Wednesday, June 30, 2010

Penalty is leviable u/s 271(1)(c)

Where the assessee is not able to substantiate his claim of expenditure with any evidence, penalty is leviable under section 271(1)(c)

Only when assessee is able to offer reasonable explanation, based on some evidence, Assessing Officer cannot invoke Part B of Explanation to section 271(1)(c)

 

·        Where the assessee is not able to substantiate his claim of expenditure with any evidence, penalty is leviable under section 271(1)(c)

 

[2010] 5 taxman 107 (Hyd. - ITAT)

ITAT, HYDERABAD BENCH ‘B’, HYDERABAD

V. Kumara Swamy Naidu  v.  ITO

ITA no. 108/Hyd/2009

May 14, 2010  

FACTS

 

The assessee is an individual deriving income from poultry farming. Before the assessing officer, the assessee has shown to have purchased a site property at Chennai in the assessment year 1994-95 and development charges for the said property were stated to have been spent during the period relevant to the assessment year 1995-96. For the assessment year under consideration, the indexed cost of the said development charges were taken at Rs.83,398/- for the purpose of working out the capital gains. During the course of assessment proceedings for the assessment year 2005-06 it was noticed by the assessing officer that the said development charges were not shown either in the balance sheet or cash flow statement attached to the return of income filed by the assessee for the assessment year 1995-96. Hence the assessing officer has rejected the claim of the assessee for considering the indexed value of the said development charges and the capital gains on the said property was computed accordingly. Simultaneously, the assessing officer has initiated penalty proceedings u/s 271 (1) ( c) for concealment of income by way of false claim under the head ‘development charges’.

In response to the show cause notice issued by the assessing officer in this respect, the assessee has replied that most of the additions made in the assessment for the assessment year 2005-06 were accepted by him, but claimed that the development charges were met out of egg collections during the relevant period and therefore requested for dropping of the penalty proceedings. However, the assessing officer was not satisfied with the said explanation because the assessee has neither shown any income from supply of eggs to Chennai nr any expenditure towards development charges were reflected in the balance sheet or cash flow statement. In view of this, the assessing officer has concluded in the penalty order that the assessee has furnished inaccurate particulars, thereby concealing the true income of the assessee. Hence penalty u/s 271 (1) ( c) of the IT Act was levied at maximum penalty of Rs.50,040/-.

 

HELD

 

The assessing officer has given ample opportunity to the assessee to prove the expenses incurred towards the development charges. The assessee had not furnished any evidence. The primary burden cast upon the assessee was not discharged. In these circum stances, it is to be construed that assessee has concealed his income and there is a provision regarding deemed concealment in the form of explanation in section 271 (1) (c) of the IT Act which reads as follows:

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 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 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.”

 

It is clear from the above Explanation that the statute visualized that the assessment and penalty proceedings to be wholly distinct and independent of each other. Part B of the Explanation is that the person must provide an explanation which is bona fide and he should substantiate that explanation by some evidence with him. If he fails to do so, his Explanation is treated as untenable. Only when the assessee is able to offer reasonable explanation, based on some evidence, the assessing officer cannot invoke Part B of the Explanation unless the assessing officer has given finding based on some contradictory evidence to disprove that explanation offered by the assessee false. When the assessee is not able to substantiate the explanation and failed 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 the assessee as a result thereon, shall, be deemed to be represent income in respect of which particulars have been concealed. In the present case, assessee is not able to substantiate his claim of expenditure with any evidence and in the circumstances, we are of the opinion that penalty is leviable u/s 271 (1) (c) of the Act.

 

RELEVANT EXTRACTS:

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5. We have heard both the parties and perused the material on record. The main contention of the assessee’s counsel is that the assessee has co-operated with the Department in the course of assessment proceedings, the assessee also paid the due tax. Because of the smallness of amount involved, the assessee has not filed an appeal in the case of quantum addition. The assessee has given bona fide explanation for the lapse which was not accepted by the assessing officer. That itself cannot be a reason for levying penalty. Alternatively, she prayed to levy minimum penalty. Admittedly, in the present case, the assessee has claimed ‘development expenditure’ w.r.t. capital assets which was not able to substantiate with the evidence in spite of giving opportunity to the assessee. Having regard to these circumstances, the assessing officer reached the conclusion that the assessee has furnished inaccurate particulars of income thereby it lead to concealment of true income and levied maximum penalty u/s 271 (1) ( c ) of the Income Tax Act. We have carefully gone through the factual position of the case. The assessing officer has given ample opportunity to the assessee to prove the expenses incurred towards the development charges. The assessee had not furnished any evidence. The primary burden cast upon the assessee was not discharged. In these circum stances, it is to be construed that assessee has concealed his income and there is a provision regarding deemed concealment in the form of explanation in section 271 (1) (c) of the IT Act which reads as follows:

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 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 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. It is clear from the above Explanation that the statute visualized that the assessment and penalty proceedings to be wholly distinct and independent of each other. Part B of the Explanation is that the person must provide an explanation which is bona fide and he should substantiate that explanation by some evidence with him. If he fails to do so, his Explanation is treated as untenable. Only when the assessee is able to offer reasonable explanation, based on some evidence, the assessing officer cannot invoke Part B of the Explanation unless the assessing officer has given finding based on some contradictory evidence to disprove that explanation offered by the assessee false. When the assessee is not able to substantiate the explanation and failed 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 the assessee as a result thereon, shall, be deemed to be represent income in respect of which particulars have been concealed. In the present case, assessee is not able to substantiate his claim of expenditure with any evidence and in the circumstances, we are of the opinion that penalty is leviable u/s 271 (1) (c) of the Act.

 

 

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