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TMI Blog2011 (12) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... x (Appeals)-X & the learned Income Tax Officer have erred in levying a penalty of Rs. 4,03,000/- u/s 271(1)(c) of the Income-tax Act,1961. 2. The Assessee-Company may kindly be given the right to make further additions to the above grounds at the time of hearing of the Appeal." 2. These appeals-quantum and penalty, initially disposed of vide orders dated 10.12.2008 & 11.11.2008, were subsequently recalled vide order dated 19.2.2010 & 17.7.2009 in MA nos.3/Del./2010 & 169/Del./2009 respectively. 3. Adverting first to quantum appeal, facts, in brief, as per the orders that return declaring loss of Rs. 2,15,350/- filed on 31st October, 2001 by the assessee, an 100% EOU, after being processed on 12th July, 2002 in section 143(1) of the Income Tax Act 1961 (hereinafter referred to as the Act) was selected for scrutiny with the service of a notice u/s 143(2) of the Act issued on 24th October, 2002. Subsequently assessment was completed u/s 143(3) of the Act on 16th October, 2003, accepting the returned income. Thereafter, in consequence of survey, information was received from the Investigation wing of the Department vide letter dated 17th October, 2003 about some bogus transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no. 411681 dated 26.04.2001. However the assessee did not furnish the confirmed copy of account from the books of M/s. Frenzy Products (P) Ltd. In another letter dated 18th March, 2005, the assessee contended that Shri Sanjay Rastogi did not name the assessee company as recipient of any accommodation amount and that amount outstanding was only Rs. 5,00,000/-. However, the AO did not accept the submissions of the assessee and added an amount of Rs. 10,00,000/- by way of unexplained credits besides an amount of Rs. 20,000/- by way of commission @ 2% for failure of the assessee in establishing genuineness of the transactions. 4. On appeal, the ld. CIT(A) directed the AO to summon to all the concerned parties including Managing Director of M/s. Frenzy Products (P) Ltd. from whom the alleged loan was claimed to have been received and record their statements. Inter alia, it was also directed that to give an opportunity to the assessee to rebut the statement if that was made against the assessee and submit a remand report. In terms of these directions, the AO recorded the statement of Shri Sanjay Rastogi on oath on 27.9.2005 as reproduced in the impugned order on page 3 to 7. In reply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght copy of the aforesaid statement recorded on 27.9.2005., which was supplied to the assessee. On receipt of copy of said statement, instead of rebutting any of the averments made in the statement, the assessee surrendered the aforesaid amount of Rs. 10,00,000/- taken as loan from Frenzy Products (P) Ltd. before the AO on 22.11.2005. Consequently, the assessee submitted an application before Ld. CIT(A) on 30th November, 2005 seeking withdrawal of the appeal. In the light of these facts the Ld. CIT(A) concluded as under :- On 18.10.2005 Shri S.K. Sarkar, CA Counsel of the appellant applied for a copy of the statement of Shri Sanjay Rastogi recorded on 27.9.2005 which was supplied to the appellant. On receipt of the copy of statement of Shri Sanjay Rastogi, instead of rebutting any of the averments recorded in the statement, the appellant company surrendered the loan amount of Rs. 10,00,000/- taken from Frenzy Products (P) Ltd. before the AO on 22.11.2005. The counsel of the appellant appeared before me on 30.11.2005 submitting an application for withdrawal of its appeal in view of its surrender before the AO. From the statement of Shri Sanjay Rasotgi, it is established beyond doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 17th July, 2009. This is how appeal is now fixed before us. At the outset, the ld.. AR on behalf of the assessee submitted that the assessee is not inclined to press grounds raised in the appeal. The ld. DR did not oppose these submissions of the ld. AR. 7. We have heard both the parties and gone through the facts of the case. In view of categorical statement made before us by the ld. AR that the assessee does not want to press the grounds raised in this appeal, accordingly ground nos. 1 to 3 in the quantum appeal are dismissed. ITA No. 4083/Del/2007 8. Adverting now to the appeal relating to levy of penalty of Rs. 4,03,410/- u/s 271(1)(c) of the Act, after the dismissal of appeal by the ld. CIT(A), in response to a show cause notice dated 9.1.2007 before levy of penalty, the assessee did not submit any reply or explanation before the AO. Accordingly, the AO levied a penalty of Rs. 4,03,410/- @ 100% of the tax are to be evaded on the aforesaid amount of Rs. 10,00,000/- & Rs. 20,000/- on account of commission in relation to the entry on the ground that the assessee concealed the particulars of its income. 