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TMI Blog2009 (11) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... ter dated 30-7-2007, stated as under: "That the sum of Rs. 3,50,000 represents gifts received by the assessee, which is not an income and as such the assessee was not required to add the sum in her income. This amount duly appears in the saving bank account and interest income and the same had been shown in the statement of taxable income. Further, the sum of Rs. 4,35,650 and Rs. 66,680 are long-term capital gain, which has been shown in the return of income. Thus, there is no escapement of income. Accordingly, there is no justification for reopening of the assessment." Along with the letter, the assessee filed copy of the gift deed, affidavit and copy of his bank account. Subsequently, summon under section 131 were issued to Shri Vipin Kumar, which could not be served. On 20-8-2007, the assessee vide his letter surrendered the sum of Rs. 3,50,000 by stating as under: "With reference to above assessment year, it is submitted that I have received a gift of Rs. 3,50,000 from Shri Vipin Kumar vide cheque No. 049056, dated 17-9-2001 drawn on Laxmi Commercial Bank, Fatehpuri, Chandni Chowk, Delhi from his saving account No. 9338, At the time of gift, Vipin Kumar was very close to me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no penalty should be levied under section 271(1)(c). Reliance was placed on the decision of the Apex Court in the case of Sir Shadi Lal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705 and CIT v. Suresh Chandra Mittal [2001] 251 ITR 9. Reliance was also placed on the decision of the Gujarat High Court in the case of National Textiles v. CIT [2001] 249 ITR 125. It was pointed out that the onus was on the Assessing Officer to prove that the gift is bogus. No such onus has been discharged by the Assessing Officer before levying penalty on the assessee. If the income is declared, capital is declared. For this proposition of law, reliance was placed on CIT v. Value Capital Services (P.) Ltd. [2008] 307 ITR 334 (Delhi) at 336. As per section 271(1)(c), Assessing Officer should have worked out specific charge whether the assessee has concealed the income or furnished inaccurate particulars of the income. For this reliance was placed on the decision of Gujarat High Court in the case of New Sorathia Engg. Co. v. CIT [2006] 282 ITR 642. Our attention was also drawn in this regard towards the assessment order as well as penalty order. With regard to the Explanation to section 271(1)(c), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfied that any person- (a)and (b)****** (c)has concealed the particulars of his income or furnished inaccurate particulars of such income, or (d)****** he may direct that such person shall pay by way of penalty, - Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,- (A)such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false or (B)such person offers an explanation which he is not able to substantiate and [fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him], then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section be deemed to represent the income in respect of which particulars have been concealed." From the perusal of the aforesaid section, it is apparent that penalty under section 271(1)(c) is leviable if the Assessing Officer is satisfied in the course of any proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Commissioner (Appeals) showed that no clear cut finding had been reached. The Tribunal had failed to appreciate this legal. Issue. The ratio in CIT v. Manu Engineering Works 122 ITR 306 (Guj.) was applicable and the order of penalty could not be upheld by the Tribunal. The order was invalid." 5. We are of the view that On this basis itself penalty order passed under section 271(1)(c) cannot be sustained and accordingly the penalty imposed stand deleted. 6. The explanation submitted by the assessee, in our opinion, proved that the assessee has discharged his onus and has rebutted the presumption available to the revenue under Explanation 1 to section 271(1)(c). This is an admitted fact that the assessee has shown the interest on the amount, which was deposited in the bank account. Once the interest income has been shown in the income-tax return, the investment cannot be regarded to be the undisclosed one and, therefore, it cannot be said that the assessee failed to disclose the particulars of income or the assessee has furnished the inaccurate particulars. This is not a case where the assessee failed to offer the explanation. The assessee has submitted the evidence in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income with the hypothesis that it does. If the assessee gives an explanation which is unproved but not disproved, i.e., it is not accepted but 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 will be no material to show that the amount in question was the income of the assessee. Alternatively, treating the Explanation as dealing with both the ingredients (i) and ( ii) above, where the circumstances do not lead to the reasonable and positive inference that the assessee's explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. Even in this view of the matter the Explanation alone can not justify levy of penalty. Absence of proof acceptable to the Department cannot be equated with fraud or wilful default." 