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TMI Blog2013 (9) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... 002 there has been a balance ranging from Rs. 40 lakhs to Rs. 58.95 lakhs. The second gift was received on 16.1.2003 and before receipt of gift, bank balance in same account is Rs. 12,33,939/- - Huge bank balance in the Saving Bank Account in the Financial Year 2002-03 clearly show that the assessee was not in any financial difficulty and therefore, it is clear that these are bogus gift - Explanation (1) to Section 271 (1)(c) would not be attracted – Fit case for levy of penalty – Decided against the assessee. - ITA No. 178/Chd/2013 - - - Dated:- 26-8-2013 - Shri T. R. Sood, A. M And Ms. Sushma Chowla, JM,JJ. For the Appellant : Shri Sapandeep Sharma For the Respondent : Shri N. K. Saini ORDER Per T. R. Sood, A. M. This appeal is directed against the order dated 1.11.20112 of the ld. CIT(A), Chandigarh. 2 In this appeal the assessee has raised the following grounds: "1 That the assessing officer has erroneously levied penalty u/s 271(1) (C) of the I.T. Act amounting to Rs. 2,03,671.00 for concealment of income allegedly on receipt of Rs. 6,46,575/- received as gift from friends based in U.S.A., just on the face of it, ignoring the legal side of the matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditions as well as the penal action are restricted to the income detected during the search. These proceedings cannot take the place of review and re-assessment. The proceedings are without application of mind and perfunctory. In any case it is submitted that no penalty for concealment and filing inaccurate details of income is called for according to the submission made hereunder year-wise. Asstt. Year 2003-04 As per the order of the ITAT, the additions on account of ALV of vacant properties are covered under the said order and you have yet to give effect of the order of the Hon'ble Tribunal, no penalty can be levied on this account. Second addition which survived is on account of gift received. Under the Income tax Act, the gift became income with effect from 1.4.2005 due to amendment of section 156 of Income Tax Act. The character of gift was not income of the Income tax Act during the financial year 2002-03. Therefore, no concealment proceedings can be exercised for assessment year 2003-04." 4 The Assessing Officer was not satisfied with the above reply and observed that the onus was on the assessee to establish the credit worthiness of the persons and since the genuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiate the gifts. In the penalty proceedings no explanation has been given therefore, levy of penalty was justified. 9 We have heard the rival submissions carefully . The written submissions field by the ld. counsel of the assessee reads as under: " There was a search and seizure operation at the residence and business premises of the appellant. The appellant had only source of income as partner of M/s Nikka Mal Babu Ram Sons. The Income Tax Return required to be filed U/s 153 A of the Income Tax Act was duly filed at an income of Rs. 2,09,444.00 to which additions were made by Assessing Officer on account of A.L.V., household expenses and gifts received by the appellant. The same were upheld by the C.I.T. (Appeals). Aggrieved the appellant went to the Hon,ble Income Tax Appellate Tribunal which while deleting some additions confirmed the additions of gifts amounting to Rs. 6,46,575.00 with no mention about penalty proceedings. In other words the addition of gifts was confirmed but penalty was not confirmed by the Hon'ble Income Tax Appellate Tribunal. The overzealous officer did not even give a proper chance to the appellant and passed an ex-parte order just based on the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and there was no concealment involved. The Assessing Officer and the C.I.T. have gone beyond the jurisdiction and imposed penalty whereas the Hon'ble tribunal may have upheld the addition but no mention is there about penalty in case of unexplained case credits and in the case of National Textiles Vs C.I.T. (249 ITR 125 (Gujarat High Court) the order clearly states that where there is failure by the assessee to give an explanation on where explanation is not to the satisfaction of the Assessing Officer, however the addition made on this account would not automatically justify the imposition of penalty U/s 271(1)(C) of I.T.Act. 3. That the appellant filed evidence at every stage and never concealed any fact or income. The Assessing Officer has totally ignored the order of ITAT and all the evidence on record and erroneously imposed penalty which was upheld by the C.I.T. without going into the merits of the case. In the case of C.I.T Vs. J.K. synthetics limited Delhi High Court the Hon'ble High Court has clearly stated that "penalty proceedings are different from the Assessment Proceedings" (enclosed at page no. 27-30 of the paperbook. Further in the case of Hundum Industries Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact of surrender of such payment and that so called payment was in fact wrong and the surrender was made solely to avoid botheration as stated by the assessee. In this order itself it was observed that penalty proceedings are distinguished from the assessment proceedings which was in the nature of quasi criminal proceedings. It was also observed that there can be many reasons for surrender but it does not mean that it was income of the assessee and for this reliance was placed by the Court on its earlier judgment in case of Gumani Ram Siri Ram V. CIT, (PH). W e find that theory of deleting penalties because the assessee may have 100 reasons for such surrender was originally approved by the Hon'ble Apex Court in case of Sir ShadiLal Sugar 8 and General Mills Ltd. and another V. CIT, 168 ITR 705 (S.C) . However this position is applicable before the insertion of explanation (1) to Section 271(1)(c) of the Act. This has been