Smt. B. Indira Rani vs Commissioner of Income Tax

K.S. Radhakrishnan, J.—IT Ref. 160/1999 and 161/1999 arise out of ITA Nos. 879 and 880/Coch/1991 on the file of Tribunal, Cochin Bench. Assessment years concerned are 1979-80 and 1980-81. The following questions of law arise for consideration :

"1. Whether the Tribunal was right in law in sustaining the penalty levied u/s 271(1)(c) of the IT Act ?

Whether the Tribunal was right in law in holding that there was concealment ?

Whether, in the facts and circumstances of the case, the offer of additional income being made to purchase peace with the Department, the Tribunal was right in law in holding that there was concealment ?

The additions made in the assessment being only income from other sources by way of investments, whether the Tribunal was right in law in holding that there was concealment without considering the ingredients of Expln. 1 to Section 271(1)(c) of the IT Act?

Whether the Tribunal was right in holding that there is concealment of such income without specifying under what clause of Expln. 1 to Section 271(1)(c) the case of the assessee fell ?

Whether the Tribunal was right in law in holding that there was no true and full disclosure of income falling within the provisions of Expln. 2 to Section 273A of the IT Act?"''

Primary question to be answered is question No. 4. Assessee is an individual deriving income from the business of manufacture of cycle gear. For the asst. yr. 1979-80 the assessee had filed the return of income originally on 5th Oct., 1979, showing a loss of Rs. 8,510. Assessment was completed u/s 143(1)(a) accepting the loss as shown by the assessee. Assessment was later reopened u/s 147(a) and in the proceedings dt. 20th Nov., 1981, the total income was determined at Rs. 41,071. Search was conducted in the assessee''s residence on 5th March, 1985. Thereafter, the assessee made a disclosure u/s 273A with regard to a sum of Rs. 40,000 as unexplained investment in two vans. Later, the assessee filed another return on 21st May, 1985, offering additional amount of Rs. 19,337 as income on account of investment in an immovable property. In that return the total income computed was at Rs. 58,618 including the sum of Rs. 40,000 offered u/s 273A and the sum of Rs. 19,337 as investment in the immovable property.

The AO issued notice u/s 147(a) to reopen the assessment with the approval of the CIT. Reassessment was completed on an income of Rs. 1,64,910 which included Rs. 55,000 added as income from other sources. For the asst. yr. 1980-81 the assesses had filed the original return on 18th Aug., 1980, admitting a total income of Rs. 42,653. The assessment was completed on a total income of Rs. 88,450. On a search conducted assesses made a disclosure u/s 273A on a sum of Rs. 74,500 as investment in a vehicle. Later, she filed a revised return on 21st May, 1985, offering a further sum of Rs. 13,231 as income on account of investment in immovable property. In the revised return the total income declared was Rs. 1,76,181. For this year also the AO issued notice u/s 147(a) with the approval of the CIT for reopening the assessment. The reassessment was completed on a total sum of Rs. 2,55,680 which included Rs. 78,000 added as income from other sources. The AO initiated penalty proceedings u/s 271(1)(c) and levied a penalty of Rs. 74,934 for the asst. yr. 1979-80 and Rs. 1,18,723 for the asst. yr. 1980-81. The CIT(A) concurred with the AO that penalty was leviable on account of the concealment of income by the assessee. But the appellate authority felt that for the asst. yr. 1979-80 in computing the penalty the addition of Rs. 55,000 as income from other sources was to be excluded. For the asst. yr. 1980-81 the direction given by the CIT(A) was to exclude the sum of Rs. 78,000 for the purpose of computing the penalty. Assessee took up the matter in appeal before the Tribunal and contended that the CIT(A) was not justified in upholding the penalty. The Tribunal upheld the penalty, but made an observation that the assessee could seek other remedy by way of reduction or waiver before the CIT. The assessee is aggrieved by those orders and hence these revisions.

Counsel appearing for the applicant Sri C. Kochunni Nair laid considerable stress on proviso to Expln. 1 to Section 273(1)(c) and contended that the question referred should be considered under the said provisions especially since ITO had declined to give relief u/s 273A. According to the counsel, the assessee is saved by the proviso to the Explanation and, therefore, the Explanation does not at all apply so also the main provision of Section 271(1)(c). Counsel submitted the Tribunal dealt with only the argument that Section 271(1)(c) concealment should be read with Section 273A. Counsel submitted question has to be examined in the light of the Explanation to the proviso.

