Commissioner of Income Tax vs G.R. Rajendran

R. Jayasimha Babu, J.—The question referred to us at the instance of the Revenue is :

Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in cancelling the penalty levied u/s 271(1)(c) of the

Income Tax Act, 1961 ?

The assessment year is 1982-83.

The Assessing Officer levied penalty on the ground that the assessees had concealed their income inasmuch as a raid carried out in the

assessees'' premises had resulted in substantial quantum of jewellery being found, some of which had not been declared by the assessees and the

members of their family. The assessees had offered an explanation for that excess quantity of jewellery. That explanation however was not

considered by the Assessing Officer. He proceeded to levy the penalty by observing that the period of limitation was running out and therefore he

has to make a final order.

The Commissioner, on appeal, agreeing with the assessee that there had been no consideration of his explanation set aside the penalty that had

been imposed. The Revenue carried the matter to the Tribunal which agreed with the Commissioner.

Section 271(1)(c) of the Income Tax Act, 1961, in its Explanation refers to the explanation offered by the person being found to be false or not

being one which the person offering the explanation is able to substantiate. The consideration of the explanation offered is, therefore, a duty cast

upon the officer imposing penalty. In the absence of such consideration and the finding that the explanation is false or that the assessee had failed to

substantiate the explanation offered, the officer cannot proceed to hold that there has been concealment of income attracting levy of penalty.

The question referred is therefore answered in favour of the assessee and against the Revenue.