Penalty under section 271(1)(c) is not imposable in each and every case wherever income is added

If the income is surrendered with the condition that no penalty be imposed on the assessee then the Assessing Officer would not be justified in imposing the penalty.

ITAT, DELHI BENCH 'A', NEW DELHI

Raj Rani Mittal

v.

ITO

ITA NO. 2275/DEL/2009

OCTOBER 23, 2009

RELEVANT EXRACTS :

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As per the provisions of section 271(1)(c) the penalty under this section is leviable if the Assessing Officer is satisfied in the course of any proceeding under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income.  The penalty proceedings and the assessment proceedings both are different.  Explanation 1 to section 271(1)(c) in respect of any fact relating to the computation of total income states that the amount added or disallowed in computing the total income of an assessee shall be deemed to be the income in respect of which particulars have been concealed.  This deeming provision for concealment is not absolute one.

9. In this case, we noted that the Assessing Officer has not brought out any specific charge for which the penalty has been imposed on the assessee under section 271(1)(c) of the Income Tax Act. He has not brought out whether the assessee has concealed the income or whether the assessee has furnished the inaccurate particulars of income.  This is apparently clear from the finding of the Assessing Officer in the penalty order which are reproduced as under: -

"In view of above discussion, the assessee is held liable for concealment of income and furnishing of inaccurate particular of income, hence, liable for penalty under section 271(1)(c) of the IX Act, 1961.

Income in respect of which inaccurate particular were furnished or concealment is Rs. 10 lakh (Assessed income Rs. 11,23,463.00 minus returned income Rs. 1,23,463.00).

The minimum and maximum penalty imposable is Rs. 3,28,450.00 and Rs. 9,85,350.00 respectively.

However, the minimum penalty of Rs. 3,28,450.00 under section 271(1)(c) of the I. T. Act, 1961 is being imposed, which the assessee is directed to pay."

11. Since both the parties has argued the case exstensively, we, therefore, deal with the other submission made by them. We have noted from the facts of the case that the assessee has surrendered the sum of Rs. 10 lakh in respect of unsecured loan received by him through his letter by making the following submissions: -

"This is in reference to my earlier replies on the above subject. Further, as discussed with your kind self, I do not find myself in a position to go into litigation and in order to purchase peace, avoid litigation and to save the valuable time, request you to kindly add the amount of Unsecured Loans of Rs. 10 lakh to my income. My this consent/agreement is being conveyed only due to avoid litigation, purchase peace and save valuable time and with a condition that no penalty for this consent/agreement is imposed on me, since I have submitted all the documentary evidences in connection with the receipt of these Unsecured Loans."

12. From this letter it is apparently clear that the assessee requested the assessee to add the sum of Rs. 10 lakh to his income with the condition that no penalty be imposed on her. The offer from the assessee was conditional one. The AO although added the sum of Rs. 10 lakh in the income of the assessee but issue notice to the assessee for the penalty leviable u/s 271(1)(c). The penalty has been imposed by the AO on the basis of the additions made in the income of the assessee on agreed basis. This fact is explicit from the assessment order. No doubt primary onus is on the assessee u/s 68 of the Income Tax Act to prove the identity, creditworthiness of the creditor and also the genuineness of the transaction.  The assessee cannot be accepted to prove the source of the sources. The assessee in this case agreed for the additions to be made u/s 68 to her income. 

13. In view of the Explanation 1 to section 271(1)(c) it will be deemed that this income represent the income in respect of which particulars have been concealed. But the addition in this case has been made on the basis of the conditional offer made by the assessee. The Explanation 1 is not absolute one and penalty is not imposable in our opinion in each and every case wherever the income is added. The assessee in this case has duly submitted the explanation that he has made conditional offer. In the case of National Textiles Vs. CIT 249 ITR 125 (Guj.) the question before the Hon'ble Gujarat High Court was about the levy of penalty u/s 271(1){c) in respect of the addition made u/s 68 by recourse to Explanation 1 below sec.271(1)(c). In this case the Hon'ble Gujarat High Court while holding the imposition of penalty was not justified and observed: -

"In order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income, ft is not enough for the purpose of penalty that the amount has been assessed as income, and (ii) the circumstances must show that there was animus, i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. Explanation 1 to sec. 271(1)(c) has no bearing on factor No. 1 but has a bearing only on factor no. 2. The explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee.  No penaity can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income with the hypothesis that it does. If the assessee gives an explanation which is unproved but not disproved, i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false, the Explanation cannot help the department because there will be no material to show that the amount in question was the income of the assessee. Alternatively, treating the Explanation as dealing with both the ingredients (i) and 00 above, where the circumstances do not lead to the reasonable and positive inference that the assessee's explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. Even in this view of the matter the Explanation alone cannot justify levy of penalty. Absence of proof acceptable to the department cannot be equated with fraud or willful default."

From the said judgment it can be said that there must be material or evidence leading to the reasonable conclusion that the cash credit represent the assessee's income. The circumstances must show that there is a conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee.

16. In our opinion the case of the assessee is duly covered by the aforesaid decision.  The assessee has surrendered the unsecured loan with the condition that no penalty should be levied on the assessee.  The assessee surrendered the income as the assessee could not produced the parties living at Delhi at far away place from Rdurapur.  The AO just made the addition on the basis of the surrender made by the assessee but did not bother to issue summons to the parties so that they could be brought on record as the witness of the revenue to prove that the assessee has concealed the income.  We have also gone through the decision of the Allahabad High Court in the case of CIT Vs. Manga Ram & Sons 107 ITR 307 (All.) and that of CIT Vs. Sarankhan Siri Sugar Works 246 ITR 216 (All.). In these cases also the proposition of the law laid down by the Hon'ble High Court are that if the income is surrendered with the condition that no penalty be imposed on the assessee.  The Assessing Officer is not justified in imposing the penalty.  The case of the assessee is also duly covered by these decisions. No contrary decision was brought to our knowledge.

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