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The Income- Tax Act, 1995
K.K. Doshi And Co. vs Cit on 25 October, 2007
Section 276C in The Income- Tax Act, 1995
Cit, Ernakulam vs P.K. Noorjahan (Smt) on 15 January, 1997
Cit vs C.A. Taktawala on 12 February, 2008

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Income Tax Appellate Tribunal - Delhi
Jai Inder Singh, Delhi vs Assessee on 20 July, 2012

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI 'D' BENCH BEFORE SHRI U.B.S. BEDI , JM & SHRI A.N. PAHUJA, AM

ITA no.3758/Del/2010

Assessment year:2006-07

Mr. Jai Inder Singh, V/s. Income-tax Officer, W ard 2423/1, Surekha Building, 28 (1), Room no. 213, G.B. Road,Delhi-6 Drum Shape Building, New Delhi

[PAN : ABKPS 0009 G]

(Applicant) (Respondent)

Assessee by Shri Manjit Singh Sahni, AR

Revenue by Ms. Srujani Mohanty, DR

Date of hearing 12-07-2012

Date of pronouncement 20-07-2012

ORDER

A.N.Pahuja:- This appeal filed on 05.08.2010 by the assessee against an order dated 14th June, 2010 of the ld. CIT(A)-XXV, New Delhi, raises the following grounds:-

1) "That the learned CIT(A) has erred on facts and in law in upholding the action of the Assessing Officer in imposing a penalty of ``3,05,834/- upon the appellant u/s 271(1)(c) of the Income-tax Act, 1961.

2) That in sustaining the levy of penalty, the learned CIT(A) has failed to appreciate the fact that during the course of assessment proceedings, the appellant had offered a sum of ``9 lacs for taxation in order to buy peace, avoid protracted litigation and maintain harmonious and good relations with the department subject to the condition that no penalty/prosecution proceedings under any of the provisions of the Income-tax Act, 1961 including u/s 271(1)(c) read with Explanation thereto shall be initiated against him. The appellant's gesture of surrender was to safeguard the 2 ITA no.3758/Del./2010

interest of the revenue and to maintain cordial relations with the department.

3) That in confirming the action of the Assessing Officer, the learned CIT(A) has failed to take cognizance of the fact that the appellant offer was duly accepted and acted upon by the Assessing Officer.

4) That the learned CIT(A) summarily brushed aside the appellant's contentions without even making a mention of a catena of judicial pronouncements relied upon by the appellant. She simply made an observation in the order under appeal that none of the case laws cited by the appellant apply without reasoning out as to why the appellant's case was distinguishable on facts.

5) The appellant craves leave to add, alter, amend or vary any of the grounds of appeal at or before the time of hearing of appeal."

2. Facts, in brief, as per relevant orders are that return declaring income of ``2,61,180/- filed on 30.10.2006 by the assessee, trading in bearings in the name and style of a proprietorship concern M/s Modern Associates,, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act). During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee maintained two bank accounts, one in the name of firm bearing account no.010D1101700 with Centurion Bank of Punjab which is disclosed in balance sheet and another bank account no.01sb11011976 maintained with Centurion Bank of Punjab, L-40, Connaught Circle, New Delhi in the name of assessee. This second bank account was not declared by assessee in his balancesheet annexed with the return. In this account, the credit balance was ``1,16,150/-. On the basis of AIR information that the assessee deposited an amount of ``42,24,821/- in cash on different dates in this account, the AO issued a notice dated 1.9.2008 u/s 133(6) of the Act to the bank manager, Centurion Bank of Punjab, Kirti Nagar, Delhi. In response, the bank furnished a statement of account for the period from 1.4.2005 to 31.3.2006,revealing total deposits of ``69,93,562-(``42,24,821/- in cash and ``27,68,741/- by cheques). On the basis 3 ITA no.3758/Del./2010

