DINABANDHU PAL v. INCOME TAX OFFICER
[Citation -2006-LL-1019-1]

Citation 2006-LL-1019-1
Appellant Name DINABANDHU PAL
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 19/10/2006
Assessment Year 2001-02
Judgment View Judgment
Keyword Tags initiation of penalty proceedings • detection of concealment • unexplained cash credit • assessment proceeding • concealment of income • estimated higher cost • imposition of penalty • cost of construction • interest expenditure • condition precedent • deeming provision • additional income • concealed income • original return • registered firm • trading account • issue of notice • closing stock • loan creditor • cash balance
Bot Summary: With regard to the merit of the levy of penalty for concealment of income he stated that the assessee has furnished the confirmation of the creditors before the AO. The AO has asked the assessee to produce the creditors. The assessee had offered an explanation in respect of the entries and it was a case of the assessee s failure to establish or explain them. 1 to s. 271(1)(c) was applicable and since the assessee s explanation was found to be bona fide and all facts relating to the same were disclosed the assessee was held to be not liable for the penalty. From the above Explanation it is evident that the Explanation is a deeming provision and if the assessee s case falls within the ambit of circumstances provided in Part A or Part B of the Explanation, it will be deemed that the amount added or disallowed in computing the total income of the assessee represents the income in respect of which particulars have been concealed. If the assessee is able to prove that the explanation is bona fide and all the facts relating to the same have been disclosed, the assessee s case would not fall within Part B of the Explanation even if he is unable to substantiate the explanation. AO has asked the assessee to produce the creditors which assessee was unable to produce and it offered the income. Merely because the assessee accepted the credit as his income because he was unable to produce the creditors, it cannot be said that the assessee has concealed the particulars of income or furnished inaccurate particulars of such income specially when the assessee has furnished the complete details with regard to cash credit along with confirmation from all the creditors.


This appeal of assessee is directed against order of CIT(A)-XXXIX, Kolkata, dt. 13th Jan., 2006, for asst. yr. 2001-02. In this appeal by assessee following grounds were raised: "1. For that learned CIT(A) erred in dismissing appeal of appellant on alleged grounds. For that learned CIT(A) ought to have properly considered submissions made and ought not to have upheld levy of penalty of Rs. 2,87,253 under s. 271(1)(c). For that further grounds of appeal may kindly be allowed to be taken at time of hearing of appeal." At time of hearing before us learned counsel for assessee argued t length. He stated that before initiating penalty proceeding under s. 271(1)(c) satisfaction of AO is necessary. In assessment order no satisfaction is recorded by AO for initiation of penalty proceedings and, therefore, initiation and consequently levy of penalty under s. 271(1)(c) is not warranted. In support of his contention he has relied upon following decisions: (1) CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321: (2000) 246 ITR 568 (Del); (2) Diwan Enterprises vs. CIT & Ors. (2001) 167 CTR (Del) 324: (2000) 246 ITR 571 (Del); (3) CIT vs. Vikas Promoters (P) Ltd. (2005) 194 CTR (Del) 384: (2005) 277 ITR 337 (Del); (4) Kshetra Mohan Roy vs. ITO (1983) 139 ITR 441 (Cal). With regard to merit of levy of penalty for concealment of income he stated that assessee has furnished confirmation of creditors before AO. AO has asked assessee to produce creditors. Since assessee was unable to produce creditors, he surrendered cash credit as income of assessee. He has referred to copy of order-sheet to support his contention that confirmation of creditors was produced before AO. He stated that merely because assessee could not produce creditors and, therefore, accepted cash credit as his income, it cannot be said that assessee has concealed particulars of income and he is liable for penalty of concealment of income. In support of this contention he has relied upon following decisions: (1) CIT vs. Suresh Chandra Mittal (2001) 170 CTR (SC) 182: (2001) 251 ITR 9 (SC); (2) CIT vs. Kerala Spinners Ltd. (2001) 166 CTR (Ker) 268: (2001) 247 ITR 541 (Ker); (3) CIT vs. K.R. Chinni Krishna Chetty (2000) 246 ITR 121 (Mad). With regard to discrepancy in balance sheet while recording closing stock, learned counsel fairly admitted that assessee has no explanation for alleged discrepancy. In view of totality of above facts learned counsel stated that penalty levied under s. 271(1)(c) may be cancelled. Learned