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TMI Blog2013 (11) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... come earned by the assessee, since this was not conclusive and independently proved against the assessee on the strength of any evidence - We found that CIT(A) had dealt with various judicial pronouncements to arrive at a conclusion that it was not a fit case for levy of penalty - The detailed finding recorded by the ld.CIT(A) had not been controverted. While deleting the penalty, the ld. CIT(A) had categorically recorded a finding to the effect that no independent evidence was brought on record to prove beyond all shadows of doubt that the impugned sum ultimately sustained on estimations was the assessee’s income from undisclosed sources earned during the relevant previous year - As per CIT(A) unless there was a categorical finding of fact based on evidence to be brought on record against the assessee to this effect, the imposition of penalty u/s 271(1)(c) in respect of such addition made, without proving falsity in the explanation submitted and without bringing any evidence against the assessee was not justified – Decided against Revenue. - ITA No.602 & 603/Ind/2012 - - - Dated:- 2-3-2013 - Joginder Singh and R C Sharma, JJ. For the Appellant : Smt Mridula Bajpai, CIT-D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the returned income, in my considered view, it is not a case of addition or disallowance to warrant penalty since the substitution for the returned income, was based on estimations only. This is a case where the addition sustained was based purely on estimations and no suppression in receipts was detected. III such circumstances, there could be no penalty since the AO failed to bring on record something more to indicate and establish that there has been concealment on the part of the appellant [CIT v. Dhillon Rice Mills (2002) 256 ITR 447 (P H) and CIT v. Metal Products of India (1984) 150 ITR 714 (P H)]. In my considered view, penalty should not be exigible merely because income was estimated due to the inability of the appellant to prove its income. The tax payers who file the return necessarily deserves better treatment than those who do not file the returns at all. My proposition that penalty could not be imposed since the impugned addition ultimately sustained was based merely on estimate, finds further support from the decision of the P H High Court in Harigopal Sigh v. CIT (2002) 258 ITR 85 (P H). In Bansal Brothers v. ACIT (2011) 17 ITJ 241 (Indore ITAT) addition was mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unless there is a categorical finding of fact, based on evidence to be brought on record against the appellant to this effect, imposition of penalty u/s 271(1)(c) in respect of such addition made, and sustained in appeals without proving falsity in the explanation submitted and without bringing any evidence against the appellant, was unjustified. Reliance for this proposition is placed on the decision of the MP HC in CIT vs. Chirag Ingots (P) Ltd. (2005) 25 ITR 310 (MP) wherein it was held that the ITAT was justified in holding that in order to impose penalty U/S 271(1)(c) in respect of addition made in assessment, there must be a categorical finding of fact, which was necessarily to be recorded and proved by the A.O., on the strength of substantiating evidence, that the impugned claim of the appellant, was bogus. In the case of the appellant, under consideration, despite extensive search operation nothing incriminating was found/seized either in kind or in coin to substantiate that income assessed and ultimately sustained on estimations, was in fact the concealed income earned by the appellant during the relevant previous year and since this was not conclusively and independently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .)]. The burden is on the Department to prove that a particular amount is a Revenue receipt. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is not acceptable does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding in the assessment proceeding for computing tax is conclusive for levy of penalty. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars [CIT vs. Anwar Ali (1970) 76 ITR 696 - 701 (SC)] and [CIT vs. Khoday Eswara and Sons (1972) 83 ITR 369 (SC)]. It is not in every case where an addition is upheld that penalty becomes eligible, as held by the Ker, HC in CIT vs, Kerala Spinners Ltd. (200 I) 247 ITR 541 (Ker.), which had followed the decision of SC in en vs. Mussadilal Ram Bbarosa (1987) 165 ITR 14 (SC). 1.8. Mere non-acceptance of explanation does not justify necessary inference of concealment: It is settled law that where an explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation is found to be false, then to the extent the income is found to have been concealed and the explanation is found to be false, then the authority can proceed against the assessee. Therefore, this Explanation does not change the position and absolve the Department just to issue notice for giving false explanation and proceeding against him. Before this, much has to be done by the Department under this Explanation [CIT v. Ganesh Prasad Badriprasad Co. (1998) 231 ITR 951,953-954 (MP)]. 1.11. The Statute has clearly drawn a distinction between a deliberate false explanation furnished by the assessee and an explanation, which may not be false but is not accepted because the assessee was not able to substantiate it While there is no relaxation in the rigour of the Explanation in raising a presumption against the assessee in the former case, in the latter class of cases, the Statute itself relaxes its rigour by directing that where in respect of any amount, added or disallowed and any explanation is offered by such person which is not accepted because the assessee has failed to substantiate the same, but such explanation is bonafide and all the facts relating to the same and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncept of mens rea or guilty mind in the section and, consequently" the intention of the Legislature appears to be that an assessee is not to be penalized unless the necessary mental element could be spelt out in his act from the material on record. The deletion of the word "'deliberately' from the text of section 271(1)(c) by the Finance Act, 1964 does not seem to seriously alter the law on the point as till the expression 'concealment' would require the mental element to be established. The word 'concealed' would itself import this requirement. In the case of the assessee, under consideration, the mental element of the assessee to dodge the Revenue was not established. Hence the penalty imposed is unsustainable on facts and in law. 1.15. The SC has reiterated its view in CIT vs. Mukundray K. Shah (2007) 290 ITR 433 and Dilip N. Shroff vs. 11. CIT (2007) 291 ITR 519 (SC) and in T. Ashok Pai vs. CIT, (2007) 292 ITR 11 (S.C.) again after an elaborate review of the law on the subject, as a law, which has always been part of the jurisprudence relating to penalty proceedings. It was pointed out that the meaning of expression "conceal" is of great importance. Jurisdiction for penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord against the assessee, to prove the charge of concealment. For the reasons enumerated above, the impugned penalty imposed by the Assessing Officer, in my considered view, is unsustainable. The same is, therefore, deleted. The appellant accordingly gets relief of Rs. 13,10,000/- for the assessment year 2005-06. 2. Against the above order of CIT(A), the Revenue is in appeal before us. It was contended that by the ld. Sr. D.R. that penalty has been imposed on the enhancement finally determined by the Tribunal, therefore, there is no reason to delete the same. 3. On the other hand, the ld. Authorized Representative submitted that enhancement in income was made merely by estimating net profit rate, which was substantially reduced by the ld.CIT(A) and finally confirmed by the Tribunal. Our attention was invited to various judicial pronouncements dealt with by CIT(A) in his order, according to which in case of estimation of income, no penalty is to be levied. 4. We have considered the rival submissions and have gone through the orders of the authorities below and found from record that while making assessment, the Assessing Officer has estimated net profit rate at 8%. In an app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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