TaxTMI 
TaxTMI 
2003 (1) TMI 272
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the assurance given by the Ld. Assessing Officer and consequently the penalty proceedings were not attracted in case of the assessee." 3. The brief facts of the case are that the assessee derives income from export of garments in the status of Individual. The return of income was filed on 29-10-1997 along with audit report under section 44AB declaring a loss of Rs. 36,80,600 as under:-- Net loss from Kiran Modes Rs. 37,49,739 Income from other sources Rs. 69,138 ------------- Rs. 36,80,601 or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....und by the AO that the cases relied upon by the assessee are distinguishable and not applicable to the facts of the assessee's case. It was, therefore, held by the AO that the assessee has furnished inaccurate particulars of his income and concealed the same to the extent of Rs. 36,80,600 as surrendered and, accordingly, imposed minimum penalty at Rs. 14,45,240 vide order dated 30-8-2000. 7. On first appeal before the CIT(A), it was submitted by the assessee that he has filed every precise details as demanded from him and at no stage of assessment proceedings, he denied the information as demanded. The assessee also objected the remark of the AO that the assessee had fradulently claimed the loss, which is not well founded and the same is most casual and deserves no credence. The AO, at no stage of proceedings, has brought on record any material to prove that the assessee, in any manner, furnished inaccurate particulars of his income or had, in any manner, committed fraud. The rejection of assessee's explanation does not result in the levy of penalty. There was no specific enquiry into the correctness, truthfulness or accuracy of the particulars furnished by the assessee and conc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y stage in support of the claim that either stock was damaged or orders cancelled or that such damaged stock was sold locally in the market at lower than normal rates. It is also not acceptable that Assessing Officer has merely rejected the explanation of the appellant so that imposition of penalty is not justified. The assessee has not been able to prove its claim of loss for the reasons given by him in assessment proceedings nor in the appellate proceedings. It is also not an acceptable argument that assessee agreed to surrender merely to purchase peace and therefore imposition of penalty was not justified. In view of the decision of the Hon'ble Supreme Court in the case of Union of India v. Banwarilal Agarwal 238 ITR 461it has been categorically held that there is no provision in the Act sanctioning compromise with the assessee by the I.Tax department that no penal action would be undertaken. Therefore it cannot be held that the assessee having agreed to surrender, no penal action should have been taken. 2.9 The position of law relating to concealment stands changed after insertion of Explanation to section 271(1)(c). Therefore, in view of decision in the case of B.A. Balasub....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iz. CIT v. Suresh Chandra Mittal [2001] 251 ITR 9 (SC), CIT v. Suresh Chandra Mittal [2000] 241 ITR 124 (MP), Sir Shadilal Sugar & General Mills Ltd., Shiv Lal Tak v. CIT [2001] 251 ITR 373 (Raj.), Ess Ess Marbles (India) (P.) Ltd. v. Asstt. CIT 24 Tax World 352 (ITAT, Jaipur Bench), Ram Saran Gupta's case [1997] 20 Tax World 196, CIT v. Rhone Poulenc Ltd. [2001] 168 CTR (Bom.)45, Asstt. CIT v. D.N. Ghiya [2000] 23 Tax World 383 (ITAT, Jaipur Bench), Bansiwala Iron & Steel Re-Rolling Mill's, Manjit Singh, Baldev Singh Commission Agents Rajasthan Vanaspati Products (P.) Ltd., Chiranjilal Tak, Ramsaran Gupta v. Asstt. CIT [1997] 20 Tax World 76 (ITAT, Jaipur Bench), Asstt. CIT v. Abril Pharmaceuticals (P.) Ltd. [1999] 70 ITD 206 (Indore), Kejriwal Bros. v. Asstt. CIT [1997] 60 ITD 502 (Pat.), Prabhat Oil Traders v. ITO [1996] 56 ITD 24 (Ahd.), Balaramakrishna Engg. Contractors Corpn. V. Dy, CIT [1996] 56 ITD 411 (Hyd.), Shri Ganesh Sizing Factory v. ITO [2001] 25 Tax World 117 (ITAT, Jaipur Bench), ITO v. Madan Mohan Service Station [2001] 26 Tax World 186 (ITAT, Jaipur Bench), Rani Sati Coal Suppliers v. ITO [2001] 26 Tax World 440 (ITAT, Jaipur Bench), CIT v. Aggarwal Pipe Co. [199....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) of the Income-tax Act, 1961. The Assessing Officer found the assessee's explanation unacceptable, noted that it had offered the amount of Rs. 93,000 as additional income, and applying Explanation 1(B) to section 271 imposed a penalty on the assessee. The Appellate Tribunal cancelled the penalty, inter alia, for the reason that in the notice initiating penalty proceedings the assessee was not intimated about the proposed action under Explanation 1(b) to section 271(1)(c); but the High Court, on a reference, held that the imposition of penalty was valid. On appeal to the Supreme Court: Held, affirming the decision of the High Court, that the penalty was validly levied. The Explanation to section 271(1)(c) is a part of section 271. When the Assessing Officer or the Appellate Assistant Commissioner issues 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 virtue of the notice under section 271 the assessee is put to notice that, if lie does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. 