M/S Gems & Gems (Registered Partnership Firm) v. The Commissioner Of Income Tax-Ii, New Central Revenue Building Statue Circle, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 10 / 2015 M/s Gems & Gems (Registered Partnership Firm).5, BardiyaColony, Jaipur., Through Its Partner Abhin Jain S/o Sh. RajendraKumar Jain, Aged 33 Years Approx, B/c Jain. ----Appellant Versus 1. The Commissioner of Income Tax-II, New Central Revenue Building Statue Circle, Jaipur. 2. The Assistant Commissioner of Income Tax ,Circle-5 New Central Revenue Building Statue Circle, Jaipur. ----Respondents _____________________________________________________ For Appellant(s) : Mr. Naresh Gupta For Respondent(s) : Mr. K.D.Mathur & Mr. Prateek Kedawat for Mr. R.B.Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 12/09/2017 1. By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasallowed the appeal of the department reversing the view taken by the CIT(A). 2. This Court while admitting the appeal on 20.12.2016, framed the following substantial question of law: “Whether on the facts and in the circumstances ofthe case, in recording the finding of reversal, theITAT acted on total misconception in ignoring theappellant’s explanation made in quantumproceedings and the important materials on recordand in applying wholly mistaken tests in sustainingthe penalty u/s 271(1)(c) of the Act?” 3. The facts of the case on the basis of synopsis submitted byappellant are that appellant partnership firm is engaged in thebusiness of manufacturing processing and trading of various typesof precious and semi-precious stones. The appellant has beenmaintaining complete books of accounts including stock register,quantity wise and weight wise separately for each type of stone. Ithas been valuing its closing stock of the stones consistentlyfollowing the same system and method of valuation as acceptedby the revenue in earlier years at cost or market price whicheveris less. The value of the stone being subjective satisfaction of thebuyer is dependent on their liking or disliking or suitability in thisline of trade. The saleable stock of superior quality are purchasedfirst by the customers, after assortment of find items as perbuyer’s choice; and at the end of the year, only the inferior qualityof the stones remained in stock having minimal value even lessthan the cost price. Accordingly, the appellant valued its stock atthe end of the year as per their ability, experience and commercialexpediency, deducting the cost of the sold stock from the totalstock of the particular stone. In order to ascertain the cost price ofthe sold stock, the gross profit is deducted from the sale value ofthe sold stock; thereafter, the cost price so ascertained of the soldstock is deducted from the total cost of the stock at the end of theyear of particular stone; resulting into the cost of the stock ofinferior quality at the end of the year is valued. 4. Counsel for the appellant contended that pursuant tothe notice issued against the present appellant the appellant has appeared before the AO and the observations which are made by the AO reads as under :- “The assessee is engaged in manufacturing and tradingof precious and semi precious stones. During the yearconsideration, the assessee has shown sales of Rs.3,46,54,366/- and shown gross profit of Rs. 31,80,702/-i.e. 9.18% as against sales of Rs. 85,18,891/- and grossprofit of Rs. 14,76,311/- i.e. 17.32% in the A.Y. 2005-06and sales of Rs. 99,28,907/- and gross profit of19,88,760/- i.e. 20.3% in the A.Y. 2004-2005. 4. Counsel for the appellant contended that pursuant tothe notice issued against the present appellant the appellant has appeared before the AO and the observations which are made by the AO reads as under :- “The assessee is engaged in manufacturing and tradingof precious and semi precious stones. During the yearconsideration, the assessee has shown sales of Rs.3,46,54,366/- and shown gross profit of Rs. 31,80,702/-i.e. 9.18% as against sales of Rs. 85,18,891/- and grossprofit of Rs. 14,76,311/- i.e. 17.32% in the A.Y. 2005-06and sales of Rs. 99,28,907/- and gross profit of19,88,760/- i.e. 20.3% in the A.Y. 2004-2005. Regarding the trading results the assessee contendedthat its sales are increased four times as compared tothe A.Y. 2005-06 and three and half times as comparedto the A.Y. 2004-05. It also contended that the assesseeis maintaining complete quantitative details includingday to day stock register, the details of which have beenfiled along with Tax Audit Report with the return. During the course of examination it was noticed that theassessee has maintain the details of opening stock,purchases and sales in quantity only and no quality-wisedetails have been maintained. On examination ofvarious purchase vouchers it is noticed that the samestone has been purchased at varied prices. Therefore,books results of the assessee are not subject to anyverification and provisions of section 145(3) areapplicable in this case.” 5. Against the assessment which was made, the representativeof the assessee has replied on 13.12.2008, which reads as under:-The AR of the assessee vide reply dated 13.12.2008submitted as under- “The correct valuation of stock would come to Rs.1,05,59,312/- instead of Rs. 92,24,226/- and G.P. Ratedeclared during the year is lower in compare to earlieryear. After further mutual discussion and put an end tolitigation as the assessee does not want to enter intounnecessary litigation and to purchase peace of mindthe assessee is agreeable for an addition of Rs. 15 lacsin trading results.The assessee does not want toenhance in closing stock to cause of unnecessary carryforwarding and adjusting the value of closing stock. Theassessee is agreeing to the addition to put an end tothe matter and to purchase peace of mind as he does not want to enter into unnecessary litigation with theDepartment.” I have considered the facts of the case andsubmission of the assessee. On the facts discussedabove it is found that provisions of section 145(3) isclearly applicable in this case. Therefore, tradingaddition of Rs. 15 lakh is made and added to theincome of the assessee. 