9. On appeal, the ld. CIT(A) upheld the levy of penalty as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any after obtaining an equivalent amount of cash and the appellant company had nothing to rebut the averments of Shri Rastogi. It may be noted that the ratio in the case of CIT v. Freemental India Televiso [2007] 159 Taxman 31 (Del) relied upon by the A.R. is not applicable to the facts of the appellant's case as the facts of that case were different and distinct from the appellant's case. In that case the appellant had claimed a deduction of Rs. 10,66,029/- as format fee. The AO had not allowed this deduction and the amount was added to the total income. But before the assessment was completed, the appellant had withdrawn the claim for deduction and had offered the amount for tax. On these facts, the penalty was deleted by the Hon'ble High Court observing that the appellant had offered the amount for tax in November, 1997 well in advance of assessment order being passed in March, 2000. Whereas, in the instant case of the appellant, it is pertinent to note that there was no such withdrawal or surrender by the appellant during the course of assessment proceedings. Rather the appellant hade filed an appeal against the assessment order before the CIT(A) and contested the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld. In his rejoinder, the ld. AR submitted that in the decisions relied upon by Ld. DR the respective assessees categorically admitted concealment whereas in the instant case nowhere the assessee admitted concealment of income. He added that statement recorded at the back of the assessee could not be relied upon. 11. We have heard both the parties and gone through the facts of the case as also decision referred to by both the sides. As is apparent from the aforesaid facts, in this case during the course of survey, Shri Sanjay Rastogi, CA explained his modus operandi in giving accommodation entries to various persons through concerns controlled and managed by him. He admitted having received cash and issued cheque of an equivalent amount to various persons, including the assessee. On the basis of information revealed during the survey, the assessment in this case was reopened u/s 147 of the Act. During the course of reassessment proceedings, Shri Sunil Aggarwal, Director of the company appeared and he was informed by the AO that Shri Sanjay Rastogi admitted during the survey that he along with his father Shri M.S. Rastogi and Associates Shri Ashwani Uppal & his employees, was runn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO. In the absence of any explanation during the penalty proceedings, apparently, clause (A) of Explanation 1 to sec. 271(1)(c) of the Act is attracted. Before proceeding further, we may have a look at the relevant provisions of section 271(1)(c) of the Act, which read as under: "271.Failure to furnish returns, comply with notices, concealment of income, etc. (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person ** ** ** (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,- (iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies." In Webster's Dictionary, "inaccurate" has been defined as : "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript." 11.2 If the disclosure of facts is incorrect or false to the knowledge of the assessee and it is established, then such disclosure cannot take it out from the purview of the act of concealment of particulars or furnishing inaccurate particulars thereof for the purpose of levy of penalty. The penalty u/s 271(1)(c) of the Act is leviable if the AO is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In this context, Hon'ble Gujrat High Court in the case of A.M. Shah & Co. v. CIT [1999] 238 ITR 415/[2000] 108 Taxman 137 (Guj) observed that "there cannot be a straight jacket formula for detection of these defaults of concealment or of furnishing inaccurate particulars of income and indeed concealment of particulars of income and inaccurate particulars of income may at times overlap, as for example when half of the income under a particular head is not at all disclosed, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C), CIT v. B.A. Balasubramaniam & Bros. Co. [1985] 152 ITR 529/20 Taxman 215 (Mad.), CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14/30 Taxman 546H; CIT v. K.R. Sadayappan [1990] 185 ITR 49/51 Taxman 304, Addl. CIT v. Jeevan Lal Sah [1994] 205 ITR 244/73 Taxman 182 (SC) and K.P. Madhusudanan v. CIT [2001] 251 ITR 99/118 Taxman 324 (SC), it is well established that whenever there is difference between the returned and assessed income, there is inference of concealment. The Explanation 1 to sec. 271(1)(c) of the Act raises a presumption that can be rebutted by the assessee with reference to facts of the case. Thus, the onus is on the assessee to rebut the inference of concealment. The absence of explanation itself would attract penalty. The onus laid down upon the assessee to rebut the presumption raised under Explanation 1 would not be discharged by any fantastic or fanciful explanation. It is not the law that any and every explanation has to be accepted. In our considered view, the provisions of clause (A) of Explanation 1 to section 271(1)(c), when the assessee did not submit any explanation during penalty proceedings, is clearly attracted and the assessee has miserably failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok at the meaning of word ' Voluntary.' The meaning of word "Voluntarily" has been deliberated upon by the Hon'ble Allahabad High Court in the case of CIT v. Rakesh Suri [2011] 331 ITR 458/9 taxmann.com 5 as under:- "41. A Full Bench of the Allahabad High Court in the case reported in (1998) 230 ITR 855:Bhairav Lal Verma Versus Union of India, while interpreting the