12.6 In the case of Rhone Poulenc Ltd., there was a finding of the Tribunal that when the assessee conceded an ad hoc figure of underassessment under a settlement following a debated claim for depreciation, it was held by the Hon'ble High Court that this being a pure finding of fact, no substantial question of law arises. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. 12.7 In the case of D.N. Ghiya, it was found by the Tribunal that the surrender was made prior to detection of any conc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. 12.12 In the case of Ramsaran Gupta [1997] 20 Tax World 76 (Jp.), it was held that simply on the basis of assessee's agreeing to addition, penalty cannot be sustained, revenue must prove mens rea Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. 12.13 In the case of Abril Pharmaceuticals (P.) Ltd., the declared loss was reduced to nil. It was held that it is not a case of concealment as the assessment proceedings are different than the penalty proceedings. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only genera....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of penalty and discrepancies found in the assessment are not justifiable to lead the conclusion of concealment of income. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. 12.18 In the case of Madan Mohan Service Station, the penalty was deleted as finally assessed loss was Rs. 7,031 after the voluntary surrender of cash credit of Rs. 61,000. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. 12.19 In the case of Rani Sati Coal Suppl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed income and the decision in the case of Sir Shadilal Sugar & General Mills Ltd. applied. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case and it was held in the case of K.P. Madhusudhanan [2001] 251 ITR 99 that the law laid down in the case of Sir Shadilal Sugar & General Mills Ltd. is not a good law after addition of the Explanation to section 271. 12.23 In the case of S. Sankaran, the penalty was deleted on the ground that mere addition to the income at the instance of assessee would not warrant a finding of concealment or the levy of penalty under section 271(1)(c) and the decision in C.J. Rathnaswamy's case was followed. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, there....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent case. 12.27 In the case of Aditya Chemicals Ltd., the assessment in this case was completed at a reduced figure of loss. The Tribunal, while cancelling the penalty, has followed the decision of Hon'ble Supreme Court in the case of Prithipal Singh & Co. [2001] 249 ITR 670. Whereas in the case before us, the loss claimed was such as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and, therefore, it was not possible to verify the claim of damaged stock and also no material was produced to disapprove the finding of the CIT(A). Hence, the facts of the cited case are distinguishable and not applicable to the facts of the present case. Further, in the case of P.R. Basavappa & Sons, it was held that the decision in Prithipal Singh & Co.'s case [1990] 183 ITR 69 is in respect of assessment year 1970-71, i.e. before insertion of the Explanation. Therefore, this case is also not applicable to the facts of the assessee's case. 12.28 In the case of Saran Khandsar Sugar Works, the finding that the assessee had agreed to a higher assessment on the condition that no penalty would be imposed, was a finding of fact. Similarly....
X X X X Extracts X X X X
X X X X Extracts X X X X
....271(1)(c). Explanation 1 thereof which provides that in a case where the explanation is offered which is found by the AO to be false or no explanation is offered or an explanation is offered which could not be substantiated the amount added in computing the total income of such person shall be deemed to represent the income in respect of which particulars have been concealed. In this case, the AO found that the assessee has not substantiated his claim of loss and proceeded to impose the penalty which was upheld by the CIT(A). Since the assessee was unable to furnish any evidence in support of his claim of loss and without filing any revised return of income, he offered to be assessed at nil income, therefore, keeping in view that the loss claimed was such as could not be substantiated and in the absence of any contrary material against the finding of the CIT(A) and also respectfully following the decision of Apex Court in K.P. Madhusudhanan's case [2001] 251 ITR 99 no error is found in the order of the CIT(A) confirming the levy of penalty under section 271(1)(c) and, accordingly, the order of the CIT(A) is upheld. 