of details obtained from the bank, the AO asked the assessee to explain the source of the said deposits in the undisclosed bank account. In response, the assessee did not furnish any reply despite giving opportunity for hearing on 15.11.2008 and 20.11.2008. In response to another notice dated 12th December, 2008, seeking documentary evidence in support of aforesaid deposits, the assessee submitted that cash was deposited in the undisclosed account to the extent of `41,65,521 besides cheques of `27,86,558/- while withdrawals in cash were `18,31,100 and by cheques `49,85,000/-.The assessee claimed that he made profit of ``1,28,009/- (``52,27,951 - ``50,99,942) from the business of bearings. Accordingly, initially a sum of ``1,30,000/- in lump sum was offered by assessee for taxation. However, the AO did not accept the said offer, the assessee having deposited cash before purchase of goods from some parties, which were not recorded in the books of the assessee. The assessee was having opening balance of ``73,093/- in bank account and deposited ``1,81,549/- before issuing cheques to parties from whom purchases were claimed to have been made ,which were not recorded in the books of assessee. Even the sales of ``52,27,795/- were not recorded in the books. In these circumstances, the AO concluded that net profit estimated @10% amounting to ``5,22,795/- and closing balance of ``1,16,150/- were not reflected in the books of account. Accordingly, the AO show caused the assessee as to why addition of ``9 lacs be not made. In response, the assessee replied vide letter dated 29th December, 2008 as under:-

"Apropos of the captioned subject and in continuation of the earlier submissions, it is submitted that in terms of para 3 of letter dated 26.12.2008, it was stated that the assessee had made a profit of `1,28,009/- from the business transactions effected through his savings account No.11011976 maintained with Centurion Bank of Punjab Ltd., Connaught Place Branch, New Delhi and a sum of ``1,30,000/- in lump sum was offered for taxation. However, after discussion with your goodself and without prejudice to the submissions made vide letter dated 26.12.2008, the assessee expresses his desire to buy peace, avoid protracted litigation and maintain harmonious and good relations with the department. As such, to safeguard the interest of the revenue and purchase peace, 4 ITA no.3758/Del./2010

the assessee offers to surrender a sum of ``9 lacs for taxation subject to the condition that no penalty/prosecution proceedings under any of the provisions of the Income-tax Act, 1961 including u/s 271(1)(c) read with Explanations thereto shall be initiated against the assessee. It is, therefore, requested that this gesture on part of the assessee to maintain cordial relations with the department be given due consideration and his offer may please be accepted and acted upon for which he shall remain most grateful to you."

2.1 In the light of aforesaid facts, the AO added the aforesaid amount of `9 lacs. Inter alia, penalty proceedings u/s 271(1)(c) of the Act were initiated for furnishing inaccurate particulars of income, having failed to explain the aforesaid deposits in undisclosed bank account. The assessee did not file any appeal against the assessment order. Subsequently, in response to show cause notice before levy of penalty u/s 271(1)(c) of the Act, the assessee did not furnish any reply. Accordingly, the AO levied penalty of ``3,05,834/-@ 100% of the tax sought to be evaded on the aforesaid amount of ``9 lacs.

3. On appeal, the ld. CIT(A) upheld the levy of penalty, holding as under:-

"3.3 It was only during the course of assessment proceedings, and after the Assessing Officer had confronted the appellant with the entries recorded in the unreported bank account leading to taxable income of ``9 lacs, that the appellant invoked pious intentions to safeguard the interest of revenue, purchase peace, avoid protracted litigation and maintain harmonious and good relations with the department and offered to have `9 lacs taxed.

3.4 However, it is evident from the facts that the penalty was not levied on the basis of any surrender/offer made between the appellant and the Assessing Officer. It is an undisputed fact that the addition of ``9 lacs in the total income of the appellant was made by the Assessing Officer following the unearthing of the unreported bank account on the basis of specific information. Thus, the treatment by the Assessing Officer of `9 lacs as taxable income was not a consequence of the appellant's surrender/offer of 5 ITA no.3758/Del./2010

the sum, but the direct outcome of the appellant failing to declare the correct particulars of his income and his (Assessing Officer) own specific information about concealment of transactions reflected in an unreported bank account. The addition by the Assessing Officer was not dependent upon the appellant agreeing to it.

3.5 Further, the so called condition (that the Assessing Officer should not levy penalty if the additions were accepted) referred by the appellant is beyond the provisions of the Act and in fact seeks to re-write the same in his own context, which is clearly not permissible in law. The Assessing Officer cannot be constrained by any such offers/conditions, as he is entrusted with the task of applying the provisions of the Act, as passed by the legislature.

3.6 Since the appellant readily admitted to the unreported bank account maintained by him, the Assessing Officer was not required to correlate any independent finding/evidence with admitted facs during the penalty proceedings. The appellant's contention that the addition of ``9 lacs was accepted in order to safeguard the interest of revenue, purchase peace, avoid protracted litigation and maintain harmonious and good relations with the department is an exercise in futility to duck the rigours of penalty. Maintenance of hidden accounts and carrying out unaccounted transactions does not further the lofty goals cited by the appellant.

