LexM/S. K.P. MADHUSUDHANAN versus COMMISSIONER OF INCOME TAX, COCHIN
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MIS. K.P. MADHUSUDHANAN A v. > COMMISSIONER OF INCOME TAX, COCHIN AUGUST 21, 2001 [S.P. BHARUCHA, Y.K. SABHARWAL AND BRIJESH KUMAR, JJ.] B - Income Tax Act, 1961: Section 271 (I) (c)-Explanation (JB) Income- Concealment by assessee-Penalty-Notice under Section 27/(J)(c)-No express reference to Explanation (I BJ-Effect of-Held Explanation to Section c 271 (I) (c) is part of Section 271-Express invocation of the Explanation in .. notice under Section 271 not necessary . Appellant, a partnership firm, filed its return for the year 1986-87. During the course of proceedings the Assessing Officer noticed that the assessee had not made entries on relevant dates in the Books of Accounts in D respect of transactions relating to purchase of rice. In its explanation submitted to Revenue the assessee offered the amount of Rs. 93,000 as additional income and the said amount was treated as unexplained investment. However, the Assessing Officer found the assessee's Explanation unacceptable and applying Explanation (18) of Section 271(1) (c) of the Income Tax Act, 1961 imposed upon the assessee a penalty of Rs. 37 ,975. The Income Tax Appellate Tribunal E held that penalty cannot be levied as the Assessing Officer in the proposal under Section 271(1)(c) had not referred to Explanation (18) to Section 271(l)(c). A Division Bench of the High Court reversed the view taken by Tribunal. Hence this appeal by assessee. Dismissing the appeal, the Court F HELD: Explanation to Section 271(1)(c) is a part of Section 271. When the Income-tax Officer or the Appellate Assistant Commissioner issues to an > assessee a notice under Section 271, he makes the assessee aware that the 1. - J.-:sions thereof are to be used against him. These provisions include the G Explanation. The assessee is, therefore, by virtue of the notice under Section J.l 1, pllt to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the H 2 SUPREME COURT REPORTS [2001] SUPP. 2 S.C.R. A penalty provided by that Section. No express invocation of the Explanation to Section 271 in the notice under Section 271 is necessary before the provisions of the Explanation therein are applied. (SH; 6-A, Bf B c Commissioner of Income Tax v. P.M Shah 203 ITR 792 and Commissioner of Income Tax v. Dharamchand L. Shah 204 ITR 462, overruled. Sir Shodila/ Sugar and General Mills Ltd and Anr. v. Commissioner of Income Tax, Delhi 168 ITR 705, held inapplicable. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6465 of 2000 From the Judgment and Order dated 27.1.2000 of the Kerala High Court in !TR No. 177 /97. T.L.V. Iyer and Subramonium Prasad for the Appellant. D B.B. Ahuja, Rajiv Nanda, Nikhil Sakhardande and B.V.B. Das for Sushma Suri for the Respondent. The Judgment of the Court was delivered by BHARUCHA, J. The High Court answered in the negative and in E favour of the Revenue the following questions : F G "I. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact, in deleting the penalty levied under Section 27l(l)(c) of the I.T. Act? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact, in holding that this is an agreed assessment on the basis of which penalty is not leviable? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and facts, ii) holding that penalty cannot be levied as the assessing officer in the proposal under Section 271(1)(c) had not referred to Explanation (IB) to Section 271(1)(c)?" The assessee is in appeal by special leave. For the assessment year 1986-87 the assessee, which is a partnership firm, filed a return of income H which stated that its total income was Rs. 6, 76,890. The assessment was - .. K. P. MADHUSUDHANAN v. C.J.T. [BHARUCHA, J.] 3 completed determining the total income of the assessee at Rs. 7,90,170. This A included a sum of Rs. 93,000 assessed as income from other sources. ;. The assessee purchased rice from suppliers in Andhra Pradesh. The rice was some times sent directly and payment therefore was made by demand draft or telegraphic transfer. During the course of the assessment proceedings t
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