14. In the result, the appeal filed by the assessee is dismissed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g Officer. In fact the assessment order shows that required details have also been filed. Assessee vide his letter dated 20-9-1999 enclosed a statement of reasons for incurring losses by it. This reads as under:-- 1. "It is one of the crucial facts that the garment industry began to face hard time due to global slump. Due to the slump in the overseas markets, exporters' profit margin rapidly declined. There was 6 per cent fall in export of garments in the first 8 months of the same year. 2. In the same year, the national governments of some countries banned on using azo-dyes which were used earlier in processing of fabrics. We had good business in Germany and was expecting better export value in 1996-97, but due to ban on azo-dyes, we could not retain our business in Germany. 3. There is a universal practice that once the deal (order/contract) get finalised, one cannot gear back himself for any reason. In the same year, after making final commitment to the buyer, the cost of raw materials increased, which lowered the profit margin and ultimately caused loss. 4. Meanwhile the other cost affecting factors such as salary, labour, printing, bank interest etc. also jumped an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e wrongly. What investigation was made by the Assessing Officer is not borne out from the record. Results of any investigation have also not been brought on record nor the appellant was confronted with the same. It was also therefore wrong on the part of the Assessing Officer in saying in the penalty order that the assessee surrendered the loss only when deep investigation was started and he had no explanation to offer for the loss. The Assessing Officer has also erred in stating that there was no loss in the business and the assessee had fraudulently claimed it. There is no material before the Assessing Officer for giving such a finding. Allegation of fraud is without any basis or material on record. Even after making the assessment at nil income, loss from business stands accepted at Rs. 69,138. This has gone to equalise the income of Rs. 69,138 from other sources and brought the assessment to no income. The assessee is no where found to have accepted or admitted that he is not in a position to substantiate the claim for any of the expenses. He even did not express his inability to give such an explanation. The accounts have also not been rejected. The Assessing Officer didn't sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any such material which was in the possession of the Assessing Officer for entertaining any such opinion or for coming to such a conclusion. In fact there was no material or basis for holding that the assessee has furnished inaccurate particulars of income and concealed his income to the extent of Rs. 36,80,600 as surrendered. In fact she appears to have come to a conclusion that inaccurate particulars were filed merely because there was a surrender of loss and not otherwise. The offer to surrender was for loss to the extent to assess it at nil income. It didn't say that the income was concealed or that the particulars of income so furnished are not accurate. The assessee did not express his inability to substantiate the loss which in fact was supported by reasons and stood duly substantiated and supported by the genuine vouchers. The affidavit filed by the assessee before the authorities below also reveals that the assessee attended before the Assessing Officer on 14-2-2000 in the penalty proceedings in response to a telephonic call from the office of Assessing Officer and it is after discussion with the then Assessing Officer he felt persuaded to accept the assessment at nil inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the burden of proving concealment or furnishing of inaccurate particulars by the assessee but simply rested its conclusion on the surrender made by the assessee in good faith. Under such warranting circumstances and the findings as recorded hereinbefore, no penalty could have been imposed on the assessee. My view also finds support from the decision of Apex Court in the case of Suresh Chandra Mittal [2001] 251 ITR 9 (SC). In view in the fact and findings and in law there was no justification in the order of the ld. Commissioner of Income-tax (Appeals) to confirm the penalty. I, therefore, hold that the Id. Commissioner of Income-tax (Appeals) has erred in confirming the penalty of Rs. 14,45,240. The same is, therefore, directed to be deleted. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 As there is a difference of opinion between the Members, the same is required to be resolved by one or more Members of the Tribunal as nominated by the Hon'ble President, ITAT in terms of section 255(4) of the I.T. Act. Accordingly, the following question of difference is referred:-- "Whether on the facts, findings and in law there was any justification in confirming the pen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nother question has been sought to be referred at the instance of Hon'ble Judicial Member:-- "Whether, while deciding this appeal, reasons of loss as mentioned in the assessee's letter dated 20-9-1999 can be considered as good reasons which could not be substantiated by the assessee at any stage of hearing either before the AO, CIT(A) or before the Tribunal and to avoid deep scrutiny/investigation, he offered to surrender the loss in the assessment proceedings." 