3.7 The action of the Assessing Officer in imposing the penalty is strengthened by the case of K.P. Madhusudhanan Vs. CIT (2001) 251 ITR 99 (Supreme Court), where their lordships noted:

The assessee is, therefore, by virtue of the notice u/s 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, and consequently, be liable to the penalty provided by that section.

In the case of the appellant, since no bonafide

explanation was offered, he was liable for penalty u/s 271(1)(c).

6 ITA no.3758/Del./2010

3.8 Besides, none of the case laws cited by the appellant apply, given the latest decisions by the Apex Court. It will be relevant to refer to the decision of the Division Bench of the Apex Court on the issue of applicability of section 271(1)(c) and mens rea in the case of Union of India Vs. Dharmendra Textile Processors (2008) 174 Taxman 571 (Supreme Court). Noting that the correct position in law regarding mens rea has been laid down in Chairman SEBI Vs. Shriram Mutual Fund (2006) 5 SCC 361 and not in Dilip Shroff their Lordships held:

The Explanations appended to section 271(1)(c) entirely indicate the element of strick liability on the assessee for concealment or for giving inaccurate particulars of income while filing return. The judgment in Dilip N. Shroff's case (supra) had not considered the effect and relevance of section 276C. Object behind enactment of section 271(1)(c) read with the Explanations thereto indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C.

3.9 Therefore, in view of the facts and circumstances of the case, the action of the Assessing Officer in imposing penalty u/s 271(1)(c) is confirmed."

4. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee while carrying us through the reply dated 26th December, 2008 and 29th December, 2008 filed during the course of assessment proceedings, reiterated their submissions before the ld. CIT(A). Inter alia, the ld. AR relied upon decisions in Sir Shadilal Sugar & General Mills Ltd. & another Vs. CIT, 168 ITR 705 (SC);CIT Vs. Aggarwal Pipe Co. 240 ITR 880 (Delhi);CIT Vs. Ashok Taker, 170 Taxman 471 (Delhi);Girdharilal Soni Vs. CIT, 46 Taxman 180 (Cal.);CIT Vs. D&H Secheron Electrodes Ltd., 157 Taxman 463 (MP);Harnam Singh Bishan Singh Jewellers (P) Ltd. Vs. Asstt. CIT, 69 TTJ 14 (Delhi);CIT Vs. M. George & Brothers, 160 ITR 511 (Ker.);Celebrity Stores Vs. Income-tax Officer, 33 ITD 41 (Delhi)(TM);Ninth Income-tax Officer Vs. V.R. Bendre & Co., 34 ITD 480 (Bombay);Kishan Gupta Vs. Income-tax Officer, 31 ITD 448 (Delhi) & Hindustan Steel Ltd. Vs. State of 7 ITA no.3758/Del./2010

Orissa, 83 ITR 26 (SC) besides decision in CIT Vs. Reliance Petro Products Pvt. Ltd.; 322 ITR 158 (SC) as also in Rajasthan Spinning Mills ,224CTR1(SC)

5. On the other hand, the ld. DR supported the findings of the ld. CIT(A) while relying upon decisions in Polo Singh & Co. vs. CIT,98 ITR 564 (Delhi); CIT vs. Krishna & Co,120 ITR 144 (Madras);CIT vs. Dr. R.C.Gupta & Co.122 ITR 567 (Rajasthan); and PC Joseph & Bros. vs. CIT,240 ITR 818 (Ker.)

6. We have heard both the parties and gone through the facts of the case as also the aforesaid decisions relied upon by both the sides. Admittedly, the assessee did not disclose the bank account no.01sb11011976 maintained with Centurion Bank of Punjab, L-40, Connaught Circle, New Delhi in his name in his balancesheet annexed with the return nor the transactions reflected theirin in the regular books of accounts. Indisputably, cash was deposited in the undisclosed account to the extent of `41,65,521 besides cheques of `27,86,558/- while withdrawals in cash were `18,31,100 and by cheques `49,85,000/-. The assessee also admitted that transactions of sale of bearings of ``52,27,795/- were not recorded in the regular books of accounts. During the course of assessment proceedings, the assessee did not furnish any explanation regarding source of deposits in the undisclosed bank account to the satisfaction of the AO and accordingly, accepted addition of `9 lacs to the total income proposed by the AO. Even in response to showcause notice before levy of penalty, the assessee did not furnish any explanation whatsoever before the AO and thus, failed to discharge the onus laid down upon him in terms of explanation 1 to sec. 271(1)(c) of the Act. In nutshell, the assessee did not submit any explanation during the penalty proceedings, despite sufficient opportunity allowed. 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.

