2004 (6) TMI 646 - HC - Income Tax

Burden shifts to assessee under Explanation 1 to section 271(1)(c) when loss rejected, penalty reconsidered

In a reference under section 256(1) of the Income-tax Act concerning penalty under section 271(1)(c) for assessment year 1989-90, the HC held that the ... Penalty under section 271(1)(c) for concealment of income - burden of proof on assessee under Explanation 1 to section 271(1)(c) - assessment on estimate basis due to rejection of books of account - remand for fresh consideration after giving opportunity to the assesseePenalty under section 271(1)(c) for concealment of income - burden of proof on assessee under Explanation 1 to section 271(1)(c) - Cancellation by the Tribunal of the penalty imposed under section 271(1)(c) - HELD THAT: - The Tribunal's cancellation of the penalty was set aside. The Court held that while the Assessing Officer was justified in rejecting the books and assessing income on an estimate, that did not preclude the operation of Explanation 1 to section 271(1)(c). The burden to explain why penalty should not be levied rests on the assessee, and the assessee had not discharged that burden before the Tribunal. Consequently the Tribunal erred in vacating the penalty without ensuring the assessee had been given an opportunity to meet the burden imposed by Explanation 1. [Paras 5]Tribunal's order cancelling the penalty set aside; matter remanded for reconsideration with regard to the assessee's burden under Explanation 1 to section 271(1)(c)Assessment on estimate basis due to rejection of books of account - remand for fresh consideration after giving opportunity to the assessee - Reconsideration of the assessment and penalty by the Tribunal after giving the assessee an opportunity - HELD THAT: - The Court directed the Tribunal to reconsider the matter afresh. The Tribunal must give the assessee an opportunity to explain and discharge the burden imposed by Explanation 1 to section 271(1)(c), and thereafter determine whether concealment has been proved and whether penalty is leviable pursuant to the estimated assessment. The Court noted that both questions referred are the same and therefore remanded the entire matter for fresh consideration in light of the burden on the assessee. [Paras 5]Matter remanded to the Tribunal for fresh consideration after affording the assessee an opportunity to discharge the burdenFinal Conclusion: The Tribunal's judgment cancelling the penalty is set aside and the matter is remanded to the Tribunal to reconsider the penalty and related assessment after giving the assessee an opportunity to discharge the burden under Explanation 1 to section 271(1)(c). Reference was made under section 256(1) of the Income-tax Act concerning penalty under section 271(1)(c) for assessment year 1989-90. The assessee, running a bar-attached hotel, returned a business loss of Rs. 2,16,430. The Assessing Officer, finding various defects in the books and unproved credits, rejected the accounts, estimated income at Rs. 50,000 and imposed penalty of Rs. 2,66,430, representing the difference between the returned loss and assessed income. While the Tribunal accepted that the books were rightly rejected and income estimated, it cancelled the penalty holding that concealment was not proved. The High Court held that, in light of Explanation 1 to section 271(1)(c), the burden lies on the assessee to explain why penalty should not be levied and to prove that there was no concealment. The Tribunal erred in vacating the penalty without applying Explanation 1. The Tribunal's order was set aside and the matter remanded to allow the assessee an opportunity to discharge this burden.