By K. B. Bhujle, Advocate
New Page 1
12 Penalty : Concealment of income : S.
271(1)(c) Expl. 1 of Income-tax Act, 1961 : A.Y. 1989-90 and 1990-91 : Surrender
of income by assessee : No separate enquiry necessary before imposing penalty :
Assessee to explain about bona fides in penalty proceedings:
Matter remanded.
[Dy. Director of Income-tax v. Chirag Metal Rolling Mills
Ltd., 305 ITR 29 (MP)]
For the A.Ys. 1989-90 and 1990-91, in the course of
assessment proceedings the assessee offered incomes of Rs.74,92,919 and
79,00,198 by way of disallowance u/s.40A(3) of the Income-tax Act, 1961. The
Assessing Officer made the additions and also imposed penalty u/s.271(1)(c) for
concealment of the added amount. In appeal, the CIT(A) cancelled the penalty.
The Tribunal dismissed the appeal filed by the Revenue.
On appeal by the Revenue, the Madhya Pradesh High Court
remanded the matter back to the Tribunal for fresh decision according to law,
and held :
“(i) The combined reading of Explanation 1 to S. 271(1)(c)
of the Act and the verdict of the Hon’ble Apex Court in the matter of Sir
Shadilal Sugar and General Mills Ltd. v. CIT, (1987) 168 ITR 705 and K.
P. Madhusudhan v. CIT, (2001) 251 ITR 99, it is crystal clear that prior
to Explanation 1, the position of law was if the assessee agrees for addition
of his income to buy peace, then it will not follow that agreed amount to be
added was concealed income and the Revenue was required to prove the mens
rea. Because of this view taken by the Hon’ble Apex Court in the matter of
Sir Shadilal Sugar and General Mills Ltd. v. CIT, (1987) 168 ITR 705
Explanation 1 to S. 271(1)(c) of the Act was added to the Income-tax Act and
after taking into consideration the Explanation, the Hon’ble Apex Court, in
the matter of K. P. Madhu-sudhan (2001) 251 ITR 99, has laid down that no
separate enquiry is necessary for imposing the penalty. However, from a plain
reading of the Explanation, it is evident that some sort of enquiry is
necessary, therefore, the proceedings initiated by the Revenue for imposing
the penalty u/s.271(1)(c) of the Act shall be treated as proceedings and the
assessee is at liberty to show his bona fides in that proceedings. If
the assessee fails to show his bona fides, in that case penalty can be
imposed by the Revenue.
(ii) This Court is of the view that the learned Tribunal is
not justified in holding that the onus is on the Revenue to prove mala
fides, even when the primary onus was on the assessee to prove that there
was no concealment in view of Explanation 1 to S. 271(1)(c) of the Act. In
view of the answer to the first question, it appears that no separate enquiry
is necessary before imposing the penalty. In the penalty proceedings itself,
initiated by the Revenue, the assessee can explain his bona fides and
that all the facts relating to the same and material to the computation of his
total income have been disclosed by him.”