8 ITA no.3758/Del./2010

(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 offer an explanation or offers an explanation which is found by the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) to be false, or

(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.

6.1 As is evident from the aforesaid cl. (c) of s. 271(1) of the Act, the words used are 'has concealed the particulars of his income' or furnished 'inaccurate particulars of such income'. Thus, both in case of concealment and inaccuracy, the phrase 'particulars of income' has been used. The legislature has not used the words 'concealed his income'. From this it would be apparent that penal provision would operate when there is a failure to disclose fully or truly all the particulars. The words 'particulars of income' refer to the facts which lead to the correct computation of income in 9 ITA no.3758/Del./2010

accordance with the provisions of the Act. So when any fact material to the determination of an item as income or material to the correct computation is not filed or that which is filed is not accurate, then the assessee would be liable to penalty under s. 271(1)(c) of the Act. The expression 'has concealed the particulars of income' and 'has furnished inaccurate particulars of income' have not been defined either in section 271 or elsewhere in the Act. However, notwithstanding the difference in the two circumstances, it is now well established that they lead to the same effect namely, keeping off a certain portion of the income from the return. According to Law Lexicon, the word "conceal" means:

"to hide or keep secret. The word 'conceal' is con+celare which implies to hide. It means to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of ; to withhold knowledge of. The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income-tax authorities."

In W ebster'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."

6.2 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 AM Shah & Co. vs. CIT,238 ITR 415(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 10 ITA no.3758/Del./2010

example when half of the income under a particular head is not at all disclosed, that would be concealed to that extent while the remaining half which is in fact disclosed would, not being his complete disclosure amount to inaccurate particulars of income as regards that constituent item of the return. By the very nature of the assessment proceedings the ITO while ascertaining the total income chargeable to tax would be in a position to detect the specific or definite particulars of income concealed or of which false particulars are furnished. Where in the constituents of income returned, such specific or definite particulars of income are detected as concealed, then even in the total income figure to that extent they reflect, it would amount to concealment to that extent. In the same way where specific and definite particulars of income are detected as inaccurate, then such figure will also make the total income inaccurate in particulars to the extent it does not include such income. Whether it be a case of only concealment or of only inaccuracy or both, the particulars of income so vitiated would be specific and definite and be known in the assessment proceedings by the ITO, who on being satisfied about each concealment or inaccuracy of particulars of income would be in a position to initiate the penalty proceedings on one or both of the grounds of default as may have been specifically and directly detected. The opportunity of hearing given by the notice under section 271(1)(c), obviously is against such concealment and inaccuracy as is detected in the assessment proceedings".

6.3. Indisputably, the assessee did not disclose the bank account no.01sb11011976 maintained with Centurion Bank of Punjab, L-40, Connaught Circle, New Delhi in his name in his balancesheet annexed with the return nor the transactions reflected theirin in the regular books of accounts. On the basis of AIR information, the AO on enquiry found that the assessee did not disclose transactions of `52,27,795/- for sale of bearings in the regular books of accounts. During the course of assessment proceedings, the assessee did not furnish any explanation regarding source of deposits in the undisclosed bank account, to the satisfaction of the AO and accordingly, accepted addition of `9 lacs. Even in response to showcause notice before levy of penalty, the assessee did not furnish any explanation whatsoever before the AO and thus, failed to discharge the onus laid down upon him in terms of explanation 1 to sec. 271(1)(c) of the Act. In these circumstances, it does not lie in the mouth of the assessee that it was not concealing 11 ITA no.3758/Del./2010

its income by furnishing inaccurate particulars thereof in the return filed originally. In the course of penalty proceedings , the assessee did not bring any material before the AO to rebut the inferences drawn by the AO in the course of assessment proceedings. In terms of provisions of sec. 271(1)(c) of the Act read with explanation 1 thereto and the judicial pronouncements in the case of B.A. Balasubramaniam & Bros. Co. v. CIT [1999] 157 CTR 556(SC), CIT v. B.A. Balasubramaniam & Bros. [1984] 40 CTR (Mad.)/[1985] 152 ITR 529 (Mad.) , CIT v. Mussadilal Ram Bharose [1987] 60 CTR (SC) 34/[ 1987] 165 ITR 14 (SC); TC 50 R. 474; CIT v. K.R. Sadayappan [1990] 86 CTR (SC) 120; [1990] 185 ITR 49 (SC); TC 50 R. 795, Addl. CIT v. Jeevan Lal Sah [1994] 117 CTR (SC) 130; [1994] 205 ITR 244 (SC); TC 50 R. 973 and K.P.Madhusudanan vs. CIT,251 ITR 99(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. In the case of New Bijli Foundry vs. CIT,135 ITR 593, Hon'ble Punjab and Haryana High Court have held that the findings recorded in the assessment proceedings are certainly relevant in the penalty proceedings. In the absence of any fresh material during the course of penalty proceedings, specially when the assessee failed to establish that the aforesaid findings of the AO during the course of assessment proceedings were based on improper facts or wrong appreciation of the facts, we are afraid that in the penalty proceedings we are unable to take a different view, particularly when no explanation has been submitted before the AO during the penalty proceedings. The onus laid down upon the assessee to rebut the presumption raised under explanation 1 would 12 ITA no.3758/Del./2010

