Case: Sri T. Ashok Pai Vs. Commissioner of Income Tax, Bangalore

amendment of Section 271(1)(C) made in the year 1964 to hold : "Even after the amendment of 1964, the penalty proceedings, it is evident, continue to be penal proceedings. Similarly, the question whether the assessee has concealed the particulars of his income or has furnished inaccurate particulars of his income continues to remain a question of fact. Whether the Explanation has made a difference is while deciding the said question of fact the presumption created by it has to be applied, which has the effect of shifting the burden of proof. The entire material on record has to be considered keeping in mind the said presumption and a finding recorded." 24. The question came for consideration of this Court yet again in K.C. Builders and Anr v. Assistant Commissioner of Income-Tax 2004 (265) ITR 562 = (2004) 5 SCC 731), wherein it was held : "One of the amendments made to the abovementioned provisions is the omission of the word deliberately from the expression deliberately furnished inaccurate particulars of such income. It is implicit in the word concealed that there has been a deliberate act on the part of the assessee. The meaning of the word concealment as found in Shorter Oxfort English Dictionary, third edition, Volume I, is as follows :In law, the intentional suppression of truth or fact known, to the injury or prejudice of another.The word concealment inherently carried with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if it takes out the case from the purview of non-disclosure, it cannot by itself, even if it takes out the case from the purview of non-disclosure, it cannot by itself take out the case from the purview of non-disclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under Section 271(1)(iii) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income." 25. The said principle has been reiterated in M/s Virtual Soft Systems Ltd. v. Commissioner of Income Tax, Delhi 2007 (2) SCALE 612 , where it was held : "24. Section 271 of the Act is a penal provision and there are well established principles for the interpretation of such a penal provision. Such a provision has to be construed strictly and narrowly and not widely or with the object of advancing the object and intention of the legislature." 26. Referring to a large number of decisions, it was furthermore observed : "27. Every statutory provision for imposition of penalty has two distinct components: (i) That which lays down the conditions for imposition of penalty.(ii) That which provides for computation of the quantum of penalty.Section 271(1)(c) and clause (iiii) relate to the conditions for imposition of penalty, whereas, on the other hand , Explanation 4 to Section 271(1)(c) relates to the computation of the quantum of penalty.28. The provisions of Section 271(1)(c)(iii) prior to 1.4.1976, and after its amendment by the Finance Act, 1975 with effect from 1.4.1976, later provisions being applicable to the assessment year in question, being substantially the same except that in place of the word income in sub clause (iii) to sub clause (c) of Section 271 prior to its amendment by Finance Act, 1975, the expression "amount of tax sought to be evaded" have been substituted. Explanation 4 inserted for the purpose of clause (iii) where the expression "the amount of tax sought to be evaded", was inserted had in fact made no difference in so far as the main criteria, namely, absence of tax continued to exist, prior to or after 1.4.1976, changing only the measure or the scale as to the working of the penalty which earlier was with reference to the income and after the amendment related to the tax sought to be evaded. The sine qua non which was there prior or after the amendment on 1.4.1976 to the fact that there must be a positive income resulting in tax before any penalty could be levied continued to exist. The penalty imposed was in addition to any tax. If there was no tax, no penalty could be levied. The return filed declaring loss and assessment made at a reduced loss did not warrant any levy of penalty within the meaning of Section 271(1)(c)(iii) with or without Explanation 4." 27. In Commissioner of Income Tax, Indore v. Suresh Chandra Mital (2003) 11 SCC 729 , whereupon Mr. Datta, learned Additional Solicitor General relied, no reason was assigned and only the order of the High Court was not interfered with. Therein, it appears, the assessee pleaded that he had submitted the revised return of income which was not found to be sufficient. 28. In M. Janardhana Rao v. Joint Commissioner of Income Tax (2005) 2 SCC 324 , whereupon again reliance was placed by Mr. Datta, this Court was concerned with the meaning of the substantial question of law as obtaining in Section 271A of the Income Tax Act. We are not concerned with the said question in the present case. 29. It is not a case where penalty has been imposed for breach of contravention of a commercial statute where lack of or intention to contravene or existence of bona fie may not be of much importance. It is also not a case where penalty is mandatorily impossible. It was, therefore, not a case where the enabling provision should have been invoked. 30. For the reasons aforementioned the

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]The assessee is in appealaggrieved by and dissatisfied with a judgment dated 29.9.2005, passed by a Division Bench of the Karnataka High Court in ITRC No.492 of 1998 whereby and whereunder answer to the following question was rendered in the, on thefacts and in the circumstances of the case, the Tribunal was right in holding that penalty u/s.271(1)(C) was not exigible in the present casef an explanation given by the assessee with regard to the mistake committed by him has been treated to be bona fide and it has been found as of fact that he had acted on the basis of wrong legal advice, the question of his failure to discharge his burden in terms of explanation appended to Section 271(1)(C) of the Income Tax Act would not ariseThe order imposing penalty is quasi-criminal in nature and, thus, burden lies on the department to establish that the assessee had concealed his income. Since burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitute good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angleA mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsiIt is not a case where penalty has been imposed for breach of contravention of a commercial statute where lack of or intention to contravene or existence of bonamay not be of much importance. It is also not a case where penalty is mandatorily impossible. It was, therefore, not a case where the enabling provision should have been invoked