Departmental Representative on other hand relied upon orders of authorities below. He stated that for initiating penalty proceedings, it is not necessary that AO must record his satisfaction. He further stated that even if it is held that recording of satisfaction is necessary, in case under consideration before us, satisfaction was duly recorded by AO. In this regard he referred to finding in assessment order. In support of this contention he has relied upon following decisions: (1) Shyam Biri Works (P) Ltd. vs. CIT (2003) 185 CTR (All) 510: (2003) 259 ITR 625 (All); (2) Becker Gray & Co. (1930) Ltd. vs. ITO (1978) 112 ITR 503 (Cal); (3) M. Sajjanraj Nahar vs. CIT (2006) 204 CTR (Mad) 53: (2006) 283 ITR 230 (Mad). With regard to merit of levy of penalty under s. 271(1)(c) he stated that disclosure by assessee was not voluntary but it was made only after detection of concealment by AO and, therefore, levy of penalty under s. 271(1)(c) is quite justified. In support of this contention he has relied upon following decisions: (1) K.P. Madhusudhanan vs. CIT (2001) 169 CTR (SC) 489: (2001) 251 ITR 99 (SC); (2) CIT vs. Mohd. Mohtram Farooqui (2002) 177 CTR (Raj) 434: (2003) 259 ITR 132 (Raj); (3) CIT vs. C. Ananthan Chettiar (2004) 192 CTR (Mad) 64: (2005) 273 ITR 401 (Mad). We have carefully considered rival submissions of both parties and perused material placed before us. assessee has challenged validity of penalty order on ground that AO has not recorded satisfaction in assessment order for initiation of penalty proceedings. In support of his contention he has relied upon three decisions of Hon ble Delhi High Court and one decision of Hon ble jurisdictional High Court. We find that in case of CIT vs. Ram Commercial Enterprises Ltd. (supra) their Lordships held as under: "The satisfaction as to assessee having concealed particulars of his income or furnished inaccurate particulars of such income is to be arrived at by AO during course of any proceedings under Act, which would mean assessment proceedings, without which, very jurisdiction to initiate penalty proceedings is not conferred on assessing authority by reference to cl. (c) of sub-s. (1) of s. 271 of IT Act, 1961. bare reading of provisions of s. 271 and law laid down by Supreme Court makes it clear that it is assessing authority who has to form his own opinion and record his satisfaction before initiating penalty proceedings. Merely because penalty proceedings have been initiated it cannot be assumed that such satisfaction was arrived at." Similar view was taken by their Lordships in case of Diwan Enterprises vs. CIT & Ors. (supra) wherein it was held as under: "that as regards s. 271(1)(c), AO had nowhere recorded till conclusion of assessment proceedings his satisfaction that assessee had concealed particulars of his income or furnished inaccurate particulars of such income. This was jurisdictional defect which could not be cured. initiation of penalty proceedings was itself bad and consequently all subsequent proceedings leading upto passing of penalty order must fail." In case of CIT vs. Vikas Promoters (P) Ltd. (supra) their Lordships of Delhi High Court following their own decision in case of Ram Commercial Enterprises Ltd. (supra) held as under: "It is mandatory for AO to record satisfaction before drawing inference for purpose of levying penalty while completing assessment under s. 143(3) of IT Act, 1961. provisions of s. 271(1)(c) are penal in nature, thus must be strictly construed, and element of satisfaction should be apparent from order itself. It is not for Courts to go into mind of authorities or trace reasons from file of such authorities." In case of Kshetra Mohan Roy vs. ITO (supra) Hon ble jurisdictional High Court held as under: "The condition precedent for assumption of jurisdiction for issue of notice proposing to impose penalty under s. 274 r/w s. 271 of Act is that ITO should be satisfied that assessee had concealed particulars of his income or had deliberately furnished inaccurate particulars of such income. decision of ITO, as regards concealment or furnishing of inaccurate particulars, may be arrived at either before assessment proceedings are concluded or even thereafter. But such satisfaction must appear from records of assessment proceedings." However, their Lordships of Hon ble Allahabad High Court in case of Shyam Biri Works (P) Ltd. vs. CIT (supra) dissented from decision of Hon ble Delhi High Court in case of CIT vs. Ram Commercial Enterprises Ltd. (supra) and held as under: "Whether AO has to record his satisfaction under IT Act, 1961, it is specifically mentioned, e.g. in s. 148(2) of Act which states that "the AO before issuing any notice under this section will record reason for doing so". Sec. 273 does not have similar provision requiring recording of reason or satisfaction. Hence, it is to be