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) of the Act, when the assessee did not submit any explanation during penalty proceedings nor any other material , is clearly attracted and the assessee miserably failed to discharge the onus laid down in this explanation. In such circumstances, we have no hesitation in upholding the levy of penalty. This view of ours is supported by the decision in CIT vs. Smt. Chanchal Katyal,173 Taxman 71(All.)

6.4 W e find that the legal position is squarely covered by the decision of the Hon'ble Apex Court in K.P. Madhusudanan v. CIT [2001] 251 ITR 99. Therein, the Hon'ble Court affirmed the decision of the Kerala High Court in CIT v. K.P. Madhusudanan [2000] 246 ITR 218. Considering the effect of the addition of the Explanation to section 271(1) of the Act and the amendment to section 271(1)(c) of the Act by deletion of the word "deliberately", the Kerala High Court came to the conclusion that penalty was liable to be imposed in a case where the assessee could offer no acceptable explanation for the income not disclosed or the inaccurate particulars he had furnished in his return, had to be examined and if found unacceptable, penalty was liable to be imposed. The Hon'ble Kerala High Court observed as follows:

"Section 271(1)(c) of the Income-tax Act, 1961, is attracted where, in the course of any proceedings under the Act, the Assessing Officer or the first appellate authority is satisfied that: (a) any person has concealed the particulars of his income; or (b) has furnished inaccurate particulars of such income. The expressions 'has concealed' and 'has furnished inaccurate particulars' have not been defined either in the section or 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.

13 ITA no.3758/Del./2010

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 particulars have been concealed. As per the provision of Explanation 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same and material to the computation of his income have been disclosed by him will be on the person charged with

concealment. The Assessing Officer is not obliged to intimate the assessee that Explanation 1 to section 271(1)(c) is proposed to be applied. The scheme of the provisions does not provide for such a requirement either directly or inferentially. In Sir Shadilal's case [1987] 168 ITR 705, what the Supreme Court observed was that there may be several reasons for which the assessee may have offered an amount for addition, but that itself is not sufficient to infer concealment. It has not laid down as a rule of general application that whenever such is the case, penalty cannot be imposed. On the contrary, in such cases also the assessee is required to discharge the burden placed by the Explanation appended to section 271(1)(c). In case an explanation is offered, the Assessing Officer is to examine it and find out whether the assessee has been able to establish that there was no concealment.

Held, that, in the case at hand, no explanation worth the name was offered by the assessee. The statement made by the assessee was to the effect that hand loans were obtained which were intended to be refunded immediately and, therefore, the entries were not made, but, later on, the arrangement did not work out. Therefore, the amount was offered for taxation. There was a clear admission that the entries were not made on the relevant dates. It was not a case where entries were made on the relevant dates and the source of money was omitted. The entries on the contrary were made on dates when there was sufficient cash balance. The intention to hide the actual state of 14 ITA no.3758/Del./2010

affairs was clear. The explanation offered was fanciful and vague. The imposition of penalty was valid and the Tribunal erred in cancelling it."

6.5 Hon'ble Supreme court in the case of K.P.Madhusudanan vs. CIT,251 ITR 99(SC) while affirming the aforesaid view held that

"We find it difficult to accept as correct the two judgments aforementioned. The Explanation to section 271(1)(c) is a part of section 271. When the Income-tax Officer or the Appellate Assistant Commissioner issues to an assessee a notice under section 271, he makes the assessee 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 that it took and the Division Bench in the impugned judgment was right."