word 'voluntarily' given in Section 273(A) of the Act held that voluntarily means out of free will without any compulsion. When the assessee concealed the incriminating material with regard to income so disclosed cannot be held to be voluntarily. It shall be appropriate to reproduce the relevant portion from the judgment of Bhairav Lal Verma (supra) as under: 'The position thus settled is that the word "voluntarily" in section 273A of the Act means out of free will without any compulsion. Disclosure of concealed income after the Department has seized the incriminating material with regard to the income so disclosed, cannot be voluntary disclosure, because it was made under the constraint of exposure to adverse action by the Department. But it cannot be held as a principle of law that the disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f collective naturalization which some states have adopted at different times. T.E. Mohomed Usman v. State of Madras, AIR 1961 Mad 129, 138. [Citizenship Act, 1955, S. 9(1)] "Means doing of something as the result of the free exercise of the will but not something done under a legal duty." "Where a person obtained a passport acted on his own volition and knew the nature of his act and did not act in performance of a legal duty, nor due to coercion or fraud or misrepresentation or mistake he has acted voluntarily." Abdul Salam v. Union of India, AIR 1969 All. 223 at 228. [Citizenship Rules (1956) R. 30]" 11.4.1 From the said decision it is, thus, clear that voluntarily means out of free will without any compulsion. It is also observed therein that when the assessee concealed incriminating material with regard to the income disclosed by the assessee, surrender cannot held to be voluntarily. Surrender of income after the department has collected incriminating material with regard to the income so disclosed, cannot be voluntary surrender, because it was made under the constraint of exposure to adverse action by the Department. In the present case, the Department has collected suffici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elsewhere in the Act. However, notwithstanding differences in the two circumstances, they lead to the same effect, viz., keeping off a certain portion of income. The former is direct while the latter may be indirect in its execution. A conspectus of the Explanation added by the Finance Act, 1964, and the subsequent substituted Explanations makes it clear that the statute visualized the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. In essence, the Explanation (both after 1964 and 1976) is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. Explanation 1 automatically comes into operation when, in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the Assessing Officer or the first appellate authority, or an explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The High Court at Bombay was, therefore, in error in the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A (SC), Girdharilal Soni v. CIT [1989] 179 ITR 111/46 Taxman 180 (Cal), upheld the findings of the ITAT. However, facts in the instant case are altogether different. In this case, incriminating material was gathered during the course of survey and the result of enquiries was confronted to the assessee. When Sh Sanjay Rastogi reiterated in the remand proceedings, the facts narrated by him during the course of survey, the assessee surrendered the amount of Rs. 10 lacs in the proceedings before the AO, remanded to him by the ld. CIT(A). Even otherwise decision in Sir Shadilal Sugar & General Mills Ltd. is no longer good law after the insertion of explanation as held by the Hon'ble Supreme Court in the case of K.P. Madhusudhanan (supra). In the case of CIT v. C. Ananthan Chettiar [2005] 273 ITR 401/142 Taxman 556 (Mad.), the Hon'ble Madras High Court was considering a similar issue & concluded as under: "Learned counsel for the revenue submitted that the order of the Tribunal is not in accordance with law, as it has ignored the Explanation to section 271(1)(c) of the Act. Learned counsel also placed reliance on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udhanan has laid down that no separate enquiry is necessary for imposing the penalty. However, from plain reading of Explanation, it is evident that some sort of enquiry is necessary, therefore, the proceedings initiated by the Revenue for imposing the penalty under s. 271(1)(c) of the Act shall be treated as proceedings and the assessee is at liberty to show his bona fides in that proceeding. If the assessee fails to show his bona fides, in that case penalty can be imposed by the Revenue. 13. This Court is of the view that the learned Tribunal was not justified in holding that the onus is on the Revenue to prove mala fide, even when the primary onus was on the assessee to prove that there was no concealment in view of Expln. 1 to s. 271(1)(c) of the Act. In view of the answer to first question it appears that no separate enquiry is necessary before imposing the penalty. In the penalty proceedings itself, initiated by the Revenue, the assessee can explain his bona fides and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. Thus, the answer to question No. 2 is no separate enquiry is necessary." 12.3 In the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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