2. I have heard both the parties on above questions. There was no difference of opinion that question No. 1 is a comprehensive question and covers the aspect emphasized in the separate question suggested by the learned Judicial Member. In fact, the proposed question, is part of the finding of the learned Judicial Member which is supported by the Revenue. Therefore, arguments are required to be considered for disposing the matter referred to me. 3. The facts of the case are that the assessee for the assessment year 199798 submitted the return of income on 29-10-1997 declaring a loss of Rs. 36,80,600. The assessee derived income from export of garments and was entitled to deduction under section 80HHC of the Income-t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dings under section 271(1)(c) of the Income-tax Act. 4. In his written reply dated 15-3-2000 to the show-cause notice under section 271(1)(c), the assessee stated that the assessment was completed on nil income on agreed basis. It was requested that penalty proceedings may be dropped. The assessee relied upon certain case law. The Assessing Officer held that the case law relied upon by the assessee was not applicable to the facts of the case before her and, therefore, arguments of assessee were not acceptable. It is further observed in the penalty order that the assessee surrendered the loss only when deep investigation was started and he has no explanation to offer for the loss. It is stated that the assessee had fraudulently claimed the loss which he ultimately surrendered. The assessee could not even explain manufacturing defect as claimed. Accordingly, penalty of Rs. 14,45,240 which represented 100 per cent of tax sought to be evaded was imposed under section 271(1)(c) of the Income-tax Act with the approval of Dy. Commissioner of Income-tax, Circle-2, Jaipur. The penalty order bears dated 30-8-2000. 5. The assessee impugned the above levy in appeal before the Commissione....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as could not be substantiated. Explanation given in this regard was only general, stock register was not maintained and therefore, it was not possible to verify the claimed damage to stock. The appellant also could not provide any evidence at any stage in support of the claim that either stock was damaged or orders cancelled or that such damaged stock was sold locally in the market at lower than normal rates. It is also not acceptable that Assessing Officer has merely rejected the explanation of the appellant so that imposition of penalty is not justified. The assessee has not been able to prove its claim of loss for the reasons given by him in assessment proceedings nor in the appellate proceedings. It is also not an acceptable argument that assessee agreed to surrender merely to purchase peace and therefore, imposition of penalty was not justified. In view of the decision of the Hon'ble Supreme Court in the case of Union of India v. Banwarilal Agarwal 238 ITR 461, it has been categorically held that there is no provision in the Act sanctioning compromise with the assessee by the Income-tax Department that no penal action would be undertaken. Therefore, it cannot be held that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wal Bros. Case Prabhat Oil Traders case Balaramakrishna Engg. Contractors Corpn.'s case Sri Ganesh Sizing Factory's case Madan Mohan Service Stations's case Rani Sati Coal Supplier's case Aggarwal Pipe Co.'s case Mecon Builders & Engineer's case C.J. Rathnaswamy's case S. Sankaran's case Prithipal Singh & Co.'s case [1990] 183 ITR 69 (Punj.) Smt. Geet Devi's case Gurcharan Singh & Co.'s case Aditya Chemicals Ltd.'s case Saran Khandsari Sugar Work's case Southern Gas Fittings (P.) Ltd.'s case 9. All the above cases were distinguished on the ground that in the present case, the assessee did not substantiate the loss claimed by producing supporting material. The matter was taken as covered against the assessee as per explanation to section 271(1)(c) of the Income-tax Act. The onus on the assessee was not discharged. 