inferred that Parliament never intended that before initiating penalty proceedings and issuing notice under s. 273, AO must record his reasons in writing for doing so. Although AO must have satisfaction as required under s. 273 of Act, it is not necessary for him to record that satisfaction in writing before initiating penalty proceedings under s. 273." Hon ble jurisdictional High Court in case of Becker Gray & Co. Ltd. vs. ITO (supra) held as under: "that it was first contended for appellant that before issuing notice, it was incumbent on ITO to record his prima facie satisfaction about conditions specified in s. 271(1)(c). It is true that ITO should be prima facie satisfied before penalty notice is issued, but it does not mean that he is required to record such satisfaction in writing in every case. Whether ITO was so satisfied before he issued penalty notice under s. 271(1) depends on facts and circumstances of each case. In present case, notice was issued by ITO during course of assessment proceedings. He had all relevant facts before him when he issued notice. Further, in assessment order he added huge sum of money and also recorded that he had already issued penalty notice. facts thus furnish sufficient evidence to show that ITO was prima facie satisfied before issuing penalty notice." Hon ble Madras High Court in case of M. Sajjanraj Nahar vs. CIT (supra) also dissented with view taken by Hon ble Delhi High Court and held as under: "that AO had recorded his satisfaction regarding concealment of income by indicating in assessment order that "penalty proceedings are initiated separately under ss. 271(1)(c) and 273(2)(a)". It was clear that original return filed by assessee, when compared with revised return pursuant to notice issued under s. 143(2) of Act formed basis for satisfaction of AO for initiating penalty proceedings under s. 271(1)(c) of Act. AO, therefore, had rightly reached satisfaction that assessee had concealed income in original return by indicating his satisfaction that penalty proceedings were proposed to be taken. Tribunal had rendered clear finding that (i) assessee did not act bona fide and honestly in returning correct income originally, (ii) filing of revised return offering additional income by adding interest expenditure could not be considered bona fide act, and (iii) AO was fully justified in initiating and thereafter levying penalty under s. 271(1)(c) of Act, after calling for explanation from assessee, as assessee failed to offer any convincing explanation and unless it was demonstrated that such indication by AO to initiate penalty proceedings was mala fide, perverse, based on no evidence, misreading of evidence or which reasonable man could not form or that person concerned was not given due opportunity resulting in prejudice, said proceedings needed no interference. imposition of penalty was valid." From perusal of above decisions, it is clear that Hon ble Delhi High Court at one hand and Hon ble Allahabad and Madras High Courts on other hand has taken contrary decisions. It is also interesting to note that Hon ble Delhi High Court in case of Ram Commercial Enterprises Ltd. (supra) and Hon ble Madras High Court in case of M. Sajjanraj Nahar (supra) has considered and relied upon same decision of Hon ble apex Court in case of CIT vs. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC). Therefore, it would be useful to refer to above decision of Hon ble apex Court. In that case there was partnership firm in name and style of S.V. Veerappan Chettiar & Co. firm was registered under s. 26A of IT Act, 1922. AO levied penalty for concealment of income for asst. yrs. 1947-48, 1949-50 and 1950-51 upon firm. firm was dissolved as per agreement between partners on 13th April, 1951. One of partners of dissolved firm filed writ petition before Hon ble Madras High Court on ground that penalty cannot be levied after dissolution of firm. Hon ble High Court accepted plea of petitioners and set aside order of ITO, dt. 20th May, 1954. Revenue filed appeal against above order of Hon ble High Court before Hon ble apex Court. Hon ble apex Court held that penalty can be levied against registered firm notwithstanding dissolution of firm. However, during course of argument before Hon ble apex Court learned counsel for assessee challenged validity of penalty imposed on ground that there was no evidence that ITO was satisfied in course of assessment proceedings that firm had concealed particulars of its income. This argument has been dealt with by their Lordships at p. 745 of report. It would be important to reproduce same which reads as under: "Counsel contended that in any event, penalty for asst. yr. 1949-50 could not be imposed upon assessee firm because there was no evidence that ITO was satisfied in course of any assessment proceedings under IT Act that firm had concealed