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TMI Blog2013 (11) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered with reference to the facts obtaining from the record. There is no dispute with regard to the fact that the AO estimated the NP @ 8% and this estimation was reduced to 5.18% in the first appeal and the ITAT upheld the estimation of NP @ 5.18%, as made by the first appellate authority and dismissed the appeals of the appellant and the Department The impugned penalty was with reference to the estimated addition sustained in first and second appeals. In the circumstances in which the appellant was then, books of account etc. could not be produced before the AO in assessment proceedings and this led to determination of appellant's income by estimation of NP. That estimate made by the AO, being on the higher side, the same was reduced in first appeal and the ITAT upheld the order of the (CIT Appeals) on this issue. In my considered view, this was a case of non-acceptance of the circumstances explained by the appellant for not producing the books of account etc. in the proceedings before the AO. The genuineness and bona fides in the stated circumstances have to be proved as a fact like any other fact on preponderance of probabilities uninfluenced by any rule of pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 IT] 390 (Nag. ITAT) net profit was assessed on estimate basis by applying section 145 of the Act. Penalty was imposed for concealment of income. In first appeal the quantum of penalty was reduced but levy was confirmed. When the matter went before the ITAT, it was held that: Provisions of section 271(1)(c) were not attracted where the income of an assessee was assessed on estimate based is and additions were made therein. By observing as above, penalty imposed by the Assessing Officer u/s 271(1)(c) was deleted. It is undisputed that penalty proceedings are distinct from assessment proceedings and as such, before imposing penalty u/s 271(1)(c), a heavy burden was cast upon the AO to conclusively prove beyond all shadows of doubt that the addition ultimately sustained on estimations with reference to which the impugned penalty was imposed, was the income earned by the appellant during the relevant previous year from sources undisclosed to the department. In the case of the appellant, under consideration, this essential ingredient was not proved by the AO against the appellant, to justify the impugned levy. 1.5. As already stated, the impugned penalty was imposed simp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO (1995) 124 Taxman 94 (Bang. Trib.), wherein it was held that though addition made in the assessment order constituted material for the purpose of penalty proceedings, for the imposition of penalty, the A.O is required to bring cogent material on record on the basis of which it could be established that the appellant had concealed the particulars of income or had furnished inaccurate particulars thereof: No such material had been brought on record to justify the imposition of penalty u/s 271(1)(c) in the present case. Hence, the levy of penalty was held unjustified. 1.7. Mere addition to the assessee's income could not by itself prove concealment of income by the assessee and the Revenue could not impose penalty without proving the concealment of income by the assessee. CIT vs. Steel Rolling Mills of Hindustan (P) Ltd. (1983) 143 ITR 933 (Cal.); CIT vs. Murlidhar Chiranjilal, (1980) 121 ITR 528. It is the duty of the A.O. to establish by evidence that there was concealment of income and the amount deemed and added represented the assessee's undisclosed income [CIT vs. M.P. Narayanan (1998) 149 CTR (Mad.) 1]. Intention to conceal the income is necessary to be establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o separate and independent proceedings, separate and distinct provisions have been enacted in the Statute for initiation of the same. Therefore, the findings recorded by the authorities in the quantum appeal cannot be said to be decisive and conclusive factor in the penalty proceedings [CIT v. J.K. Synthetics Ltd. (1966) 219 ITR 267, 270 (Del.)]. 1.10. Even under Explanation 1, initial burden is on the Department to prima facie record concealment - As per Explanation 1, if the assessing authority or the concerned authority, on the material before it, finds that the explanation offered by the assessee is false, then penalty can be levied on the amount which is found to be concealed. Therefore, the whole idea behind the Explanation I is that the assessing authority has to first record reasons for arriving at a conclusion that there is a failure on the part of the assessee. Hence, after seeking an explanation if the authority comes to a conclusion that it is false, then the authority can proceed to levy penalty. Therefore, this Explanation 1 which has been inserted by the Amending Act of 1975 w.e.f. April 1, 1976, has cast a duty on the A.O. that he should first record r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mply because the addition was upheld in quantum appeal without proving contumacious conduct on the part of the assessee. The word "concealment" as appearing in Section 271(1)(c) inherently carries element of mens rea, as held by the All. H.C. in Bharat Rice Mill v CIT (2005) 278 ITR 599 (ALL). In the case of the assessee under consideration, the impugned penalty was imposed without establishing mens rea. Hence the same is unsustainable on facts and in law. 1.13. In CIT vs. V.S.K. Adi Chetty Suravel Chetty (2002) 254 ITR 633 (Mad.), it was held that the A,O, has discretion u/s 271(1)(c) whether or not to initiate penalty proceedings. The word used in the section is "may" and not "shall" and hence significant amount of discretion is vested in the A.O. which should be judiciously exercised. (SC decision in 237 ITR 570) in CIT v. Smt. P.K. Noorjahan. The SC in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26, had laid down that the penalty will not be imposed merely because it is lawful to do so where a discretion is given to the authority. In the case of the assessee, under consideration, such discretion does not seem to have been judiciously exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty will be exigible under this provision, where there is no explanation at all or explanation furnished is false. Even where assessee was not able to substantiate his explanation, penalty will not be exigible under the Explanation, if assessee's explanation is bonafide and assessee places all the facts and material available with him before the A.O. In the case of the assessee, under consideration, the bonafide explanation submitted with circumstantial evidence was not proved as false. Before imposition of the impugned penalty, mens rea which was a pre-requisite for assumption of jurisdiction was not established on the strength of evidence brought on record against the assessee. 1.16. The law that assessments and penalty proceedings are different and that penalty does not become exigible, merely because the addition was partly sustained or had become final is well-settled. It was in this context, the High Court in CIT v. Mata Prasad (2005) 278 ITR 354 (All.) found no merit in departmental appeal questioning the deletion of penalty on the ground, that the Tribunal itself having upheld the addition, could not have deleted the penalty. The HC found that the decision rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposition of penalty u/s 271(1)(c) in respect of such addition made, without proving falsity in the explanation submitted and without bringing any evidence against the assessee was not justified. For this purpose reliance was also placed on the verdict of jurisdictional High Court in the case of Chirag Ingots, 275 ITR 310, wherein it was held that categorical finding is required to be recorded to prove the claim of the assessee as bogus while levying the penalty u/s 271(1)(c). In the instant case, a categorically finding has also been recorded by the CIT(A) to the effect that despite extensive search operation, nothing incriminating was found/seized either in kind or in coin to substantiate that the income assessed and ultimately sustained on estimations, was, in fact, the concealed income earned by the assessee, since this was not conclusive and independently proved against the assessee on the strength of any evidence. We found that CIT(A) has dealt with various judicial pronouncements to arrive at a conclusion that it was not a fit case for levy of penalty. The detailed finding recorded by the ld.CIT(A) as reproduced above have not been controverted. Accordingly,, we do not fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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