JUDGMENT
S.H. Kapadia, J.
1. The Department has come in appeal under Section 260A of the Income-tax Act, 1961 (hereinafter referred to, for the sake of brevity, as “the said Act”), against the judgment and order of the Tribunal dated May 30, 2000, cancelling the penalty levied by the Assessing Officer, amounting to Rs. 1,83,310.
Facts :
2. The assessee is a builder. He constructed four (4) buildings consisting of 30 flats at Dahanu. The assessee sold 28 flats. The remaining two flats have been shown by him as a closing stock having an area of 1,073 square feet. The assessee valued the closing stock at Rs. 97,175 at 90.56 per square foot. The Assessing Officer came to the conclusion that there is undervaluation of the closing stock. This has not been challenged by the assessee.
3. In its project account, the assessee debited Rs. 2,86,389 on account of the sub-contract for extra work. The Assessing Officer summoned Shri K. K. Patel of Dahanu (alleged sub-contractor) in order to ascertain the genuineness of the claim. He was examined on oath under Section 131. The alleged subcontractor categorically denied to have done any extra work. He denied having made any claim of Rs. 2,86,389 to the assessee. He categorically denied the case of the assessee that the said sum was payable to him. An opportunity was given to the assessee to cross-examine Shri K. K. Patel, who was the witness for the Department. According to the Department, the assessee did not cross-examine Shri K. K. Patel. Hence, the Assessing Officer came to the conclusion that the assessee had claimed a fictitious expense to the tune of Rs. 2,86,389. This decision is also accepted by the assessee.
4. The Assessing Officer also found in the order of assessment, suppression of sale consideration to the tune of Rs. 24,457. This is also conceded by the assessee.
5. The assessee did not go in appeal against the findings of the Assessing Officer on suppression of income. After adding the suppressed income, assessment was made on March 31, 1989, at Rs. 4,97,777 for the assessment year 1988-89.
6. A notice under Section 274 read with Section 271(1)(c) was issued on March 31, 1989. In response, the assessee by its letter dated December 5, 1990, denied that it has suppressed the income. It also denied that it had furnished inaccurate particulars of income. By the said letter, the assessee denied that it had refused to cross-examine Shri K. K. Patel. By the said letter, the assessee sought opportunity to cross-examine Shri K. K. Patel. By the said letter, the assessee submitted that they have not challenged the Department’s case of suppression of income to avoid litigation and to co-operate with the Department. That, they had agreed the addition of income as they sought to co-operate with the Department. That, they had waived to cross-examine Shri K. K. Patel under a wrong impression. Therefore, they requested the Assessing Officer to drop the penalty proposed under Section 271(1)(c). However, the Assessing Officer rejected the request of the assessee. The Assessing Officer found that despite opportunity, the assessee had refused to cross-examine Shri K. K. Patel. The Assessing Officer found that there was no reason for Shri Patel to deny carrying out the work if he had really carried out the work as a sub-contractor. The Assessing Officer, therefore, came to the conclusion that the alleged extra work was not done by the assessee. He, therefore, concluded suppression of income to the tune of Rs. 3,49,158 and levied minimum penalty of Rs. 1,83,310 under Section 271(1)(c) of the said Act. Ultimately, the matter came by way of appeal to the Tribunal. The appeal was filed by the assessee.