6.6 Therefore, in view of the facts and circumstances and in the light of above noted authoritative pronouncements, when the assessee failed to discharge the onus laid down upon him in terms of explanation 1 to section 271(1)(c) of the Act and did not offer any explanation during the penalty proceedings , we have no option but to uphold the findings of the ld. CIT(A), confirming the levy of penalty .Even otherwise the breach of civil obligation which attracts a penalty under the provisions of an Act would immediately attract 15 ITA no.3758/Del./2010

the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not, vide Chairman, SEBI v. Shriram Mutual Fund [2006] 131 Comp Cas 591 (SC) ; [2006] 5 SCC 361. This view has been reiterated by the Hon'ble Supreme Court in their decision dated 29.9.2008 in the case of Union of India and others Vs. Dharmendra Textile Processors and others, in civil appeal nos.10289-10303 of 2003. Blameworthiness attached to the assessee with reference to the original return cannot be avoided by accepting the addition proposed by the AO after concealment was detected by the assessing authority. Where the surrender of income was not voluntary, but was as a result of detection by the assessing authority, penalty cannot be avoided. The very word 'omission' connotes an intentional act. The factual position is the surrender was a veiled attempt to present a mitigating circumstance. That being the position, the surrender of concealed income does not constitute a mitigating circumstance and penalty has been rightly levied. This view is supported by decision in PC Joseph & Bros.(supra)

6.7 In the instant case, the assessee claimed before the ld. CIT(A) that the addition of ``9 lacs was accepted in order to safeguard the interest of revenue, purchase peace, avoid protracted litigation and maintain harmonious and good relations with the department. The maintenance of hidden and undisclosed bank account and undertaking transactions outside the books of accounts, does not support this explanation of the assessee . The assessment in this case was completed on 30.12.2008. The letter submitted before the AO on 29.12.2008 was filed only a day before while the AO confronted the details collected from bank much earlier .Apparently, only when the assessee was cornered , the assessee accepted the proposal of the AO, adding the amount of `9 lacs. We are of the opinion that the surrender was not at all voluntary. Here ,we may have a look 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 vs. Shri Rakesh Suri reported in 2010-TIOL-357-HC-ALL-IT as under:- 16 ITA no.3758/Del./2010

"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 disclosure of income made after the search/raid cannot be voluntary. It is a question which has to be decided by the Department in each case on the basis of the material on the record. If on record there is incriminating material with regard to the disclosed income, the disclosure cannot be voluntary. But if the Department has no incriminating material with regard to the income disclosed, the disclosure is liable to be treated as voluntary having been made without any compulsion or constraint of exposure to adverse action by the Department. In a case where the assessee has disclosed not only the income regarding which the Department has incriminating material, but has also disclosed the income with regard to which no incriminating material was seized by the Department, the disclosure of the income with regard to which the Department has no incriminating material, is liable to be treated as voluntary. For example, if an assessee is having five accounts and the Department has incriminating material with regard to one of those accounts only, the disclosure of income relating to four accounts with regard to which the Department has no incriminating material, is voluntary, because it was made without any constraint or compulsion, even though the disclosure of the income relating to the account regarding which the Department has incriminating material, is liable to be treated as nonvoluntary."

:- Dictionary:-

42. Black's Law Dictionary (Seventh Edition)defines "voluntarily" as intentionally or without coercion. It shall be appropriate to reproduce meaning of "voluntarily" and "voluntary" as given in Black's Law Dictionary, which is as under:-

17 ITA no.3758/Del./2010

"Voluntarily, adv. Intentionally; without coercion. Voluntary, Adj. 1. Done by design or intention <voluntary act>. 2. Unconstrained by interference; not impelled by outside influence <voluntary statement>. 3. without valuable consideration; gratuitous <voluntary gift>. 4. Having merely nominal consideration <voluntary deed>-voluntariness, n.

43. In the Law Lexicon by P. Ramanatha Aiyar, meaning of Voluntary has been given as, to quote:-

"Voluntary - Of one's free will, impulse of choice; not constringed by another; acting voluntarily or willingly [S. 2(2), Sale of Goods Act]; [Art. 101(3), prov., Const.] Voluntary - The expression `voluntary' is used in this section to mean `naturalisation' in the narrow sense of that term and excluding compulsory, involuntary of collective naturalization which some states have adopted at different times. T.E. Mohomed Usman vs. 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]"

6.8 From the said decision it is, thus, clear that voluntarily means out of free will without any compulsion. When the assessee concealed incriminating material in the form of transactions in the aforesaid bank account with regard to the income 18 ITA no.3758/Del./2010

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 sufficient material against the assessee and only after incriminating material collected by the Department was brought to the knowledge of the assessee, the surrender was, thus, made by the assessee under the constraint of exposure to adverse action by the AO. We totally agree with the conclusion of the ld. CIT(A) that the assessee had no option and nothing to rebut the evidence gathered by the department. In such circumstances, levy of penalty is justified. In fact, as already mentioned above, no explanation was filed before the AO during the penalty proceedings . Thus, the assessee miserably failed to discharge the initial onus laid down upon the assessee in terms of explanation 1 to sec. 271(1) (c) of the Act.

