1986 (7) TMI 174 - AT - Income Tax

ITAT Delhi: Penalty Cancelled, Emphasizes Burden of Proof for Mens Rea

The Appellate Tribunal ITAT DELHI-B allowed the appeal, canceling the penalty imposed on the assessee under section 271(1)(c) of the IT Act, 1961. The ... - Issues:1. Levy of penalty under section 271(1)(c) of the IT Act, 1961 for omission of income items in the return.2. Ownership of self-occupied property and income concealment related to it.3. Justifiability of penalty for notional income omission.4. Assessment of annuity refund and penalty imposition.5. Ignorance of law as an excuse for statutory default.6. Burden of proof under the Explanation to show preponderance of probabilities.7. Requirement of mens rea for penalty imposition.Analysis:The judgment by the Appellate Tribunal ITAT DELHI-B involved an individual assessee appealing against a penalty of Rs. 4,000 under section 271(1)(c) of the IT Act, 1961 for omitting income items in the return. The assessee's sources of income included an unregistered firm, house property income, and other sources. The penalty was imposed due to the omission of income from a self-occupied property and an annuity refund in the return. The assessee argued that the property was not disclosed as he was not the legal owner until 1970, and the income was not substantial compared to the total income returned. Additionally, it was contended that the notional income from the property and annuity refund should not attract a penalty as they were not real income. The Commissioner (A) rejected these arguments, stating that the assessee had no acceptable explanation for the omissions, especially since he had the assistance of a Chartered Accountant. Consequently, the penalty was confirmed.Regarding the argument of ignorance of law as an excuse for statutory default, the Tribunal referenced a Supreme Court decision emphasizing that ignorance of law does not excuse statutory default. The Tribunal rejected the plea based on ignorance, highlighting that accepting such a defense would render tax delinquency sanctions ineffective. However, the Tribunal found merit in the assessee's argument that the Explanation required the assessee to show a preponderance of probabilities. The assessee claimed that the omission was due to a bona fide belief and not intentional concealment, shifting the burden to the assessing officer to prove mens rea. Since there was no evidence of mens rea, the Tribunal concluded that the burden was not discharged, leading to the cancellation of the penalty. The Tribunal did not delve further into whether notional income could be subject to a penalty under section 271(1)(c) of the Act.In summary, the Tribunal allowed the appeal, canceling the penalty imposed on the assessee under section 271(1)(c) of the IT Act, 1961. The judgment highlighted the importance of proving mens rea for penalty imposition and the requirement for the assessing officer to provide cogent material to support such a claim.