Addition made in computation of income comes under Explanation 1(B) of Section 271(1) related to concealment penalty under the Income Tax Act. Explanation rejected by ITAT in assessment proceedings, can not be considered bona fide in penalty proceedings-High Court
ABCAUS Case Law Citation:
ABCAUS 2169 (2018) (01) HC
Important Case Laws Cited/relied upon by the parties:
Commissioner of Income Tax v. P.M.Shah, [(1993) 203 ITR 792]
M/s.K.P.Madhusudhanan v. Commissioner of Income Tax, Cochin [(2001) 251 ITR 99 (SC)]
Brief Facts of the Case:
The respondent assessee was the wife and legal heir of the deceased assessee who had filed his return of income declaring an income of Rs.97,430/-. In the original assessment for the relevant assessment year, the assessee had appealed in which there was a remand made and eventually an addition of Rs. 20,65,000/-was made towards unexplained investment in a shopping-cum-office complex constructed.
However, the unexplained income, after considering the relief given by the ITAT was worked out at Rs. 17,40,000/-, on which the AO imposed penalty at 100% of the tax sought to be evaded.
The CIT(A) allowed the appeal setting aside the penalty on two grounds. The first ground was that there was no specific mention of the proceedings taken under Explanation 1(B) to Section 271(1) of the Income Tax Act, 1961. The other ground was that the Tribunal, in the original assessment, had accepted the contention of the assessee that in the construction, he had utilised materials, which was retained by him, out of the Government contracts which had been abandoned. The CIT(A) held that there could be no allegation of concealment of income sustained, with respect to the unexplained income, as there was a possibility of the diversion having taken care of the entire investments.
The CIT (Appeals) further held that though there may be a justification for making an addition in the computation of income, it does not necessarily follow that the said amount is concealed income or that the explanations offered are not bona fide.
The Tribunal held that as no notice was issued by the Assessing Officer intimating his intention to invoke the explanation to Section 271(1)(1)(c) the appellant had no opportunity of meeting the case under the explanation. Therefore, it held that the levy of penalty under the explanation, was not sustainable.
Observations made by the High Court:
It was noted that the Hon’ble Supreme Court had held that when a notice is issued under Section 271, the Explanation also being included under the provision, the assessee is sufficiently put to notice of the entire provision as available under Section 271(1). The High Court opined that the order in appeal, as confirmed by the Tribunal could not be sustained on this ground.
The High Court noticed that if the explanations offered were bona fide, the Tribunal would have allowed the same in the appeal from the assessment itself. The Tribunal, obviously had considered the claim raised by the assessee as to diversion of materials as retained with the assessee from the abandoned Government contracts, and refused to allow the entire claim.
The High Court opined that infact the CIT (Appeals) had virtually sat in appeal over the orders of the Tribunal in the assessment proceedings. There could be no ground of bona fides to set aside the penalty when the Tribunal considering the assessment proceedings had refused to allow the claim to make deletion in the computation of income as made by the Assessing Officer.
The High Court also rejected the finding of the Commissioner that though there would be justification for making an addition in computation of income, it does not necessarily follow that the said income is concealed income. The High Court opined that it was a wrong understanding of the explanation.
It was noted that there was an unexplained income as discernible from the records maintained by the assessee. The assessee had a duty to explain and substantiate the source of such income. The assessee had an explanation of diversion of materials as retained from an abandoned Government contract, which was not fully accepted by the Tribunal. When the explanation has not been accepted by the Tribunal in the assessment proceedings, there was no reason why in the penalty proceedings the same should be considered as a bona fide explanation, especially when there was nothing more available with the Appellate Authority considering the penalty proceedings, to substantiate such diversion.
It was noted that there was no substantiating material produced by the assessee and available with the Tribunal at the earlier stage when the assessment proceedings were considered. The High Court opined that in such circumstances, the addition made of computation of income as available definitely comes under Explanation 1(B) of Section 271(1) of the Act.
The questions of law was answered in favour of the Revenue and against the assessee