TMI Blog2010 (3) TMI 804X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax (Appeals) dated November 20, 2006 and emanates from the penalty order dated September 28, 2005 passed under section 271(1)(c) of the Income-tax Act, 1961 ('the Act'). 2. The relevant facts, leading to this appeal, are that the assessee was engaged in the business of manufacturing "Neutro Slim Capsules" for M/s. Franch Herbs Technologies (FHT). For this year, he has declared total income at Rs. 81,060 vide his return of income filed on November 16, 2002. The assessment was completed under section 143(3) on March 22, 2005 at a taxable income of Rs. 18,54,764. Consequently, notice under section 271 (1)(c) of the Act read with section 274 of the Act was issued to him as March 22, 2005. The books of account could not be produced due to some problems faced by his auditors, but the balance-sheet was filed. On the basis of this balance-sheet a cash flow statement was prepared for the relevant year. It was noticed from the cash flow statement that there was out flow of Rs. 8,707. Further inquiries revealed that most of the credits were in cash, and there were many other discrepancies. A sum of Rs. 15 lakhs was received otherwise than by a cheque or draft. A differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer, the assessee was not successful in rebutting the same by giving definitive answers to the queries raised but instead by taking excuses and attributing caucus cause to his auditor has simplicitor made surrender which has been accepted; and that in such a circumstance it is established that the assessee has concealed taxable income. Therefore, he has levied a minimum penalty at 100 per cent. on alleged total concealed income of Rs. 17,73,704 at Rs. 5,25,164. However, the entire penalty has been cancelled by the learned Commissioner of Income-tax (Appeals) after holding that this is neither a cause of concealment of income nor a case of furnishing of inaccurate particulars of income for which only penalty under section 271(1)(c) of the Act can be imposed. Now, the Revenue is aggrieved. 3. We have considered the rival submissions and the material available on record. It was argued by the learned Departmental representative that the assessee did not voluntarily offer the additional income because the offer was made only when he was cornered to explain various discrepancies which were actually detected by the Assessing Officer and that the offer was step by step when the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." 6. So, the circumstances in which the presumption against the assessee would arise can be summarised as under : (i) When the assessee fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner of Income-tax (Appeals) or Commissioner to be false, or (ii) Such person offers an explanation but cannot substantiate the same and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him ; then in any of the above circumstances, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of section 271(1) be deemed to represent the income of which particulars have been concealed. 7. This section is ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ram Sanatorium. PAN : AEYPM 9959 C/IT/AY 2002-03. While acknowledging the receipt of the notice along with the assessment order for the assessment year 2002-03, we would like to state as follows : The above assessee filed his return of income voluntarily admitting an income of Rs. 81,060. There was change in representation before the assessment proceedings commenced as the previous auditor had many personal problems. For this very reason, the previous auditor has expressed his liability to give back the books of account that were handed over to him at the time of filing the return of income. Hence neither the assessee who is now pursuing his education in Ramachandra Medical College, nor his mother, Dr. V Jamuna, whom the assessee had left and lived separately throughout the previous year relevant to the assessment year 2002-03 were in a position to give details in support of the return of income filed. In fact the assessee met with an accident with head injury in May 2002 and was hospitalised for more than 3 months and again just before the assessment proceedings had met with an accident that has really affected his recollecting abilities. But soon on realising tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be dropped. Thanking you, Yours faithfully, For Varadarajan Co., Chartered Accountants, (Sd.) V. Sadagopan, Partner." 8. After circumspecting the above facts and the circumstances, we find that Explanation 1 to section 271(1)(c) of the Act is not applicable. The assessee has offered an explanation which has not been found false by the Assessing Officer. The explanation of the assessee that whatever was returned by him was correct but because the books could not be produced due to plausible reason mentioned in the above extracted letter which explanation has not been found to be not bona fide and the Assessing Officer has not even doubted the same, the other condition of the explanation is also not established. So, when there is no presumption, the question of rebuttal does not arise or in other words, the presumption stands rebutted. 9. Now, coming to case law, there is a decision of the hon'ble apex court in the case of CIT v. Suresh Chandra Mittal [2001] 251 ITR 9 (SC), which says if to avoid protracted litigation the assessee with a view to buy peace makes a surrender of income, penalty under section 271(1)(c) of the Act is not leviable. The other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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