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TMI Blog2005 (7) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals) of the assessee being guilty of concealment of income and/or furnishing inaccurate particulars?" The assessment year is 1984-85 and the accounting period is the year commencing on July 1, 1982, and ended on June 30, 1983. The assessee, a co-operative society, filed return of income on July 27, 1984, showing total income of Rs. 1,37,724. In the course of assessment proceedings, the Assessing Officer called upon the assessee to explain why payment of insurance premium was not reflected in the accounts; this query was raised because, as recorded by the Assessing Officer, in earlier years, the assessee was paying such insurance premium having subscribed to the Group Gratuity Insurance Scheme for the employees of the assessee-society. The assessee's explanation was that, considering the amount of premium which the assessee was required to pay and the corresponding benefit, it was found by the assessee that the scheme was not beneficial to the assessee and, therefore, the assessee withdrew from the scheme and payment of premium was discontinued. That on such discontinuance and withdrawal from the scheme, an amount of Rs. 68,332 was received from the insurance company, being the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce company had been taken to reserve fund and there was no mens rea or mala fide intention. That the amount was mistakenly not added while computing the income; the assessee being a co-operative society, it could not have mala fide intention of "defrauding Government revenue". It was further submitted that the tax due had been paid up with interest and hence, a request was made to drop the penalty proceedings. The Assessing Officer, after recording the submissions made in the reply to the show-cause notice, observed in the penalty order that the contentions raised by the assessee were not acceptable "inasmuch as the assessee has virtually not advanced any reason in respect of addition made under section 41(1)". In paragraph No. 5 of the penalty order, the same observations which were made in the assessment order have been reiterated. While doing so, the Assessing Officer has observed, "the assessee cannot now also claim this sum of Rs. 68,332 as a deduction on due basis". He, therefore, after rejecting the explanation tendered by the assessee, levied a penalty of Rs. 30,770 vide order dated March 10, 1987. The assessee carried the matter in appeal before the Commissioner (Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rule 46A of the Income-tax Rules, 1962 ("the Rules"), and was unnecessarily influenced by new evidence in the form of affidavit placed before the Commissioner (Appeals). That no notice of the same was given to the Assessing Officer and as the Department was not represented before the Commissioner (Appeals), it had resulted in prejudice to the Department. Further submissions were made on behalf of the appellant regarding merits of the addition in question. The Tribunal, after recording the submissions made on behalf of the assessee, allowed the departmental appeal and while doing so, observed as under: "On consideration of the rival submissions and the material to which our attention was drawn, we find that the Commissioner of Income-tax (Appeals) has wrongly cancelled the penalty. The Assessing Officer had found as a matter of fact that the explanation offered during the assessment proceedings that the receipt was credited to gratuity fund account to be utilized for the payment of gratuity was incorrect since the assessee itself had made separate claim in the profit and loss account for deduction of gratuity on the basis of actual payment. This finding given by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m that it did not follow that the assessee was liable to be visited with penalty. He has placed reliance on the following decisions: (1) In K.C. Builders v. Asst. CIT [2004] 265 ITR 562 (SC); (2) National Textiles v. CIT [2001] 249 ITR 125 (Guj); and (3) CIT v. Susai Kalyanamandapam P. Ltd. [2004] 271 ITR 138 (Mad). In relation to the observation of the Tribunal that the finding of the Commissioner of Income-tax (Appeals) to the effect that the assessee was guilty of concealing particulars of income and/or furnishing inaccurate particulars of income remained unchallenged in the absence of any cross-objection filed by the assessee, Mr. Shah submitted that the Tribunal has failed to take into consideration rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963 ("the Tribunal Rules"). That as per rule 27 of the Tribunal Rules, a respondent is entitled to support the order appealed against on any of the grounds decided against the respondent, even though the respondent may not have appealed against such an order. He, therefore, urged that the assessee was entitled to support the order of the Commissioner (Appeals) by challenging the aforesaid finding. Alternatively, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing not filed cross-objection against the findings adverse to the assessee in the order of the Commissioner (Appeals), the said findings had become final and remained unchallenged. The Tribunal apparently lost sight of the fact that the assessee had succeeded before the Commissioner (Appeals). The appeal had been allowed and the penalty levied by the Assessing Officer deleted in entirety. In fact, there was no occasion for the assessee to feel aggrieved and, hence, it was not necessary for the assessee to prefer an appeal. The position in law is well-settled that a cross-objection, for all intents and purposes, would amount to an appeal and the cross-objector would have the same rights which an appellant has before the Tribunal. Section 253 of the Act provides for appeal to the Tribunal. Under subsection (1), an assessee is granted right to file an appeal; under sub-section (2), the Commissioner is granted a right to file an appeal by issuing necessary direction to the Assessing Officer; sub-section (3) prescribes the period of limitation within which an appeal could be preferred. Section 253(4) of the Act lays down that either the Assessing Officer or the assessee, on receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me was duly reflected in the balance-sheet. Copy of staff gratuity fund account is available on record (annexure "J"). The sum having been received from the insurance company was through the normal banking channel and hence, there is no situation where any suspicion can arise qua genuineness of the transaction. The only ground on which the addition has been made and sustained is applicability of section 41(1) of the Act. The said provision, namely, section 41(1) of the Act, requires that where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year, the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation, the amount obtained or the value of benefit accruing, shall be deemed to be profits and gains of business or profession and accordingly, chargeable to income-tax as the income of that previous year. In the present case, the premium paid to the insurance company towards gratuity liability wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 is 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 cannot justify levy of penalty. Absence of proof acceptable to the Department cannot be equated with fraud or wilful default." In the case of K.C. Builders v. Asst. CIT [2004] 265 ITR 562, the apex court stated: "One of the amendments made to the above-mentioned provisions is the omission of the word 'deliberately' from the expression 'deliberately furnished inaccurate particulars of such income'. It is implicit in the word 'concealed' that there has been a deliberate act on the part of the assessee. The meaning of the word 'concealment' as found in Shorter Oxford English Dictionary, third edition, Volume I, is as follows: 'In law, the inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances to show that the omission was attributable to an intention or desire on the part of the assessee to conceal the income so as to avoid imposition of tax thereon. In the present case, the assessee is a co-operative society managed through a governing board and as stated by the society, there is no personal interest involved. The omission has occurred not with an intention but due to oversight. As held by this court, absence of proof acceptable to the Department cannot be equated with fraud or wilful default. The circumstances must show that there was a conscious act of concealment or furnishing of inaccurate particulars on the part of the assessee. There is nothing on record to show that any particular individual has any personal interest in committing the act of omission of showing the amount received from the insurance company as income of the assessee, a co-operative society. In fact, the entries in the books of account reflect that the assessee had credited the said sum to the fund account directly and the said entry appeared in the balance-sheet without going through the profit and loss account. Therefore, the finding recorded by the Tribunal that penalty was exigi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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