2001 (2) TMI 62 - HC - Income Tax

Penalty under s.271(1)(c) not attracted where income concealment not proved and assessor substituted estimated trading figure

HC held that the concealment of income did not fall within clause (c) of Explanation 4 to s.271(1)(c) where the Assessing Officer had not tested and ... Penalty - non-disclosure or concealment of particulars of such additions or expenses - Whether, the concealment of income by the assessee could be taken within the meaning of clause (c) of Explanation 4 to section 271(1)(c) of the Income tax Act and consequently the minimum amount of penalty to be levied? - HELD THAT:- Once no explanation was said to be tested and rejected by the Assessing Officer before convening, the question of invoking Explanation 1 itself would not have arisen however. Explanation 1 was attracted for the purpose of giving jurisdiction to the Assessing Officer for initiating the proceedings. It could not have further taken place of conclusive proof so as to discard the explanation furnished by the assessee. for the very same reason for which the result shown by him in the books of account has been rejected, not by rejecting the explanation furnished by the assessee but by accepting the explanation furnished by the assessee that he does not have necessary material to verify each and every detail of the expenses and, therefore, gross profit rate on the receipts has been taken by the assessee. Once the plea of the assessee has been accepted during the course of assessment and additions have been made at his behest, the question of making additions by rejecting explanation, which was not sustainable or could not be substantiated, would not arise and in that event, the question of bona fides of the assessee could not be doubted. We are not able to comprehend as to on what basis the learned Tribunal has repeated the provisions of the Act ad verbatim that explanation furnished by the assessee cannot be accepted as bona fide because additions were made at the behest of the assessee, by accepting his inability to furnish details of expenses during the assessment proceedings itself. The language of the Explanation uses two expressions as independent-any amount 'added' or 'disallowed'. It postulates addition of specific amount in the income as income not disclosed or a specific amount claimed as deductions has been disallowed. In making computation of total income where the income returned has been rejected by rejecting the trading results, finding some discrepancy in the books of account and substituting the same by an estimated figure, in the strict sense, can neither be said to be addition of any amount in - the returned income nor disallowance of any amount as deductions claimed. The word 'amount' of which additions made or deductions disallowed also denotes reference to specific item of amount added or disallowed as deduction in contrast to substitution of altogether a new estimated sum in place of the income returned. It is a case neither of addition or disallowance but a case of substitution. Thus, we are of the opinion that the question refer-, red to us should be answered in the negative, that is to say, in favour of the assessee and against the Revenue. Issues Involved:1. Concealment of Income2. Application of Explanation 1 to Section 271(1)(c)3. Bona Fide Explanation and Rebuttable Presumption4. Specific Addition vs. Substitution of IncomeSummary:1. Concealment of Income:The primary issue was whether the concealment of income by the assessee could be taken at Rs. 28,520 within the meaning of clause (c) of Explanation 4 to section 271(1)(c) of the Income Tax Act, and consequently, whether the minimum amount of penalty to be levied would be Rs. 19,629. The assessee, a building contractor assessed as a registered firm, had discrepancies in their accounts leading to an agreed gross profit rate of 12% on contract receipts, resulting in an assessable income of Rs. 1,27,680.2. Application of Explanation 1 to Section 271(1)(c):The Assessing Officer initiated penalty proceedings u/s 271(1)(c) based on the presumption that the additions made represented concealed income. This was affirmed by the Commissioner of Income-tax (Appeals) and the Tribunal, which held that Explanation 1 to section 271(1)(c), as amended from April 1, 1976, applied to the case.3. Bona Fide Explanation and Rebuttable Presumption:The court noted that Explanation 1 to section 271(1)(c) provides a rule of evidence for raising a rebuttable presumption in favor of the Revenue. However, this presumption is not conclusive proof and can be rebutted by new or existing material. The court found that the assessee's inability to substantiate certain expenses due to lack of verifying material did not necessarily indicate a lack of bona fides. The court emphasized that no deliberate false entry was found in the books of account.4. Specific Addition vs. Substitution of Income:The court highlighted that the penalty proceedings were initiated based on the addition of income by applying a gross profit rate, not by disallowing specific expenses. The court clarified that the language of Explanation 1 to section 271(1)(c) refers to specific amounts added or disallowed, not to the substitution of an estimated sum for the income returned. The court concluded that the Tribunal misdirected itself by treating the case as one of specific addition rather than substitution.Conclusion:The court answered the question in the negative, in favor of the assessee and against the Revenue, stating that the penalty proceedings were not justified based on the facts and circumstances of the case. There was no order as to costs.