10. The learned Judicial Member concluded as under:-- "With this, we find that there is no dispute that during the course of assessment proceedings, the assessee has offered to surrender the loss claimed at Rs. 36,80,600 and agreed to be assessed at nil income and the Assessing Officer according to the offer made by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alty of Rs. 14,45,240 was imposed. He has referred to the observations of the Assessing Officer in the penalty order that during the course of assessment proceedings, the assessee was asked to explain the reason for loss but he could not substantiate the loss claimed. According to the learned Accountant Member no such finding was recorded at the time of completion of the assessment by the Assessing Officer. In fact, in the assessment order, it was noted that the required details were filed. The learned Accountant Member further noted that in his letter dated 20-9-1999, the assessee gave reasons for having suffered losses. Those are reproduced by the learned Accountant Member as under:-- 1. "It is one of the crucial facts that the garment industry began to face hard time due to global slump. Due to the slump in the overseas markets, exporters' profit margin rapidly declined. There was 6 per cent fall in export of garments in the first 8 months of the same year. 2. In the same year, the national governments of some countries banned on using azo-dyes which were used earlier in processing of fabrics. We had good business in Germany and was expecting better export value in 1996-97....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of loss. Saying so in the penalty order did not advance the case of the Revenue. It is further observed that none of the reasons given by the assessee was found to be false. No inaccurate particulars were found, nor any error was detected in the books of account maintained by the assessee. What investigation was made by the Assessing Officer, is not borne out from the record. Result of any investigation is neither available on record, nor shown to be confronted to the assessee. The learned Accountant Member, accordingly, observed that it was wrong on the part of the Assessing Officer to say in the penalty order that the assessee surrendered the loss only when deep investigations were started and he had no explanation to offer for the loss. There was no material before the Assessing Officer to record the finding in the penalty order that the loss in business was fraudulently claimed. The learned Accountant Member further held that the loss to the extent of Rs. 69,138 has been allowed when the income was taken at nil. It is further observed that the assessee nowhere admitted or expressed his inability to explain the loss. The books of account have not been rejected. No finding that b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not arise from any fraud or neglect on his part. The surrender of loss appears to be under a good faith and the same cannot, therefore, be equated with the concealment of income nor can it be regarded as furnishing of inaccurate particulars by the assessee. The department has not discharged the burden of proving concealment or furnishing of inaccurate particulars by the assessee but simply rested its conclusion on the surrender made by the assessee in good faith. Under such warranting circumstances and the findings as recorded herein before, no penalty could have imposed on the assessee. My view also finds support from the decision of Apex Court in the case of CIT v. Suresh Chandra Mittal 251 ITR 9 (SC). In view of the fact and findings and in law there was no justification in the order of the learned Commissioner of Income-tax (Appeals) to confirm the penalty. I, therefore, hold that the learned Commissioner of Income-tax (Appeals) has erred in con firming the penalty of Rs. 14,45,240. The same is, therefore, directed to be deleted." 13. In the above background, the Hon'ble Members disagreed and accordingly the matter has been referred to me. 14. I have heard both the parti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roducts Ltd. [1973] 88 ITR 192. The learned counsel also tried to distinguish the decision of Karnataka High Court in the case of P.R. Basavappa & Sons by pointing out that the starting words in section 271(1)(iii) i.e. "in addition to any tax payable" were there all along both in assessment year 1970-71 as also in assessment year 1991-92. The tax evasion was held sine qua non for imposition of penalty and this position held good even in assessment year 1997-98. It is further pointed out that the Hon'ble Punjab & Haryana High Court though concerned with assessment year 1970-71 when Explanations 3 & 4 to section 271(1)(c) were not there, yet implication of above explanations was duly considered by the Court and this decision was approved by the Hon'ble Supreme Court. Therefore, the Revenue could not get any assistance from the decision of Hon'ble Karnataka High Court. The assessee further placed strong reliance on the affidavit of the assessee filed before the Commissioner of Income-tax (Appeals) explaining the circumstances under which the assessee agreed to get assessed at nil income. 