A. PENALTY U/S 271(1)(c) – CARDINAL PRINCIPLES
The following Cardinal Principles have been laid out by the Supreme Court Court in Dilip N. Shroff v. CIT (2007)161 Taxmann 218 and T. Ashok Pai v. CIT (2007) 161 Taxmann 340, for the purpose of imposition of penalty under section 271(1)(c) ::
1). Penalty not automatic
A finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted for the purpose of Section 271(1)(c).
2). Primary Burden of Proof
The primary burden of proof is on the department. The statute requires satisfaction on the part of the Assessing Officer. He is required to arrive at a satisfaction to show that there is primary evidence to establish that the assessee has concealed the amount or furnished inaccurate particulars of income and this onus is to be discharged by the department.
3). Matter to be considered afresh
Since the burden of proof in a penalty proceeding varies from that in an assessment proceeding, that a particular receipt is income cannot automatically be adopted for the purpose of Section 271(1)(c), though a finding in the assessment proceeding constitutes good evidence in the penalty proceedings. In penalty proceedings, the authorities must consider the matter afresh.
4). Difference of Opinion
If a certain disclosure is based on the opinion of an expert, only because his opinion is not accepted, or some other expert gives another opinion, the same by itself may not be sufficient for arriving at the conclusion that the assessee has furnished inaccurate particulars of income attracting penalty under section 271(1)(c).
5). Law Continues to hold good except for plea of mens rea
The law laid down in Dilip N. Shroff v. CIT (supra) as to the meanings of the words “conceal” and “inaccurate” continues to be good law because what was overruled in Dharmendra Textile Processors 306 ITR 277 (SC) was only that part in Dilip Shroff where it was held that mens rea was an essential requirement for penalty u/s 271 (1)(c). – CIT v. Reliance Petroproducts Pvt Ltd (2010) (SC)
B. PENALTY U/S 271(1)(c) ON ADDITIONS U/S 68, 69, 69A, 69B AND 69C
1). Legal Fiction is only for a definite purpose. They have to be strictly construed and they are limited to the purpose for which they are created and should not be extended beyond their legitimate field.
2). There cannot be fiction upon fiction. It assumes significance in the context of penalty provisions. Since deeming provisions are created by a fiction, there can be no fiction upon fiction and, therefore, the deemed income cannot be ipso facto (automatically) be liable for penalties.
3). Per Gujarat High Court in Commissioner Of Income Tax vs Baroda Tin Works (1996) 221 ITR 661 (Guj):
“12. ….. The law is well settled that though the findings recorded in assessment orders are relevant evidence to support the allegation of concealment, but these cannot be foundation for holding the assessee guilty of concealment. ….. “
“13. The fiction created under sections 68, 69, 69A, 69B and 69C by itself, cannot be extended to penalty proceedings to raise the presumption about concealment of such income.”