7. The Tribunal decided the appeal in favour of the assessee. The impugned decision of the Tribunal is dated May 30, 2000. The Tribunal found that the main dispute between the parties was in respect of addition of Rs. 2,86,389 out of the total amount of Rs. 3,49,158. That, the main dispute was in respect of the deduction, which the assessee claimed on the ground that it had incurred the liability of the said amount to the sub-contractor for extra work done by him. The Tribunal found that the Assessing Officer in the present case had not invoked the Explanation to Section 271(1)(c) while initiating the penalty proceedings. That, the Assessing Officer had not invoked the said Explanation even while imposing the penalty, whereas the Commissioner of Income-tax (Appeals) had sustained the penalty mainly by relying upon the Explanation. The Tribunal further held that the Commissioner of Income-tax (Appeals) was wrong in sustaining the penalty because no show cause notice was given by the Assessing Officer invoking the Explanation as laid down by the judgment of the Bombay High Court in the case of CIT v. P.M. Shah [1993] 203 ITR 792. The Tribunal rightly concluded relying on the judgment of the Bombay High Court in P. M. Shah’s case [1993] 203 ITR 792 that penalty could not be sustained without the Assessing Officer invoking the Explanation by giving show cause notice. That, in the present case, no such notice was given. Therefore, the Tribunal, relying on the judgment of the Bombay High Court in P. M. Shah’s case [1993] 203 ITR 792, cancelled the penalty. Being aggrieved, the Department has come in appeal.
8. In the meantime, on August 21, 2001, i.e., after the impugned decision of the Tribunal in this case, the Supreme Court in the case of K.P. Madhusudhanan v. CIT [2001] 251 ITR 99 has overruled the judgment of the Bombay High Court in CIT v. P.M. Shah [1993] 203 ITR 792. The Supreme Court has held that the Explanation to Section 271(1)(c) was an integral part of Section 271 and, therefore, when the Assessing Officer issues a notice under Section 271, he makes the assessee aware that the entire section, including the Explanation, will be used against him. The Supreme Court has further held that by reason of the said Explanation where the total income returned by the assessee is less than 80 per cent. of the total income assessed under Section 143 or 144 or 147, the assessee is deemed to have concealed the particulars of his income or the assessee is deemed to have furnished inaccurate particulars of income unless the assessee proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The Supreme Court further held that if the assessee fails to prove the circumstances stated in the Explanation then he shall be deemed to have concealed the particulars of his income, and, consequently, he will be liable to penalty. That, no express invocation of the Explanation was required. This judgment was not before the Tribunal. The Tribunal decided the matter on the basis of the earlier judgment of the Bombay High Court in the case of CIT v. P.M. Shah [1993] 203 ITR 792. The Tribunal has proceeded on the basis that the Explanation was inapplicable.
Findings :
9. In the circumstances, we are of the view that the matter needs to be remanded back to the Tribunal. The reasons are obvious. The entire case has proceeded on the basis that the Explanation has not been invoked by the Department. By reason of the Explanation, the burden is on the assessee to prove the circumstances stated in the Explanation and on his failure to prove those circumstances, the assessee is deemed to have concealed particulars of his income or he is deemed to have furnished inaccurate particulars of income. Once the Explanation is held to be an integral part of the Section 271(1)(c), then the burden will shift to the assessee and in that light, the Tribunal will have to consider the facts pf this case de novo. As stated above, the Tribunal was right when it delivered its impugned judgment. The Tribunal decided the matter on the basis of the judgment of the Bombay High Court in CIT v. P. M. Shah [1993] 203 ITR 792, which judgment is subsequently overruled. We do not wish to express any opinion on the merits. To be fair to the Tribunal, we want the Tribunal to decide the matter on the basis of the Explanation being treated as an integral part of the said section. If the Explanation is to be read as a part of the main section as held by the Supreme Court without any separate invocation by the Department, then the case will have to be looked into from a different angle altogether. In this case, the Commissioner of Income-tax (Appeals) came to the conclusion that the assessee had deliberately supplied inaccurate particulars. This decision was reversed by the Tribunal on the ground of there was no invocation of the Explanation. Hence, we remit the matter to the Tribunal to decide the matter de novo in the light of the judgment of the Supreme Court in Madhusudhanan’s case [2001] 251 ITR 99.
Conclusion :
10. In the circumstances, the following order is passed.
ORDER
11. The impugned judgment and order dated May 30, 2000, passed by the Tribunal in Income-tax Appeal No. 8412/Bombay of 1992 is hereby set aside and the matter is remitted back to the Tribunal for de novo decision in accordance with law.
12. The appeal stands accordingly allowed. No order as to costs.