particulars of its income or had deliberately furnished inaccurate particulars of income. power to impose penalty under s. 28 depends upon satisfaction of ITO in course of proceedings under Act; it cannot be exercised if he is not satisfied about existence of conditions specified in cls. (a), (b) or (c) before proceedings are concluded. proceeding to levy penalty has, however, not to be commenced by ITO before completion of assessment proceedings by ITO. Satisfaction before conclusion of proceeding under Act, and not issue of notice or initiation of any step for imposing penalty is condition for exercise of jurisdiction. There is no evidence on record that ITO was not satisfied in course of assessment proceeding that firm had concealed its income. assessment order is dated 10th of November, 1951, and there is endorsement at foot of assessment order by ITO that action under s. 28 had been taken for concealment of income indicating clearly that ITO was satisfied in course of assessment proceeding that firm had concealed its income." We find that Hon ble Delhi High Court in case of Ram Commercial Enterprises Ltd. (supra) has considered observation of their Lordships of apex Court with regard to necessity of satisfaction of ITO before penalty proceedings are initiated and held that satisfaction of AO is must before initiating penalty proceedings. Therefore, they relied upon finding before initiating penalty proceedings. Therefore, they relied upon finding of fact arrived at by Tribunal that no satisfaction was recorded by AO before initiating penalty proceedings. Therefore, their Lordships of Delhi High Court held that no question of law arises out of order of Tribunal. We find that Madras High Court in case of M. Sajjanraj Nahar (supra) has not stated that AO is not required to record his satisfaction for initiation of penalty proceedings but they have stated that noting in assessment order "penalty proceedings are initiated separately under s. 271(1)(c)" is sufficient to prove that AO was satisfied during assessment proceedings that assessee has concealed his income. Hon ble jurisdictional High Court in case of Kshetra Mohan Roy (supra) has held that it is condition precedent for assumption of jurisdiction for issue of notice under s. 271 of Act that ITO should be satisfied that assessee has concealed particulars of his income. In case of Becker Gray & Co. Ltd. vs. ITO (supra) Hon ble jurisdictional High Court has held that it is true that ITO should be prima facie satisfied before penalty notice is issued but it does not mean that he is required to record such satisfaction in writing in every case. In case of Shyam Biri Works (P) Ltd. vs. CIT (supra), their Lordships of Allahabad High Court has held although AO must have satisfaction as required under s. 273 of Act, it is not necessary for him to record that satisfaction in writing before initiating penalty proceedings under s. 273. From perusal of all decisions there is unanimity in views of their Lordships that satisfaction of AO during course of assessment proceedings is precondition for initiating penalty proceedings under s. 271(1)(c) of Act. However, whether AO was prima facie satisfied or not during course of assessment proceedings would depend upon facts of each case. Now, further question arises what is yardstick to gauge satisfaction of AO whether he has to record his satisfaction in detail or whether mentioning of words "penalty proceedings are separately initiated" would be sufficient to infer satisfaction of AO. On this point, there is difference amongst opinion expressed by their Lordships of different High Courts. However, we find that Hon ble apex Court in case of CIT vs. S.V. Angidi Chettiar (supra) has considered this issue. In that case also counsel for assessee has challenged that ITO was not satisfied during course of assessment proceedings that firm had concealed particulars of its income. Their Lordships of Hon ble apex Court accepted legal contention of assessee that power to impose penalty depends upon satisfaction of ITO in course of proceedings under Act. However, after examining facts, their Lordships held as under: "The assessment order is dated 10th of November, 1951, and there is endorsement at foot of assessment order by ITO that action under s. 28 had been taken for concealment of income indicating clearly that ITO w s satisfied in course of assessment proceeding that firm had concealed its income." Thus endorsement at foot of assessment order by ITO that t h e action under s. 28 had been taken for concealment of income was considered to be sufficient satisfaction by ITO during course of assessment proceedings. Though this decision of Hon ble apex Court was delivered while dealing with s. 28 of IT Act, 1922 however, as language of s. 271 is similar to s. 28, above decision would be squarely applicable while dealing