6.9 We find that while imposing penalty under section 271(1)(c), the AO has not invoked Explanation 1 to section 271(1)(c). But their Lordships of Hon'ble Punjab & Haryana High Court in the case of CIT v. Rajeshwar Singh [1986] 162 ITR 173, have held that Explanation 1 to section 271(1)(c) can be invoked for the first time by the ITAT. By following the aforesaid judgment of Punjab & Haryana High Court in the case of Rajeshwar Singh the ITAT, Chandigarh Bench in the case of Roshan Lal Madan vs. Asstt. CIT (1998) 62 TTJ (Chd)(TM) 1 : (2000) 245 ITR 36 (AT)(Chd)., has taken the same view that Explanation 1 to section 271(1)(c) can be invoked for the first time by the Tribunal.

7.. As regards view taken in decision in Sir Shadilal Sugar & General Mills Ltd. & another (supra) relied upon by the ld. AR, Hon'ble Apex Court in K.P.Madhusudanan(supra) discarded the said view . Facts in another decision in D & H Secheron Electrodes Limited.(supra) relied upon by the ld. AR, were altogether different. In the said case, the assessee claimed expenses under various heads, like sales promotion, lease rent, bad debts, entertainment 19 ITA no.3758/Del./2010

expenses, etc. The AO was of the view that the expenses claimed by the assessee were on the higher side. During the course of assessment proceedings vide letter dt. 2nd Jan., 1994 it was stated by the assessee that though all the expenses and purchases, etc. are genuine, fully vouched and are fully allowable but in order to avoid protracted litigation with the Department, and to purchase peace an additional income of Rs. 25 lacs was offered with the understanding that no penalty proceedings would be initiated. It is with reference to the above surrendered amount of Rs. 25 lacs that the AO imposed the impugned penalty. However, the CIT(A) and later Tribunal set it aside by holding that no case for penalty is made out on facts and that explanation offered by the assessee is acceptable. It was further held that in somewhat similar circumstances, the AO had imposed penalty for the asst. yr. 1991-92 and the same was set aside by the Tribunal for that year on same facts. It was also not disputed that the said order was not questioned in appeal by the Revenue and the same thus attained finality. In these circumstances, the Tribunal while upholding the order of CIT(A) quashed the penalty which was imposed by the AO on the assessee for the assessment year. On appeal, Hon'ble High Court while relying on decision in Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705,followed in Girdharilal Soni vs. CIT (1990) 82 CTR (Cal) 73 : (1989) 179 ITR 111 (Cal),upheld the findings of the ITAT. However, facts in the instant case are altogether different. In this case, incriminating material in the form of undisclosed bank account was gathered and the result of enquiries was confronted to the assessee. When confronted with the transactions in the undisclosed bank account, the assessee surrendered the amount of ``9 lacs in the assessment proceedings before the AO,. 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 v. CIT [2001] 251 ITR 99.. In the case of CIT v. C. Ananthan Chettiar [2005] 273 ITR 401, 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 decision in the case of K.P. 20 ITA no.3758/Del./2010

Madhusudhanan v. CIT [2001] 251 ITR 99 (SC), wherein it was held that the law declared by the Court in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705 (SC) was no longer applicable by reason of the addition of the Explanation to section 271. That Explanation casts a burden on the assessee to show that the additional income that had not been disclosed was not due to fraud or neglect.

In this case, the assessee offered no explanation at all except to assert that he disclosed the income only to buy peace with the Department and what was disclosed, in fact, was additional income. The reason for not having disclosed the income earlier was not stated. In these circumstances, the ITAT was in error in setting aside the penalty. The question is answered in favour of the Revenue and against the assessee, in the light of the later decision of the three judge Bench of the Supreme Court in the case of K.P. Madhusudhanan v. CIT [2001] 251 ITR

99."

