Conselment penalty u/s 271(1)(c)
vijaykumar K Jain
(Querist) 08 December 2010
This query is : Resolved
If Employee's contribution to PF is addedde as taxble income due to late payments,in re-assessment does it amounts to concelment and can the penalty proceeding be intiated
What are the case laws to defend the same show cause notice
please reply
PARVEZ RAFIQUE SHEKHANI
(Expert) 10 December 2010
Dear Vijay,
No,it does not amounts to concealment of income. To constitute an offence, there must be mens-rea i.e. guilty mind. If the act was unintentional, no penalty could be levied.Re-assessment is just recalculation of the total income of the assessee by the assessing officer of I.T. department. Here is a case for your referrence :-
Mimosa Investment Co. Ltd. v. ITO , Appeal No.: ITA NO. 2983/MUM/2007, Dated: 15.01.2009
RELEVANT PARAGRAPHS :
5.6 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 in accurate particulars of income may at times overlap. It depends upon the facts of the each case. In 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. In other words the Assessing Officer cannot invoke provision of section 271(1)(c) on the basis/routine and general presumptions. 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.
5.7 In addition to main provisions of concealment “has concealed the particulars of his income” or “has furnished inaccurate particulars of such income” there are deemed to represent the income in respect of which particulars have been concealed. The deemed concealment is provided in explanations. Often a question arose whether in cases where additions or disallowances made by the ITO the penal provisions of section 271 (1)(c) would attract. Explanation 1 takes care of this situation. The explanation to section 271(1) of the Act reads as under:-
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 ts found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner 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 totalincome 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.
5.8 A conspectus of the Explanation makes it clear that the statute visualised the assessment proceedings and penalty proceedings to be wholly distinct anc independent of each other. In essence, the Explanation is a rule of evidence Presumptions which are rebutting table in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. The rational behind this view is that the basic facts are within the special knowledge of the assessee. Section 106 of the Indian Evidence Act, 1872, gives statutory recognition to this universally accepted rule of evidence. There is no discretion conferred on theAssessing Officer as to whether he can invoke the Explanation or not. Explanation 1 comes into operation when, in respect of any facts material to the computation of totalincome 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 n computing the totalincome 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 alt farts relating to the same and material to the computation of hisincome have been disclosed by him will be on the person charged with concealment . The explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation; it should not be a fantastic or fanciful one. As indicted above, the consequence follows as a matter of law. The burden is on the assessee. If he fails to discharge that burden, the presumption that he had concealed theincome or furnished inaccurate particulars thereof is available to be drawn.
6.11 On consideration of facts of the case under appeal we do not find that the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income. The assessee furnished a note along with the return of income reads as under :-
“1. Interest expenditure is not considered as disallowed under section 14A as the investments have been made not for the purpose of earning dividends but for business consideration including capital appreciation. However, without prejudice to the above contentions, if any interest were to be considered as being in relation to dividends earned, the disallowance would amount to Rs. 41,18,869 the working of which is being given in annexure enclosed.”
6.12 We find that the assessee has disclosed all the relevant material facts for the purpose of computation of total income. We also find that the assessee has offered explanation in this regard, which was not found false by the Assessing Officer. The explanation of assessee regarding claim of interest expenditures is bona fide. The assessee has substantiated his explanation. When the assessee has furnished all the material facts for the purpose of computation of totalincome the Assessing Officer is duly bound to calculate correct total income in accordance with law which may be different than the total income calculated by the assessee. Mere fact that the Assessing Officer while discharging his duty has recalculated the total income in accordance with law which is not the same as calculated by the assessee, it cannot be held that the assessee has concealed the particulars of hisincome or furnished inaccurate particulars of such income or there is a deemed concealment in accordance with Explanation- 1 of Section 271(1)(c).