7. Now coming to the order of the Supreme court in the case of K.P. Madhusudhanan (supra) as has been relied on by the ld. DR, we find that in this case the Apex Court held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence for such loans, offered the amount of Rs. 93,000 as additional income. Penalty proceedings were initiated by the Assessing Officer under section 271(1)(c). The Assessing Officer did not agree with the explanation of the assessee and noted that it had itself offered the addition of Rs. 93,000. Applying Explanation 1(B) of section 271(1)(c), the Assessing Officer imposed upon the assessee penalty of Rs. 37,975. The Tribunal cancelled the penalty for the reason that in the notice initiating penalty proceedings the assessee was not intimated about the proposed action under Explanation 1(B) to section 271(1)(c) but the High Court on a reference held that the imposition of penalty was valid. Under these facts when the matter went before the Hon'ble Supreme Court, the Hon'ble Supreme Court held in the above manner. In this judgment we also noted that the Supreme Court has observed that by reason of the addition of Explanation 1(B) to section 271(1)(c) the view taken by the Apex Court in the case of Sir Shadilal Sugar & General Mills Ltd. (supra) cannot longer be said to be applicable. This clearly shows that the penalty under section 271(1)(c) was confirmed in the case of K.P. Madh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The judgment in Dilip N. Shroff's case [2007] 8 Scale 304 (SC) has also not considered the provisions of section 276C of the Income-tax Act. Therefore, in our view, the judgment in the case of Dilip N. Shroff v. Joint CIT [2007] 8 Scale 304 (SC) needs consideration by the larger Bench of this Court particularly when it has ramifications not only regarding the provisions of the Income-tax Act but also with regard to the provisions of sections 3A and 11AC of the Central Excise Act and rule 96ZQ(5) of the Central Excise Rules. For the aforestated reasons, we direct the Registry to place our order in this batch of civil appeals before the Hon'ble Chief Justice of India for appropriate directions. Before concluding, we may mention that in the present cases, the assessee had challenged the virus of rule 96ZQ(5). By the impugned judgment, the Gujarat High Court has read down the said rule incorporating the mens rea requirement. It is made clear that if the larger Bench takes a view to say that the penalty under the said clause is mandatory, then it would still be open to the assessee to challenge the virus of the said rule 96ZQ(5) and, therefore, in that event, the matter has to be ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d offered additional income to buy peace of mind and avoid litigation. Penalty orders were passed and the Commissioner (Appeals) confirmed the orders. But the Appellate Tribunal held that the revenue had not discharged its burden of proving concealment and had simply rested its conclusion on the acts of voluntary surrender done by the assessee in good faith and that penalty could not be levied. On a reference the Hon'ble High Court held that it is well-settled that under section 271(1)(c) the initial burden lies on the revenue to establish that the assessee has concealed the income or had furnished inaccurate particulars of such income. The burden shifts to the assessee only if he fails to offer any explanation for the undisclosed income or offers an explanation which is found to be false by the assessing authority. However, the proviso to Explanation 1 provides for shifting of this burden again where the explanation offered by the assessee is found to be bona fide. It was further held that though it is true that the assessee had not surrendered at all and that he had done so on the persistent queries made by the Assessing Officer, but once the revised assessment was regularized by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fts to the assessee only if he fails to offer any explanation for the disclosed income or offers an explanation which is found to be false by the assessing authority. However, the proviso to Explanation 1 provides for shifting of this burden again where the explanation offered by the assessee is found to be bona fide." Whereas on the other hand, what the Supreme Court was concerned with in Suresh Chandra Mittal's case (supra) was as to whether, even after the insertion of the Explanation 1 below section 271(1)(c), it was necessary for the revenue to prove mens rea. It would appear that the two issues as to whether the initial burden even after the insertion of Explanation 1 lay with the department and as to whether the department still had to prove mens rea, are different and, therefore, it may not be possible to suggest that the aforesaid two decisions of the Supreme Court conflicted with each other. In case of Chirag Metal Rolling Mills Ltd. (supra), the Hon'ble MP High Court has observed as under after considering aforesaid two decisions of Hon'ble Apex Court : "So far as Full Bench of Kerala High Court, in the matter of CIT v. India Seafoods (supra) and CIT v. Suresh Chandra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently, be liable to the penalty provided by that section." 11. The combined reading of Explanation 1 to section 271(1)(c) of the Act and the verdict of Hon'ble Apex Court in the matter of Sir Shadi Lal Sugar & General Mills Ltd. (supra) and K.P. Madhusudhanan (supra), it is crystal clear that prior to Explanation 1, the position of law was if assessee agrees for addition of his income to buy peace then it will not follow that agreed amount to be added was concealed income and the revenue was required to prove the otherwise. Because of this view taken by the Hon'ble Apex Court in the matter of Sir Shadi Lal Sugar & General Mills Ltd. (supra), the Explanation 1 to section 271(1)(c) was added to the Income-tax Act and after taking into consideration the Explanation, Hon'ble Apex Court in the matter of K.P. Madhusudhanan (supra) has laid down that no separate enquiry is necessary for imposing the penalty. However, from plain reading of Explanation, it is evident that some sort of enquiry is necessary, therefore, the proceedings initiated by the revenue for imposing the penalty under section 271(1)(c) of the Act shall be treated as proceedings and the assessee is at liberty to show ..... 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