7.1 In Aggarwal Pipe Co.(supra) relied upon by the ld. AR, cash credits in the books of account of the assessee, a registered firm were noticed. When confronted, though the assessee filed confirmation letters from the creditors, they were not produced. Summons under section 131 of the Act were also issued to one of the creditors but the same were received back unserved. The assessee surrendered all the cash credits. Accordingly, the amount so surrendered was added to the income of the assessee. On account of the said addition, penalty proceedings under section 271(1)(c) of the Act were initiated against the assessee. The explanation furnished by the assessee to the effect that the cash credits were surrendered on an understanding with the Department that no penalty under the said section will be levied was rejected by the Assessing Officer. He, accordingly, levied a minimum penalty of `64,136 under the said section. On appeal by the assessee, the learned Commissioner of Income-tax (Appeals) deleted the said penalty. In these circumstances, Hon'ble High Court upheld the findings of the ITAT that the surrender of the cash credits by the assessee, during the course of assessment proceedings, was bona fide and merely because the said amount has been included in the total income of the assessee, it does not follow as a necessary corollary that the assessee has admitted the same to be its concealed income, to bring it within the ambit of section 271(1)(c) read with 21 ITA no.3758/Del./2010

the Explanation thereto. Similar were the facts and circumstances in Ashok Taker(supra). In Harnam Singh Bishan Singh Jewellers (P) Ltd.(supra), as a result of material detected during the survey relevant for the AY 1992-93, the assessee made a proposal agreeing to disclose additional income of Rs. 6 lacs for asst. yr. 1991-92. The AO did not mention in the assessment order any material as to why the income of Rs. 6 lacs, was included in the income of the assessee on the basis except the admission. In these circumstances, the ITAT cancelled the penalty,having been imposed without any objective material and accepting only a part of the offer of the assessee. The decision in M. George & Brothers(supra) related to AY 1969-70 i.e before the insertion of explanation 1 in its present from.Based on this decision, ITAT cancelled the penalty in Celebrity Stores(supra). The decision in Ninth Income-tax Officer(supra) related to AY 1974-75 while in Kishan Gupta(supra), the ITAT cancelled the penalty on the ground that there was nothing to suggest that the amount offered by the assessee for taxation in the subsequent returns was accepted or proved to be the income of the assessee for the relevant years. After perusing these decisions as also the decisions in Hindustan Steel Ltd.(supra), Reliance Petro Products Pvt. Ltd.(supra) and Rajasthan Spinning Mills(supra) relied upon by the ld. AR, we find that the facts in the cited decisions were altogether different and no parallel can be drawn with the facts and circumstances in the instant case. Even otherwise, the ld. AR has not demonstrated before us as to how these decisions help the assessee, when undisclosed bank account was being operated by the assessee and transactions therein were never reflected in the regular books of the assessee. Despite our specific request, the ld. AR did not reply as to since when the aforesaid undisclosed bank account was being operated upon and why the transactions in this bank account were not recorded in the regular books of accounts of the assessee.

8. Hon'ble jurisdictional High Court in Jaswant Rai & Another vs. CBDT,133 ITR 19(Del.) held that the subsequent act of disclosure of an 22 ITA no.3758/Del./2010

income would not make any difference and it cannot be said that the assessee had not concealed particulars of their income or had not furnished inaccurate particulars of such income.

9.. A very heavy onus was placed on the assessee to explain the difference between the assessed income and returned income and the assessee did not discharge the said onus. In the light of the discussion made above and conduct of the assessee, it is thus clear that all the material facts and particulars relating to the assessee's computation of income were never disclosed by the assessee, and it is further clear that the assessee did not offer any explanation at all before the AO during the penalty proceedings. In these circumstances and in the light of decisions of the Hon'ble Supreme Court and jurisdictional High Court referred to above, we are of the opinion that the assessee has not been able to discharge the burden that lay upon them by Explanation 1 to s. 271(1)(c) of the Act. Therefore, we have no hesitation in upholding the order of the ld. CIT(A) in confirming the penalty imposed by the AO under s. 271(1)(c) of the Act . Consequently, ground nos.1 to 4 in the appeal are dismissed.

10 No additional ground having been raised before us in terms of residuary ground no.5 in the appeal, accordingly, this ground is dismissed.

11. No other plea or argument was made before us.

12. In the result, appeal is dismissed.

Order pronounced in open Court

Sd/- Sd/-

( U.B.S. BEDI ) (A.N. PAHUJA ) (Judicial Member) (Accountant Member)

NS

23 ITA no.3758/Del./2010

Copy of the Order forwarded to:-

1. Assessee

2 Income-tax Officer, W ard 28 (1), Room No. 213, Drum Shape Building, New Delhi

3. CIT concerned

4.CIT (A)-XXV, New Delhi

5. DR, ITAT,'D' Bench, New Delhi

6. Guard File.

By Order,

Deputy/Asstt.Registrar

ITAT, Delhi