comes to the conclusion that the assessee has discharged the onus it becomes a conclusion of fact and no question of law arises. Definitely, after the insertion of the Explanation, the initial burden is on the assessee. Once this initial burden is discharged, the assessee would be out of mischief unless further evidence is adduced. The presumption of concealment in such cases is a rebuttable presumption that there was concealment of income and if there was cogent material to rebut the evidence that was acceptable, then the presumption would not stand. But in the Delhi High Court decision, which is being referred to, the explanation given by the assessee with regard to two credits was found to be ingenuine and that is why the Hon ble High Court came to the conclusion that, for that matter, the penalty is to be levied. 31. As we have already discussed above in the Hon ble Karnataka High Court decision in P.R. Basavappa Sons, the ratio is very clear. The ratio is not that where the returned loss is further reduced, then in every case the penalty is to be levied. We have already discussed the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusive presumptions and they are rebuttable. The initial burden of discharging the onus is on the assessee. However, once he does so, he would be outside the mischief of the Explanation until and unless the Department is able to establish afresh that the assessee in fact had concealed the particulars of income or furnished inaccurate particulars thereof. This onus, which is cast on the assessee, can be discharged by preponderance of evidence. Such a burden can be discharged by existing material on record in a specific case. It would be permissible for an assessee under the provision to show and prove that on the existing material itself the presumption raised by Explanation would stand rebutted. The addition of Explanation was to bring about a change in the existing law and thereby the ratio of Anwar Ali s case was modified to the extent that the initial burden was shifted from the Revenue to the assessee by removing the word deliberately . Thus, in a way, the Department was no longer to prove mens rea of the assessee but a presumption was raised in such circumstances as mentioned above that it was rebuttable. In a way, after initial burden is discharged by the assessee, the b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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