9911796707
TMI Blog2001 (10) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer required the assessee to explain the availability of these 30,000 shares. While the source of 27,900 shares was readily explained as having been received from the stock exchange settlement and the Assessing Officer was satisfied with this explanation, the trouble arose with regard to remaining 2,100 shares. 3. Vide letters dated 25-3-1995 the assessee submitted that 2, 100 shares were originally purchased by the assessee on 18-6-1991 at the rate of Rs. 159 and these very shares were sold on 30-7-1991, at the rate of Rs. 240. It was explained that the distinctive numbers of these shares are the same as of those 2,100 shares which were included in the shares delivered to JB. The assessee further explained that though these shares were sold on 30-7-1991, these shares found their way back to the assessee firm "through some broker/ employee for sale and as the market was picking up, it was thought fit to hold the shares till the boom continues and the shares remained in our (assessee's) office". The assessee went to explain that "the said 2,100 shares were lying on office without any bill or correspondence which is very much routine in nature" and that the assessee is "n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l [1984] 145 ITR 439 wherein Their Lordships had taken a view that in case an admission by the assessee was a conditional admission, it could not be relied on for imposing penalty as an unconditional admission. The assessee further submitted that non identification of the person to whom the disputed 2,100 share belonged was not on account of any fraud or wilful neglect and this action was in fact a genuine error as the market was in a boom condition and such an error could be a normal situation. The assessee then submitted that it could not be said that introduction of Explanation to section 271(1)(c) has nullified the ratio of Hon'ble Supreme Court's judgment in CIT v. Anwar Ali [1970] 76 ITR 696 and, in support of this proposition, placed reliance on Hon'ble Calcutta High Court's judgment in the case of CIT v. M.B. Engg. Works (P.) Ltd. [1986] 158 ITR 509. It was thus submitted that the facts and circumstances of the case did not warrant or justify imposition of any penalty under section 271(1)(c) and that in any event, since penalty cannot be imposed unless mens rea is established and since no mens rea is established in this case, imposition of penalty in this case will be contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t after this case was heard and order thereon was reserved, the hearing was re-fixed to seek assessee's clarifications in the light of the Hon'ble Kerala High Court's judgment in the case of CIT v. K.P. Madhusudanan [2002] 246 ITR 218 which has since been upheld by the Hon'ble Supreme Court in the judgment reported as K.P. Madhsudanan v. CIT [2001] 251 ITR 99. The case was thus finally heard on 6-7-2001. Revenue has primarily placed reliance on the penalty order passed by the Assessing Officer. Learned Departmental Representative has taken us through the assessment order to demonstrate the circumstances in which the assessee volunteered addition to be made to his income and it was submitted that, in the given circumstances, assessee had no other option except to surrender. It has been pointed out that on 7-3-1992, the assessee was required to disclose the source of unexplained investment that he had made in 2,100 shares of ITC Ltd. and since assessee had no reasonable explanation for the same, the assessee agreed to surrender of the value of these shares as being added to his income. Learned Departmental Representative submitted that even such an offer was infructuotis because, eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been brought on record to show that amount voluntarily offered by the appellant to be added to his income was infact his concealed income. Learned counsel emphasized that imposition of penalty cannot be justified solely on the basis of surrender made by the assessee. It was also reiterated that since penalty cannot be imposed unless mens rea is established and since no mens rea is established in this case, imposition of penalty in this case will be contrary to the law settled by the Hon'ble Supreme Court in Anwar Ali's case. Learned counsel thus justified the order of the CIT(A) and urged us to confirm the same. 11. Let us first take a look at the circumstances in which this surrender is made. The Assessing Officer has found out that the assessee has sold shares which are not recorded in his books of account and specific question has been raised about the source of acquisition of these shares. The assessee accepts that these shares were not accounted for in his books and yet these shares were physically with him. In other words, He accepts existence of unaccounted investment but then he does not give up. He claims that someone gave him these shares for sale but he does not rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the law that the moment any fantastic or unacceptable explanation is given, the burden placed upon him would be discharged and the presumption rebutted. It is not the law and perhaps hardly can be that any and every explanation by the assessee must be accepted. In my view, the explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation. He may not prove what he asserts to the hilt positively but as a matter of fact materials must be brought on the record to show that what be says is reasonably valid." The above views were approved by the Hon'ble Supreme Court in the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14. Referring to the judgment of Hon'ble Patna High Court, Their Lordships observed: "The Patna High Court emphasised that as to the nature of the explanation to be rendered by the assessee, it was plain on principle that it was not the law that the moment any fantastic or unacceptable explanation was given, the burden placed upon him would be discharged and the presumption rebutted. We agree. We further agree that it is not the law that any and every explanation by the assessee must be accepted. It must be acceptable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned. In any case, as to the requirement of revenue's establishing mens rea on the part of assessee, we may only refer to the observations of Hon'ble Supreme Court, in the case of K.P. Madhusudanan's case, which are reproduced below: "Learned counsel for the assessee then drew our attention to the judgment of this court in Sir Shadilal Sugar and General Mills Limited v. CIT [1987] 168 ITR 705. He submitted that the assessee had agreed to the addition to his income referred to hereinabove to buy peace and it did not follow therefrom that the amount that was agreed to be added was concealed income. That did not follow that the amount that was agreed to be added was concealed income. That it did not follow that the amount agreed to be added was concealed income is undoubtedly what was laid down by this court in the case of Sir Shadilal Sugar and General Mills Limited v. CIT [1987] 168 ITR 705 and that, therefore, the Revenue was required to prove the mens rea of a quasi criminal offence. But it was because of the view taken in this and other judgments that the Explanation to section 271 was added. By reason of addition of that Explanation, the view taken in this case call no long ..... X X X X Extracts X X X X X X X X Extracts X X X X
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