TMI Blog2002 (11) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... , on the facts and in the circumstances of the case and also in the light of the Explanation 1 to section 271(1)(c), the Tribunal is right in law and fact in cancelling the penalty levied on the assessee?" The respondent-assessee is a partnership firm carrying on abkari business. For the assessment year 1985-86, the assessee filed a return disclosing a total income of Rs. 11,91,800. In the course of the assessment proceedings, the Assessing Officer verified the cash credit accounts appearing in the assessee's books of account. The assessing authority called for an explanation from the assessee regarding the said cash credits. Pursuant to the said notice, the assessee furnished the details of the persons in whose names the credits are appearing in the books. The assessing authority thereupon issued summons to some such creditors which were returned. Some of the creditors who appeared before the assessing authority had denied such credits and some of them admitted the credits against certain cases only. At that stage, the assessee filed a letter agreeing to make an addition of a sum of Rs. 5,87,438 representing the peak credit in the said accounts on March 30, 1984. The assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee before him in the penalty proceedings. Counsel further submitted that both the appellate authorities have considered the explanation offered by the assessee and had come to the conclusion that the assessing authority was not justified in imposing penalty under section 271(1)(c) of the Act. Section 271(1)(c) of the Act provides that if the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) during the course of the proceedings under this Act is satisfied that the person has concealed the particulars of his income or furnished inaccurate particulars of income, he may direct that such person shall pay by way of penalty in the cases referred to in clause (c) in addition to the tax payable by him, which shall not exceed three times the amount of the tax sought to be evaded by reason of the concealment of his income. Explanation 1 to the said sub-section provides that: "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 offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) to be false, or (B) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the appellant to file confirmation letters from the creditors on or before January 11, 1988. The appellant filed about 12 confirmation letters of creditors resident in Kerala, covering about Rs. 2,50,000. Two of the major creditors were resident outside Kerala and as such the appellant was unable to contact them immediately. The learned officer issued summons to the abovesaid two persons and also to the other 12 creditors asking them to appear before him on March 23, 1988, at Trivandrum and on March 24, 1988, at Kottayam. Some of the creditors did not appear and sought adjournment for one reason or another. Shri G. Sivaramakrishnan, Madras, one of the creditors did not appear on March 16, 1988, when he was to have been examined. His examination was postponed to March 23, 1988. The assessment was completed on March 28, 1988, by adding Rs. 5,87,000 being the peak credit which was offered by the appellant. It is stated that the abovesaid offer was made in good faith and no penal action should have been initiated. The appellant further points out that they were not aware of the denial of credits by Shri A. Krishnadas and G. Sivaramakrishnan since the statements taken from them have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed afresh by the authorities, before imposing the penalty. Referring to the Allahabad High Court's decision in CIT v. Hari Ram Sri Ram [1987] 167 ITR 578, the appellant's representative has contended that even after the addition of Explanation to section 271(1)(c) of the Income-tax Act, conscious concealment is necessary. The amendment of Explanation 1 by the Taxation Laws (Amendment) Act that there should be a finding by the Income-tax Officer that the explanation given by the appellant was false or that the explanation given is not substantiated. The appellant's representative further reported that he had filed confirmation letters from almost all the creditors except Shri A. Krishnadas of Bangalore. Shri Sivaramakrishnan has partly confirmed having given loan of Rs. 45,000. The examination of both Shri A. Krishnadas and Shri G. Sivaramakrishnan was conducted behind the back of the appellant and no opportunity was given to the appellant to rebut the assertions made therein. While concluding the argument it is stated that the explanation given by the appellant was not wrong and that the Department had not discharged the onus. There was no mens rea involved in this case. There wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsider the explanation offered by the assessee in respect of an amount which was offered as tax. It is not automatic that whenever an amount was offered by the assessee, penalty is not to be levied. Therefore, in the penal proceedings which conceptually differ from assessment proceedings, the assessee can file an explanation justifying its action in not including a particular item of income in its return, though it may have offered the amount to be taxed subsequently. It was further observed that if such an explanation is offered, the Department has to examine its acceptability and record a finding as to whether the explanation is acceptable or not. Only, if the explanation is not found acceptable, the question of penalty will arise. In other words, the explanation of the assessee has to be considered on the merits. In the instant case, as already noted, the Assessing Officer has not considered the explanation of the assessee which we have extracted earlier, while passing the penalty order. When the first appellate authority and the Tribunal have found that the said explanation was not considered by the Assessing Officer in the penalty order, the appropriate course for them would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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