with penalty proceedings under s. 271. Moreover, Hon ble Delhi High Court in case of CIT vs. Ram Commercial Enterprises Ltd. (supra) and Hon ble Madras High Court in case of CIT vs. C. Ananthan Chettiar (supra) has considered and applied this decision while dealing with penalty under s. 271(1)(c) meaning thereby that ratio laid down in above case is considered to be applicable to s. 271(1)(c) of IT Act, 1961. Therefore, respectfully following above decision of Hon ble apex Court, we hold that if at foot of assessment order AO has recorded finding that penalty proceeding under s. 271(1)(c) is separately initiated, it would be sufficient to hold that AO was satisfied during course of assessment proceedings for initiation of penalty proceedings. Reverting back to facts of case under appeal before us, we find that in body of assessment order while making addition AO has mentioned "the addition clearly attracts penalty provision under s. 271(1)(c)." At end of order i.e. after determining of total income and computation of tax again it is mentioned "penalty proceedings under ss. 274/271(1)(c) is initiated separately." Respectfully following yardstick laid down by Hon ble apex Court in case of CIT vs. S.V. Angidi Chettiar (supra) we hold that AO was satisfied during course of assessment proceedings that assessee has concealed his income. Accordingly we reject assessee s contention that penalty proceedings were not validily initiated. Coming to merit of levy of penalty under s. 271(1)(c), we find that AO has levied penalty on concealment of income of Rs. 9,57,510 which consisted of two additions (i) unexplained cash credit added under s. 68 of Rs. 8,70,000 and (ii) unexplained difference between closing stock shown in trading account/balance sheet Rs. 87,510. We will deal with both above items separately. Regarding addition of unexplained cash credit under s. 68 of Act. There was credit of Rs. 8,70,000 in assessee s books of account being unsecured loans. assessee has furnished loan confirmation of creditors before AO on 27th Nov., 2002. On 7th Nov., 2003 assessee again filed details of loan taken. Thereafter, AO asked assessee to produce loan creditors in person immediately. On 11th Nov., 2003 assessee appeared before AO and stated that no loan creditor is ready to depose before AO and therefore, he is forced to offer whole amount for taxation. above facts are evident from order-sheet entry made by AO, copy of which is placed before us. On 30th Dec., 2003 AO completed assessment making addition of Rs. 8,70,000. He has also levied penalty under s. 271(1)(c) in this regard, which is upheld by CIT(A). At time of hearing before us both parties have relied upon various judicial pronouncements. Learned counsel for assessee has relied upon decision of Hon ble apex Court in case of CIT vs. Suresh Chandra Mittal (supra). In that case assessee had initially filed return showing meager income. In response to notice under s. 148 he filed revised return showing higher income. In penalty proceedings under s. 271(1)(c), it was claimed by assessee that he had offered additional income to buy peace of mind and to avoid litigation. penalty levied by AO was confirmed by CIT(A) but deleted by Tribunal. On reference Hon ble Madhya Pradesh High Court upheld order of Tribunal. Department preferred appeal to Supreme Court. Their Lordships dismissed appeal and held as under: "We have read order of High Court and statement of case. Given facts and circumstances, we do not think that any interference with order of High Court is called for. civil appeals are dismissed." Thus order of High Court was sustained by their Lordships of apex Court considering facts and circumstances of that case. Learned counsel for assessee has also relied upon decision of Hon ble Kerala High Court. In said case AO has levied penalty under s. 271(1)(c) which was cancelled by Tribunal on ground that cl. (B) of Expln. 1 to s. 271(1)(c) was applicable. On reference by Revenue their Lordships of Kerala High Court held that no question of law arises. relevant finding of their Lordships reads as under: "that mere failure on part of assessee to substantiate its explanation was not enough to warrant penalty if such explanation was bona fide and all facts relating to same were disclosed by it. assessee had offered explanation in respect of entries and it was case of assessee s failure to establish or explain them. Therefore, Tribunal was justified in treating it to be case covered by cl. (B) of Expln. 1 to s. 271(1)(c) and cancelling penalty. Tribunal had based its conclusion on factual aspects and hence no interference was called for." From above it is evident that their Lordships upheld factual finding of Tribunal that cl. (B) of Expln. 