2001 (8) TMI 8 - SC - Income Tax

Section 271(1)(c) penalty upheld: Explanation applies automatically; income shortfall under 80% deemed concealment unless no fraud or neglect

SC upheld imposition of penalty under section 271(1)(c) against the assessee. The Court held the Explanation is integral to section 271 and operates once ... Penalty levied under section 271(1)(c) - concealing income or furnishing inaccurate particulars - partnership firm - HELD THAT:- The Explanation to section 271(1)(c) is a part of section 271. When the Income-tax Officer or the Appellate Assistant Commissioner issues to an assessee a notice under section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By reason of the Explanation, where the total income returned by the assessee is less than 80 per cent. of the total income assessed under section 143 or 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under section 271 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 not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section. No express invocation of the Explanation to section 271 in the notice under section 271 is, in our view, necessary before the provisions of the Explanation therein are applied. Appeal is, therefore, dismissed. Issues:1. Penalty levied under section 271(1)(c) of the Income-tax Act.2. Agreed assessment basis for penalty.3. Reference to Explanation 1(B) to section 271(1)(c).Analysis:1. Penalty under section 271(1)(c):The case involved penalty proceedings under section 271(1)(c) of the Income-tax Act against the assessee, a partnership firm, for concealing income or furnishing inaccurate particulars. The Assessing Officer imposed a penalty of Rs. 37,975 based on the unexplained investment of Rs. 93,000 offered by the assessee. The Tribunal allowed the appeal against the penalty, leading to questions before the High Court regarding the correctness of the Tribunal's decision.2. Agreed Assessment Basis:The Tribunal held that the assessment was an 'agreed assessment' based on which the penalty was not leviable. The High Court considered the view taken in CIT v. P. M. Shah [1993] 203 ITR 792 regarding the Explanation to section 271(1)(c) and its implications on penalty proceedings. The High Court's decision was based on the interpretation of the legal fiction created by the Explanation, shifting the burden of proof to the assessee.3. Explanation 1(B) Reference:The dispute also centered around the application of Explanation 1(B) to section 271(1)(c). The High Court at Bombay had emphasized the need for specific invocation of the Explanation in penalty proceedings. However, the Supreme Court disagreed, stating that the Explanation is an integral part of section 271, and its provisions apply upon issuing a notice under section 271 without requiring explicit invocation in the notice.In conclusion, the Supreme Court dismissed the appeal, upholding the penalty imposed under section 271(1)(c) against the assessee. The court clarified the application of the Explanation to section 271 and rejected the necessity for separate invocation of the Explanation in penalty notices. The judgment highlighted the legal implications of agreed assessments, burden of proof in penalty proceedings, and the interpretation of statutory provisions under the Income-tax Act.