1 IN HIGH COURT OF JUDICATURE AT MADRAS DATE : 18.12.2014 CORAM HONOURABLE MR. JUSTICE R.SUDHAKAR AND HONOURABLE MR. JUSTICE R.KARUPPIAH T.C. NO. 1235 OF 2005 R.Selvaraj .. Appellant - Vs - Deputy Commissioner of Income Tax Special Investigating Circle 1 Coimbatore. .. Respondent Tax Case Revision filed under Section 260-A of Income Tax Act against order dated 28.02.05, passed by Income Tax Appellate Tribunal, Madras 'D' Bench, made in ITA No.801/Mds/1999. For Appellant : Mr. S.Sridhar For Respondent : Ms. Hemalatha JUDGMENT (DELIVERED BY R.SUDHAKAR, J.) Aggrieved by order of Appellate Tribunal in allowing appeal filed by Revenue, assessee is before this Court challenging said order by filing present revision and this Court, vide order dated 28.02.05, framed for following substantial question of law for consideration :- 2 Whether Tribunal is correct in concluding that penalty in terms of Section 271(1)(c) of Act should be confirmed on facts and in circumstances of case inspite of explanation offered for source of gold found and seized by Department? 2. assessee filed return of income for Assessment Year 1996-1997 showing income of Rs.5,75,080/= and same was processed under Section 143 (1) (a) of Income Tax Act and notice under Section 143 (3) of Act was issued. said notice was issued on account of search conducted on 14.6.95 by Income Tax Department in business premises of appellant at Coimbatore, wherein account books and 17 gold biscuits weighing 1983.060 gms., valued at Rs.8,72,100/= were seized. It appears that assessee tried to explain that gold biscuits belonged to one C.P.M.Akbar, who imported gold through Calicut Airport on 14.6.95 at 9.30 a.m., and, thereafter, handed over said gold to one Manoharan at 11.30 a.m. and same was delivered at 4.15 p.m., at Coimbatore office of appellant. said gold has been seized by Department as afore stated. 3. Before CIT (Appeals), appellant made statement dated 1.9.95 that he had business contacts with Manoharan and that appellant received brokerage and commission from Manoharan for purpose of manufacturing new jewels. appellant placed reliance on statement and earlier transactions with said Manoharan. It is plea of appellant that said gold biscuits were legitimately brought into country on 14.6.95. Further, it is also claim of appellant that it was validly imported gold and same was entrusted for manufacture of jewels by Manoharan and that appellant is answerable to said Manoharan only and that imported gold is supported by duty paid receipt in 3 name of C.P.M.Akbar, who had, in turn, handed over said gold to Manoharan. Therefore, it was not case of escapement of income and inclusion of value of gold under Section 69-A of Act is not warranted. 4. Assessing Officer passed order under Section 143 (3) of Act on 24.3.97 and value of 17 gold biscuits was arrived at Rs.8,72,100/= and same was added as income from other sources for computation of tax liability, besides penalty proceedings under Section 271 (1) (c) was also initiated. On 30.9.97, Asst. Commissioner passed order under Section 271 (1) (c) and came to hold that assessee was not able to give address of those people from whom he obtained gold. Further assessee could not produce person for examination regarding gold biscuits said to have been received from those persons and assessee could not prove his claim of receiving gold biscuits from C.P.M.Akbar and Manoharan. Department, at first instance, while proceeding to pass assessment order under Section 143 (3), was inclined to give opportunity to appellant to show his bona fide with regard to gold in his possession. relevant portion of order of Assessing Officer under Section 143 (3), with regard to stand of assessee, is extracted herein below for brevity :- assessee had explained that gold biscuits belong to one Mr. C.P.M.Akbar. He has produced baggage receipt issued by State Bank of Travancore, Exchange Bureau, Calicut Airport, in support of his claim. He has further stated that Mr.C.P.M.Akbar had handed over gold biscuits to one Mr.Manoharan of Perinthalmanna of Kerala and Mr.Manoharan with duty paid receipt came to assessee's shop and handed over gold biscuits to him. assessee was asked to produce address of Mr.Manoharan and 4 Mr.C.P.M.Akbar. assessee has stated that he does not know Mr.C.P.M.Akbar and therefore he cannot furnish his address. Further assessee has stated that he does not know correct address of Mr.Manoharan and he knows that Mr.Manoharan is native of Perinthalmanna of Kerala, near Calicut. Under circumstances, it is impossible to contact Mr.Manoharan. Also letter sent to Mr.C.P.M.Akbar to his address mentioned in air baggage receipt returned unserved to this office with caption 'no such number in this road'. Since assessee could not produce Mr.C.P.M.Akbar and Mr. Manoharan and could not even give correct address, assessee's claim is rejected and value of gold biscuits found in his premises is to be assessed in his hands only. 5. In penalty proceedings, Assessing Officer has recorded non availability of assessee in response to notice. relevant portion of order is extracted hereunder for better clarity :- penalty proceedings were posted for hearing on 16.4.1997. assessee did not appear on hearing date. case was reposted for hearing on 28.4.1997 and 24.9.1997. assessee has not filed any reply to penalty notice issued. He has also not made personal appearance in response to penalty notices issued. It is obvious that he has no explanation to offer in respect of income concealed represented by 17 gold biscuits seized from him. minimum and maximum penalty leviable in this case works out to Rs.3,47,238/= and Rs.10,41,714/= respectively. I therefore levy penalty of Rs.3,47,238/= (Rupees Three Lakhs Forty Seven Thousand Two Hundred and Thirty Eight only) u/s 271 (1) (c) of I.T.Act, towards concealment of income. 