17. The learned counsel for the assessee tried to distinguish the decision of Hon'ble Supreme ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in details. This raises following issues to be looked into- (a) Why the assessee surrendered the loss claim of Rs. 36,80,600 when he claimed and verified in the Return of Income? (b) Why did he not rely on his audited books of account for the assessee auditors' report etc.? (iv) Therefore, this is not correct that the claim was on the basis of books of account for the assessee, he maintained, the verification he did in the return of income. (v) The Hon'ble Member (A.M.) has also observed that the Assessing Officer has not recorded his satisfaction for furnishing the inaccurate particulars of income and concealed the income. Since the assessee himself surrendered, nothing remained for the Assessing Officer to get satisfied more than that." Sh. Chopra further contended that both the learned Members in their respective orders, relied upon the decision of Hon'ble Supreme Court in the case of Suresh Chandra Mittal [2001] 251 ITR 9. However, he submitted that the above decision was not applicable to the facts of the case. In the said case, the assessee filed revised return after search and seizure and offered higher income and returns were regularized under section 148. In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rdships of Hon'ble Supreme Court in the case of D.M. Manasvi v. CIT, [1972] 86 ITR 557, observed as under:-- "Having heard learned counsel for the parties and having given our anxious consideration to the material available on the record, in the light of the law laid down by their Lordship of the Supreme Court, we are of the opinion that no fault can be found with the judgment of the Tribunal and, therefore, the question suggested by the Revenue does not arise as a question of law from the order of the Tribunal. The law is clear and explicit. Merely because this court while hearing this application may be inclined to form an opinion that the material available on record could have enabled the initiation of penalty proceedings that cannot be a substitute for the requisite finding which should have been recorded by the assessing authority in the order of assessment but has not been so recorded. A bare reading of the provisions of section 271 and the law laid down by the Supreme Court makes it clear that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... evasion and consequently penalty do not arise. As is obvious from annexure "B', the assessee was assessed finally at a loss figure amounting to Rs. 34,164 as pointed out at page 333 of the record. Thus, there was no income and so the motive to avoid tax during the year in question is completely missing. Maybe, it may give a benefit to the assessee in the coming year as the loss could be carried forward but, by no stretch of imagination, can it be said that during the assessment year in question, the assessee had concealed its income." 24. On further appeal, their Lordship of the Supreme Court affirmed the order of the Punjab & Haryana High Court as under:-- "Order We have heard learned counsel and find that, on the facts of this case, no interference is called for. The civil appeal is dismissed. No order as to costs." It is no doubt true that the above case pertains to assessment year 1970-71 and Explanation 3 to section 271(1)(c) was added later but as is evident from extract of the judgment, the decision of their Lordships of the Punjab & Haryana High Court was given after considering Explanation 3. in fact, the decision was based on consideration of language u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fore, question of levy of penalty would not arise. The above position was also recognized by the Legislature and clause (iii) to section 271(1)(c) was amended by Finance Act, 2002 w.e.f. 1-4-2003. The corresponding provision of the Finance Bill i.e. section 101 provided as under:-- "in clause (c)(iii), for the words "in addition to any tax payable", the words "in addition to tax, if any, payable" shall be substituted w.e.f. the first day of April, 2003." The notes accompanying the Finance Act, 2002 provided as under in respect of above referred to amendment:-- "The existing provisions contained in clause (iii) of the aforesaid sub-section (1) provides for a penalty, in addition to any tax payable, of a sum which shall not be less than, but which shall not exceed three times the amount of tax sought to be evaded, for concealing particulars of income, or furnishing inaccurate particulars in respect thereof, Sub-section (c) of this clause proposes to amend the said clause (iii) so as to clarify that the penalty referred to therein can be levied even if no tax is payable on the total income assessed." 26. It is evident from above that the statutory provision has been ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s filed by the assessee. The other decision of the Supreme Court was applicable. The learned Departmental Representative also placed copy of verification of return by the assessee and copy of order-sheet entries made during the course of assessment proceedings. 29. On examination of facts and circumstances of the case, I find that the Assessing Officer has justified the levy of penalty by observing that loss was surrendered only when deep investigation was started and the assessee had no explanation to offer for the loss. It is observed that the assessee had fraudulently claimed the loss which he ultimately surrendered. The assessee could not even explain the manufacturing defect as claimed. It is further observed in the order that the assessee had not filed the true particulars of his income. The Assessing Officer accordingly, held that "the assessee furnished particulars of income and concealed his income to the extent of Rs. 36,80,600 as surrendered". In earlier portion of the order, the Assessing Officer has observed "since the assessee had furnished inaccurate particular of his income, penalty proceedings under section 271(1)(c) were initiated. 