Madhya Pradesh High Court
Commissioner Of Income-Tax vs Ganesh Prasad Badriprasad And Co. on 24 April, 1996
Equivalent citations: [1998]231ITR951(MP)
Author: A.K. Mathur
Bench: A.K. Mathur, Chief Justice
JUDGMENT A.K. Mathur, C.J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue and the following questions have been referred for answer by this court :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that after amendment from April 1, 1976, unless and otherwise a positive evidence is found that the assessee's declared income is not true or accurate, no penalty is envisaged ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the order of the Commissioner of Income-tax (Appeals) who deleted the penalty levied by the Assessing Officer under Section 271(1)(c) read with Explanation 1 of the Income-tax Act, 1961 ?"
2. The assessee was served with a notice of hearing, but it neither appeared nor filed any application for adjournment. Therefore, the Tribunal proceeded to dispose of the reference after hearing learned counsel for the Revenue.
3. No detailed facts have been given. Neither the statement of the case nor the order passed speaks about the detailed facts except that a notice was given to the assessee for furnishing inaccurate particulars under Section 274/271 of the Income-tax Act for the assessment year 1978-79 and then the Income-tax Officer imposed a penalty of Rs. 53,340 by order dated March 31, 1984. The assessee then approached the appellate authority which cancelled the penalty. Aggrieved by this order, the Department approached the Tribunal which affirmed the order of the Commissioner of Income-tax (Appeals) setting aside the penalty. The Department then approached the Tribunal for making a reference to this court in view of the amendment to Explanation 1 to Section 271 of the Act and referred the aforesaid two questions for answer by this court.
4. We have gone through the record. Section 271 of the Act deals with failure to furnish returns, comply with notices, concealment of income, etc. According to Section 271, if the Assessing Officer, in the course of any proceedings under this Act, is satisfied that any person has failed to comply with a notice under Sub-section (1) of Section 142 or Sub-section (2) of Section 143, or fails to comply with the directions issued under Sub-section (2A) of Section 142, or 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 "(1) ...
(ii) in the cases referred to in Clause (b) in addition to any tax payable by him, a sum which shall not be less than one thousand rupees but which may extend to twenty-five thousand rupees for each such failure ;
(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."
5. Thereafter, Explanation 1 was inserted with which we are concerned. It says that if 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 bona fide 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. As per Explanation 1, if the assessing authority or the concerned authority, on the material before it, finds that the explanation offered by the assessee is false, then penalty can be levied on the amount which is found to be concealed. Therefore, the whole idea behind the Explanation 1 is that the assessing authority has to first record reasons for arriving at a conclusion that there is a failure on the part of the assessee. Hence, after seeking an explanation if the authority comes to a conclusion that it is false, then .the authority can proceed to levy penalty. Therefore, this Explanation 1 which has been inserted by the Amending Act of 1975 with effect from April 1, 1976, has cast a duty on the Assessing Officer that he should first record reasons that there has been concealment of income and then the explanation is sought. These are the basic requirements for natural justice desired by the Legislature for providing this Explanation. Therefore, the initial burden is on the Department to prima facie record that there was concealment and thereafter the explanation is to be sought and in case the explanation is found to be false, then to the extent the income is found to have been concealed and the explanation is found to be false, then the authority can proceed against the assessee. Therefore, this explanation does not change the position and absolve the Department just to issue notice for giving false explanation and proceeding against him. Before this, much has to be done by the Department under this Explanation.
7. In this view of the matter, both the questions referred by the Tribunal to this court are answered.