5 6. Against abovesaid assessment order, appellant filed appeal to CIT (Appeals). Curiously, in appeal, CIT (Appeals) has held as under :- In appeal, it is pointed out that appellant's representative had appeared before Assessing Officer on 28.4.1997 and explained that there was no concealment. It was also submitted that on 24.9.1997 representative attended office but learnt that A.O. was out of station. Therefore, it is submitted that it was not intention of appellant not to appear before A.O. It is seen that no separate enquiries were made at time of penalty proceedings and reliance was made only on assessment order. assessee had given explanation at time of assessment which was not accepted and addition was made. But that does not mean that concealment has been established. In facts and circumstances of case, penalty levied is hereby cancelled. 7. Against said order, Revenue pursued matter in appeal before Tribunal and Tribunal, placing reliance on judgment in K.P.Madhusudhanan Vs Commissioner of Income Tax (251 ITR 99), held that in given facts and circumstances of case, assessee had failed to substantiate explanation given by him. In fact, Tribunal in terms of Explanation 1 to Section 271 (1) (c), came to hold that order passed by CIT (Appeals) is liable to be interfered with and accordingly, allowed appeal. Aggrieved against said order, assessee is before this Court by filing present appeal. 8. For better appreciation of case, it is useful to refer to Explanation 1 to Section 271 (1) (c) and same is extracted hereunder for better clarity :- Explanation 1. 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 6 is found by [Assessing] Officer or [Commissioner (Appeals)] [or Commissioner] 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 clause (c) of this sub-section, be deemed to represent income in respect of which particulars have been concealed. 9. Explanation 1 to Section 271 (1) (c) provides for penalty on person in event of such person not able to substantiate his claim. In this background, this Court is surprised to note as to how order, like one passed by CIT (Appeals) could be passed. Even by recording of fact as found in assessment order and penalty order, we find that there was no material or proper explanation given by appellant/assessee explaining source of gold biscuits seized. CIT (Appeals) grossly erred in passing order that at time of assessment some explanation was given by assessee and that there was no concealment established. This is completely contrary to records and findings. 10. In this case, we find that appellant tried to offer explanation, however, same was found by Assessing Officer to be not genuine or bona fide. ingredients of Explanation 1 to Section 271 (1) (c) are attracted to facts of present case in view of clear finding of Assessing Officer under Section 143 (3) as well as in penalty proceedings. Tribunal was, therefore, justified, in instant case, to come to conclusion that appellant/assessee had failed to give proper and adequate explanation or substantiate explanation given by him with relevant documents and materials and, 7 therefore, penalty imposed on assessee by Assessing Officer is justified. This view of Tribunal is further fortified by decision of Supreme Court in MAK Data (P) Ltd. - Vs Commissioner of Income Tax-II (2013 38 Taxmann 448 (SC)), wherein Supreme Court has held as under :- 6. We have heard counsel on either side. We fully concur with view of High Court that Tribunal has not properly understood or appreciated scope of Explanation 1 to Section 271(1)(c) of Act, which reads as follows :- Explanation 1 - 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 Assessing Officer or Commissioner (Appeals) or Commissioner 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 clause (c) of this sub-section, be deemed to represent income in respect of which particulars have been concealed. 7. AO, in our view, shall not be carried away by plea of assessee like voluntary disclosure, buy peace, avoid litigation, amicable settlement, etc. to explain away its conduct. question is whether assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to Section 271(1) raises presumption of concealment, when difference is noticed by AO, between reported and assessed income. burden is then on assessee to show otherwise, by cogent and reliable evidence. When initial onus placed by 8 explanation, has been discharged by him, onus shifts on Revenue to show that amount in question constituted income and not otherwise. 11. In view of decision of Supreme Court, as noticed above and facts of present case, we find no reason to interfere with order of Tribunal. substantial question of law is answered against appellant/assessee and in favour of Revenue. 12. In result, this appeal filed by assessee is dismissed confirming order of Tribunal. However, there shall be no order as to costs. (R.S.J.) (R.K.J.) 18.12.2014 Index : Yes/No Internet : Yes/No GLN To 1. Income Tax Appellate Tribunal Madras 'D' Bench Chennai. 2. Deputy Commissioner of Income Tax Special Investigating Circle 1 Coimbatore. 9 R.SUDHAKAR, J. AND R.KARUPPIAH, J. GLN T.C. NO. 1235 OF 2005 18.12.2014 R. Selvaraj v. Deputy Commissioner of Income-tax, Special Investigating Circle 1, Coimbatore