30. With reference to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e to verify the claim of damaged stock and also no material was produced to disprove the finding of learned Commissioner of Income-tax (Appeals). The learned Judicial Member further observed that the assessee failed to prove that the loss suffered by him is true, fair and genuine. The learned Judicial Member further held that it is a case that comes under Explanation 1 to section 271(1)(c) which provides that in a case where the explanation is offered which is found by the Assessing Officer to be false or no explanation is offered or an explanation is offered which is not substantiated, the amount added in computing the total income of such person shall be deemed to represent the income in respect of which particulars have been concealed. The assessee also did not file any revised return and accordingly, levy of penalty in terms of decision of Apex Court K.P. Madhusudhanan's case [2001] 251 ITR 99 was justified. 33. The learned Accountant Member took a contrary view. In order to appreciate whether Explanation 1 referred to above is applicable or not, it is pertinent to see what happened before the Assessing Officer as reflected in the order-sheet entries, photocopies of which ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re produced by the assessee. The Assessing Officer asked the assessee to furnish the further following details/explanation:-- "21-12-1999 (1) Stock Tally. (2) To substantiate as to which stock got damaged and proof of the same. (3) As to what was ultimately done with the rejected stock. (4) In printed cloth purchase account it is noted that there are many cash purchases. What is the reason and where are those bills. July, 31 52676 Nov., 16 26065 March, 12 57600 (5) Details proceedings regarding claims to be made from the shipping Co. (6) Reasons for increase in salary from 2 lakhs to 5.12 lakhs while the sales and production over last year are not in similar proportion. (7) Details of increase in freight expenditure. (8) Points 6 & 7 of your reasons for losses of letter dated 20-9-1999, it is not clear as to what was the reason for loss and what was done of the rejected printed cloth. To bring books of account. To bring Shri Subhash Gupta, proprietor on next hearing/The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....presence/attendance of the assessee and Sh. V.K. Gupta is noted but what happened on that date is not mentioned except that the case is adjourned to 31-1-2000. (xix) The next entry in the order-sheet is of dated 31-1-2000 where it is recorded "none attended". (xx) The next entry is dated 14-2-2000 recording that Sh. Subhash Gupta, proprietor attended and offered to surrender the loss claimed. Hence, the assessment is being completed on nil income to which the assessee had agreed. (xxi) The next entry is of dated 15-2-2000 recording case discussed and order passed under section 143(3). 34. It is obvious from the above that the last entry recorded "case discussed" is erroneous and not based on facts. It is contradictory to the entry dated 14-2-2000 where it is specifically recorded that the assessee surrendered the loss claimed and hence, assessment is being completed on nil income. In the light of entries dated 14-2-2000, assessment being completed on nil income, there was nothing to be discussed on 15-2-2000. The assessee or his representative was not present for discussion and there was no question of case discussed. I have referred to several other omissions in the or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....endered the loss? If he had failed to attend on 31-1-2000, the Assessing Officer was required to pass ex parte order on the basis of material on record. Why this was not done? What difficulty the Assessing Officer had faced? The above background and the affidavit of the assessee is to be taken into account for determining whether Explanation 1 to section 271 (1)(c) is applicable or not. 36. Before coming to the conclusion whether Explanation 1 to section 271(1)(c) is applicable, the following further circumstances are to be borne in mind:-- (i) That the assessee is an exporter and his income from export in the relevant period was totally exempt under section 80HHC of the Income-tax Act. The loss claimed in the return even if allowed to be brought forward, could not be of much help to the assessee in the year under consideration. The brought forward loss could be adjusted in subsequent assessment years against taxable income if any. There was no immediate gain in loss assessed. This claim of the assessee has not been refuted either through