explained by the Hon'ble Apex Court itself in the later decision in case of K.P. Madhusudhanan V CIT, 251 ITR 99 (S.C). The Hon'ble Supreme Court observed at last para as under: "Learned counsel for the assessee then drew our attention to the judgement of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and even as regards the quantum of the penalty there is a discretion. That discretion was available to the Tribunal as well when it considered the matter in appeal. Of greater importance is the necessity for a definite finding that there is concealment, as without such a finding of concealment, there can be no question of imposing any penalty. The mere revision of the income to a higher figure by the assessing authority did not automatically warrant an inference of concealment of the expenditure on the construction. The addition to the income of the assessee based on the report of the valuer was rightly regarded by the Tribunal as being insufficient for recording a finding of concealment of income. Concealment implies some deliberate act on the part of the assessee in withholding the true facts from the authorities. The fact that the valuer assessed the building at a figure higher than the one reported by the assessee did not by itself lead to the inference that there had been concealment. There was no evidence to show that the assessee had deliberately concealed the cost of construction. The assessee was not required to report the progress of the construction as the return did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this account also. 15 Next decision relied on in the written submissions is in case of Hindustan Steel Ltd. V CIT, 83 ITR 26 (S.C). In that case the assessee-company was registered under the Orissa Sales Tax Act, 1947. The assessee-company initially erected a Factory building etc. for steel plant and the some of the work was done through contractors. However, the assessee-company supplied to the contractors for use in construction bricks, Coal, Cement, steel etc. A question arose whether such supply would mean to 'Sale' under the Orissa Sales Tax Act. Ultimately such supply was held to be sale. However, since penalty was also levied and the Hon'ble Supreme Court in respect of penalty observed at page 29 as under: "Under the Act penalty may be imposed for failure to register as a dealer: section 9(1), r.w.s 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (a)------------------ (b)----------------- (c) As concealed particulars of his income or deliberately furnished inaccurate particulars of such income." Because of the expression deliberately it was earlier believed that unless and until some income was intentionally concealed by a person, penalty cannot be imposed. Because of the expression "deliberately" it was held in case of CIT V. Anwar Ali, 76 ITR 696, that penalty proceedings are penal in nature and even if explanation of the assessee is false, it does not necessarily give rise to the inference that disputed amount is income. The head note in this case reads as under: "Proceedings u/s 28 of the Income-tax Act, 1922 are penal in character. The gist of the offence u/s 2891)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and the burden is on the department to establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son 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. Provided that nothing contained in this Explanation shall apply to a case referred to in clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bonafide and all the facts relating to the same and material to the computation of his total income have been disclosed by him." Proviso was amended by Taxation Laws (Amendment Act and Miscellaneous Provisions) Act 1986 w.e.f. 10.9.1986. Commenting on this explanation the Hon'ble Supreme Court in case of K.P. Madhusudanan V CIT (supra) observed as under: "The Explanation to Section 271(1)(c) is a part of section 271. When the Assessing Officer or the Appellate Assistant Commissioner issues a notice u/s 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By virtue of the notice u/s 271 the assessee is put to notice that, if he does not prove, in the circumstances stated in the Explanation, that his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en assessed as income, and (ii) the circumstances must show that there was animus, i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. Explanation 1 to section 271(1)(c) has no bearing on factor No. 1 but has a bearing only on factor No. 2. The Explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. No penalty 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 no 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). W e have already noted that lot of changes have taken place in the light of that decision. Therefore, this decision is of no help. In the paper book one more decision has been filed in case of CIT V. Balbir Singh, 304 ITR 125 (PH). In that case the assessee has received certain gifts which were not accepted by the Department. In the penalty proceedings the Tribunal deleted the penalty and that finding has been confirmed by Hon'ble High Court. In that case the Tribunal had relied on the decision of Hindustan Steels V State of Orissa (supra) which we have already dealt above, it is not relevant in the present facts because of the changes made in the law. 19 Now coming to the facts in case before us, the assessee has received two gifts amounting to Rs. 1 lakh from Amrit Dilawari and Rs. 5,46,575/- from Shri Charanjeet P. Singh. Admittedly these persons are not related to the assessee. During the assessment proceedings the statement of the assessee was recorded in which the assessee was asked to give the addresses of such donees. It may be true that the assessee may not remember the full addresses but atleast the persons who is giving a sum of Rs. 1 lakh and Rs. 5,46,575/-, he sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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