1 to s. 271(1)(c) was applicable and since assessee s explanation was found to be bona fide and all facts relating to same were disclosed assessee was held to be not liable for penalty. In case of K.R. Chinni Krishna Chetty (supra), relied upon by learned counsel, facts were altogether different. In above case assessee has constructed building. AO estimated higher cost of construction on basis of valuer s report. He added difference between cost of construction shown by assessee and estimated by him and also imposed penalty under s. 271(1)(c) thereon. Tribunal cancelled penalty and held that there was no concealment of income at all. On reference their Lordships upheld order of Tribunal and held as under: "The addition to income of assessee based on report of valuer was rightly regarded by Tribunal as being insufficient for recording finding of concealment of income. Concealment implies some deliberate act on part of assessee in withholding true facts from authorities. fact that valuer assessed building at figure higher than one reported by assessee did not by itself lead to inference that there had been concealment. There was no evidence to show that assessee had deliberately concealed cost of construction. assessee was not required to report progress of construction as return did not require him to do so. Therefore, levy of penalty under s. 271(1)(c) of Act was not valid." Learned Departmental Representative on other hand relied upon decision of Hon ble Rajasthan High Court in case of Mohd. Mohtram Farooqui (supra) wherein their Lordships held as under: "that amount of Rs. 5,92,340 was seized from assessee by police authorities. assessee was not even able to state how much of amount belonged to his brother and brother-in-law. He could not say for what purpose or in respect of which transaction amount was being carried. When income had been surrendered after seizure, it could not be said that assessee had surrendered income voluntarily. levy of penalty was valid." He has also relied upon decision of Hon ble Madras High Court in case of C. Ananthan Chettiar (supra) wherein their Lordships held as under: "that assessee had offered no explanation except to assert that he disclosed income only to buy peace with Department and what was disclosed was additional income. reason for not having disclosed income earlier was not stated. Thus, Tribunal was not right in holding that no penalty should be levied with reference to concealed income seized in form of jewellery and cash following ratio of Supreme Court in Sir Shadilal Sugar & General Mills Ltd. vs. CIT (1987) 64 CTR (SC) 199: (1987) 168 ITR 705 (SC) even after amendment to s. 271 in 1964 and 1975." Learned Departmental Representative has also relied upon decision of Hon ble apex Court in case of K.P. Madhusudhanan vs. CIT (supra). facts of that case are that assessee had taken certain bank drafts for payment to suppliers of rice. It had made entries in its account not on dates on which drafts were obtained but few days later. explanation of assessee was that sufficient cash balance was not available on those dates, therefore, it had obtained loans from friends and had expected to repay such loans within short time but no entries were made in its books of account in respect of such loans. assessee also stated that since it was unable to furnish evidence for such loans, it offered amount of Rs. 93,000 as additional income. AO levied penalty under s. 271(1)(c) applying Expln. 1(B). Tribunal cancelled penalty but Hon ble Kerala High Court on reference held that imposition of penalty was valid. On appeal by assessee to Supreme Court their Lordships affirmed decision of High Court and held as under: "The Explanation to s. 271(1)(c) is part of s. 271. When AO or A C issues notice under s. 271, he makes assessee aware that provisions thereof are to be used against him. These provisions include Explanation. By virtue of notice under s. 271 assessee is put to notice that, if he does not prove, in circumstances stated in Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealled particulars of his income or furnished inaccurate particulars thereof, and, consequently be liable to penalty under section. No express invocation of Explanation to s. 271 in notice under s. 271 is necessary before provisions of Explanation are applied." necessary before provisions of Explanation are applied." From above decision of Hon ble apex Court, it is evident that Explanation to s. 271(1)(c) is part of s. 271 and when notice is issued under s. 271 burden is upon assessee to prove that his case does not fall within circumstances stated in Explanation. Now whether particular case falls within ambit of Explanation or not would depend upon facts of each case. Therefore, it would be appropriate to refer to Expln. 