Counsel appearing for the Revenue submitted that the assessee had not disclosed the income by way of investment in vehicles and landed properties. Only after search was conducted the assessee first made the declaration u/s 273A. Counsel further submitted that even without the aid of the Explanation the main provision of Section 271(1)(c) would be sufficient to justify the penalty. Counsel also placed reliance on various decisions such as NIRANJAN and CO. P. LTD. Vs. COMMISSIONER OF Income Tax, WEST BENGAL, AND OTHERS., , N. Sundareswaran Vs. Commissioner of Income Tax and Another, , Western Automobiles (India) Vs. Commissioner of Income Tax, Bombay City-I, Bombay, , Commissioner of Income Tax Vs. A. Sreenivasa Pai, , Commissioner of Income Tax Vs. K.P. Madhusudanan, , Commissioner of Income Tax Vs. Kishorekumar Shamji, . etc.

Section 271(1)(c) of the IT Act, 1961, is attracted where in the course of any proceedings under the Act, the AO or the first appellate authority is satisfied that (a) any person has concealed particulars of his income, or (b) has furnished inaccurate particulars of such income. The expressions "has concealed" and "has furnished inaccurate particulars" have not been defined either in the section or elsewhere in the Act. The, scope of this provision came up for consideration before a Bench of this Court in CIT v. Kishorekumar Shamji (supra). Bench held proviso to Expln. 1 is concerned only with cases coming under Clause (B) of the Explanation, where the assessee offered an explanation which he was not able to substantiate. The explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation; it should not be a fantastic or fanciful one. As indicated above, consequence follows as a matter of law. The burden is on the assessee. If he fails to discharge that burden, the presumption that he had concealed the income or furnished inaccurate particulars thereof is available to be drawn. The principal logical import of the Explanation is to shift the burden of proof from the Revenue on to the assessee. Rebuttal must be on materials relevant and cogent. Only if the initial burden is discharged the assessee would get out of the mischief. This (sic--apex) Court in M/s. K.P. Madhusudhanan Vs. Commissioner of Income Tax, Cochin, held that the Explanation to Section 271(1)(c) is a part of Section 271. When the AO or the AAC 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 failure to return his correct income was due to fraud or neglect, he shall, therefore, be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, and consequently be liable to the penalty under the section. In Commissioner of Income Tax Vs. K.P. Madhusudanan, also following the decision in Sir Shadi Lal Sugar and General Mills Ltd. and Another Vs. Commissioner of Income Tax, Delhi, this Court held that there may be several reasons for which the assessee may have offered an amount for addition, but that itself is not sufficient to infer concealment. It has not laid down as a rule of general application that whenever such is the case, penalty cannot be imposed. This Court held that on the contrary in such cases also the assessee is required to discharge the burden placed by the Explanation appended to Section 271(1)(c). In case an explanation is offered, the AO is to examine it, find out whether the assessee has been able to establish that there was no concealment.

We may examine the facts in this case in the light of the above-mentioned legal principles. In the instant case for the asst. yr. 1979-80 the assessee filed the return of income originally on 5th Oct., 1979, showing a loss of Rs. 8,510. Assessment was completed u/s 143(1)(a) accepting the loss as shown by the assessee. Assessment was later reopened u/s 147(a) and in the proceedings dt. 20th Nov., 1981, the total income was determined at Rs. 41,071. Further, a search was also conducted in the assessee''s residence on 5th March, 1985. It is thereafter the assessee made a disclosure u/s 273A in respect of a sum of Rs. 40,000 as unexplained investment. Later, the assessee filed another return on 21st May, 1985, offering additional amount of Rs. 19,337 as income on account of investment in an immovable property. It is, therefore, evident that these facts are well within the knowledge of the assessee, Those facts were disclosed only after search was conducted. No acceptable explanation has been given by the assessee to show that there was no concealment. Same is the position for the asst. yr. 1980-81 as well. During the year 1980-81 assessee had filed original return on 18th Aug., 1980 admitting a total income of Rs. 42,653. Assessment was completed on a total income of Rs. 88,450. For that year also after a search was made the assessee made a disclosure u/s 273A on a sum of Rs. 74,500 as investment in a vehicle. Thereafter assessee had filed a revised return on 21st May, 1985, offering a further sum of Rs. 13,231 as income on account of investment in immovable property. It is, therefore, evident that for the years 1979-80 and 1980-81, there was concealment of the income by the assessee. Only after search was conducted disclosures were made. We, therefore, cannot find fault with Tribunal in holding that there was concealment of income. Under such circumstances we are inclined to answer question No. 4 against the assessee and in favour of the Revenue. Question Nos. 1 and 5 also answered against the assessee and in favour of the Revenue. Other questions admittedly do not warrant any consideration. IT Ref. 160 and 161 of 1999 and O.P. 8909 and 10057 of 1999 would stand dismissed.