material or any argument of Revenue authorities or in the proposed order of the learned Judicial Member. (ii) That return of the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t cheaper rates and, therefore, loss was suffered. Is there any material on record that this claim was false and fictitious? On the other hand, entries in the order-sheet do suggest that the assessee did whatever was possible by producing details from the entries in the books of account and other material as required by the Assessing Officer. It is evident that fresh and new query was raised by the Assessing Officer every time when the case was taken up for hearing. Even the proprietor of the assessee was summoned to be present in proceeding. Why he was asked to be personally present on several hearings when his CA and his Accountant were giving all details and producing books of account is not made clear on record. If the assessee entertained the belief that the Assessing Officer under no circumstances is going to accept the loss claimed and that he would have to attend and be present in Income-tax department from day-to-day and, therefore, thought it better to put end to the litigation, buy peace by surrendering the loss, such belief is possible. Here, it may be noted that in the month of January, 2000, after 21 12-1999, the assessee attended/was required to attend the proceeding....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) of this sub-section be deemed to represent the income in respect of which particulars have been concealed." On analysis of above provisions particularly Explanation 1, it is clear that the explanation would be applicable and the Assessing Officer have to examine the following circumstances: (a) Whether the assessee has offered no explanation on facts material to his computation of income? (b) Whether the explanation offered as above is found to be false? (c) Whether the explanation offered by the assessee is not substantiated by him? (d) Whether there is failure to prove that such explanation was bona fide and that all facts relating to the same and material to the computation of his total income were disclosed by the assessee. Only on satisfaction of above conditions or some of them attracted to the facts of the case, the addition or disallowance can be treated as deemed concealment for purpose of clause (c) above. In the case of K.P. Madhusudanan [2000] 246 ITR 218, the decision relied upon by the Revenue and affirmed by the Supreme Court, their Lordships of Kerala High Court observed about this explanation as under:-- "Explanation 1, which primarily con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....carried by the assessee to the Tribunal. It has been held that the assessee could not substantiate the claim of loss and, therefore, is liable to be penalized in terms of Explanation 1 to section 271(1)(c). The learned Commissioner of Income-tax (Appeals) has tried to elaborate how explanation was not substantiated. The finding which was required to be recorded in the assessment order relating to satisfaction of the Assessing Officer are attempted to be recorded by the learned Commissioner of Income-tax (Appeals) in the impugned penalty order. This is not permissible and reference can be made to the decision of the Hon'ble Delhi High Court referred to earlier. The satisfaction and finding required to be recorded in assessment proceedings cannot be recorded for the first time by appellate authority in the penalty order. 39. Further it is not possible to agree with the Assessing Officer or Commissioner of income-tax (Appeals) that the assessee was not able to substantiate his explanation. The assessee had claimed loss and complete details of sales, purchases and expenditure were available in the audited books of account maintained by the assessee in the regular course of business.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee to get assessed at nil income with a view to put an end to litigation and to buy piece of mind. The finding as required by clause (B) of above referred to Explanation 1, could not be recorded in the present case. The facts here are quite akin to the facts in the case of Suresh Chandra Mittal [2000] 241 ITR 124 which has been affirmed by the Hon'ble Supreme Court in the case of Suresh Chandra Mittal [2001] 251 ITR 9. It is a case where the assessee acted bona fidely and in good faith and furnished all the information material for the assessment of the assessee. Nothing has been established to be concealed. No claim has been found to be wrong or false and, therefore, question of furnishing inaccurate particulars of income did not arise. The ratio of the other case i.e. of K.P. Madhusudanan [2001] 251 ITR 99 is not applicable to the facts of the case as in the said case the assessee was found to have invested Rs. 93,000 from undisclosed sources. The assessee did not disclosed the sources of above investment in the course of assessment proceedings or during the course of penalty proceedings. The matter was taken as fully covered against the assessee under Explanation 1....