1 to s. 271(1)(c) and examine facts of assessee s case in light of Explanation. Explanation 1 to s. 271(1)(c) reads as under: "Where in respect of any facts material to computation of total income of any person under this Act, (A) such person fails to offer explanation or offers explanation which is found by AO or CIT(A) or CIT to be false, or (B) such person offers explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all facts relating to same and material to computation of his total income have been disclosed by him, then, amount added or disallowed in computing total income of such person as result thereof shall, for purposes of cl. (c) of this sub-section, be deemed to represent income in respect of which particulars have been concealed." From above Explanation it is evident that Explanation is deeming provision and if assessee s case falls within ambit of circumstances provided in Part or Part B of Explanation, it will be deemed that amount added or disallowed in computing total income of assessee represents income in respect of which particulars have been concealed. Part of Explanation would be applicable in circumstances (i) where person fails to offer explanation; (ii) where person offers explanation which is found by AO or by CIT(A) to be false. Part B of Explanation would be applicable (i) where person offers explanation but he is unable to substantiate same; (ii) and he also fails to prove that such explanation is bona fide and that all facts relating to same which are material to computation of total income have been disclosed by him. Part B of Explanation would be applicable only if both above conditions are satisfied i.e. where assessee is unable to substantiate his explanation and also unable to prove that explanation is bona fide. If assessee is able to prove that explanation is bona fide and all facts relating to same have been disclosed, assessee s case would not fall within Part B of Explanation even if he is unable to substantiate explanation. Let us examine facts of assessee s case in light of Parts and B of Expln. (1) to s. 271(1)(c). There was credit of Rs. 8,70,000 in assessee s books of account. It was explanation by assessee that credit is loan taken from various parties. assessee furnished details of loan taken. He has also furnished loan confirmation from creditors. AO asked assessee to produce creditors. Thereafter assessee offered income because he was unable to produce creditors. From these facts it is clear that assessee offered explanation relating to cash credit by furnishing necessary details and also substantiated same by producing confirmation of creditors. explanation of assessee was not found to be false by Revenue. AO has asked assessee to produce creditors which assessee was unable to produce and, therefore, it offered income. Thus it is clear that no material was found by Revenue to hold that confirmation of creditors produced by assessee was false. Therefore, assessee s case does not fall within ambit of Part of Explanation. So far as Part B is concerned, we find that assessee offered explanation and also substantiated same by producing confirmation of creditors. Therefore, Part B is also not applicable. In view of above, we hold that assessee s case does not fall within ambit of Expln. 1 to s. 271(1)(c). Merely because assessee accepted credit as his income because he was unable to produce creditors, it cannot be said that assessee has concealed particulars of income or furnished inaccurate particulars of such income specially when assessee has furnished complete details with regard to cash credit along with confirmation from all creditors. In view of above we hold that assessee is not liable for penalty under s. 271(1)(c) in respect of addition of Rs. 8,70,000 for unexplained cash credit. Regarding addition for unexplained difference between closing stock shown in trading account/balance sheet. During course of assessment proceedings while scrutiny of books o f account it was found by AO that assessee has shown closing stock in trading account and balance sheet at different figures. He asked assessee to explain discrepancy. Since assessee was unable to explain discrepancy, he offered income of Rs. 87,500 in this regard. AO made addition of Rs. 87,500 and has also levied penalty under s. 271(1)(c) which is upheld by CIT(A). At time of hearing before us, learned counsel for assessee was fair enough to admit that assessee has no explanation for discrepancy in recording closing stock which shows at different figures in trading account and balance sheet. In view of above position, Part of Explanation i.e. "the assessee fails to offer explanation" would be satisfied. Therefore, as per Expln. 1 Part A, assessee shall be deemed to have concealed particulars of income of Rs. 87,500. We, therefore, uphold levy of penalty for concealment of income in respect of addition of Rs. 87,500 and direct AO to recompute penalty on above amount. In result, assessee s appeal is partly allowed. *** DINABANDHU PAL v. INCOME TAX OFFICER
Report Error