6. Considering the above, he has taken us to the order of CIT(A) which reads as under:- “2.3 I have carefully considered relevant facts andcircumstances, in the light of the rival stands of the AOand Ld. AR, viz. The issue under consideration. Fromthe above, it can be seen that the concealment penaltywas imposed by the AO, primarily, for the reasons andfindings discussed in the assessment order only. Theaddition in the present case is made towards thevaluation of closing stock of Emerald Cut Stock, on theagreed basis, u/s. 145(3) of the Act. In other words theimpugned addition was made on assumption or guessbasis towards the valuation of the closing stock of theappellant, while rejecting the valuation offered by theappellant, thereof. 6. Considering the above, he has taken us to the order of CIT(A) which reads as under:- “2.3 I have carefully considered relevant facts andcircumstances, in the light of the rival stands of the AOand Ld. AR, viz. The issue under consideration. Fromthe above, it can be seen that the concealment penaltywas imposed by the AO, primarily, for the reasons andfindings discussed in the assessment order only. Theaddition in the present case is made towards thevaluation of closing stock of Emerald Cut Stock, on theagreed basis, u/s. 145(3) of the Act. In other words theimpugned addition was made on assumption or guessbasis towards the valuation of the closing stock of theappellant, while rejecting the valuation offered by theappellant, thereof. In this regard, it is a settled law that theassessment proceeding and the penalty proceedingis different in nature and also requires to be dealtin different manner. In the instant case, it true thatthe discrepancies observed, during the assessmentproceedings, were found sufficient to make anaddition u/s 145(3), on such accounts. However,from the penalty order it is perceived that the AOhas not spelt out any other additional and concretegrounds to justify the imposition of penalty towardssuch addition, per say. In this regard the recentjudgment of supreme court in the case of ReliancePetro Products Pvt. Ltd. (322 ITR 158) is foundrelevant, wherein it has been held that merelyrejection of any claim made by the assessee willnot, automatically, entail to the concealmentpenalty, unless some inaccurate particulars arefiled in this regard. Moreover, in view of variousrelated decisions, including of the Apex Court {Inthe case of Sangrur Vanaspati Mills(303 ITR 53)(P&H), subsequently affirmed by Hon'ble Supreme Court (308 ITR 18) (St.)} and the JurisdictionalHigh Court, {in the case of Shiv Lal Tak (251 ITR373) (Raj)}, it is held that no concealment penaltycan be imposed in case, where the addition hasbeen made on estimated basis. Since, as discussedabove, in the instant case the quantum additionwas made u/s 145(3) of the Act on estimate basis,therefore, in my considered opinion the AO'saction of imposition of penalty u/s 271(1)(c) of theAct, on such addition, is not justified and alsocontrary to the spirit of the relevant law. In view ofthe above, the penalty u/s 271(1)(c) is herebycancelled.” 7. He has also contended that the Tribunal has wronglyrelied on the judgment of Mak Data P. Ltd. vs. Commissioner ofIncome Tax-II, (2013) 358 ITR 593 (SC) decided on 30.10.2013,which reads as under:- “However, in the present case the appellant firm notonly furnished the details and explanation duringassessment proceedings justifying its valuation ofclosing stock of Emerald Cut (India) as mentionedSupre and in letter dated 20.10.2008 (Annexure-5)but also furnished its explanation in penaltyproceeding by way of written submissions filedbefore the AO, CIT(A) and ITAT. The appellantcategorically stated that the valuation of stock wasas per cost and market price whichever less is. Andfurther stated that the better quality of stones arepurchased by the customers at first after assortmentand only the inferior quality of stones remains instock at the end of the year which in any way doesnot fetch the same cost price that of better quality ofstones sold. The AO sought to value the closingstock as per historical cost method which ispracticable not possible in this line of trade in view ofthe modus operandi explained and stated in para-3supra. Otherwise, in the instant case there was noattempt to evade the tax inasmuch as, valuation ofstock at the end of the year would have directimpact on the value of opening stock of the nextyear and the increase of the valuation of closingstock in this year would have reduced in the income of the next year resulting to no tax impact finally. Inthe instant case, the revenue has failed to detectany evasion of tax like the case of Mak Data. Unlikethe Mak Data case, in the instant case, the agreedaddition was not for the concealed income proved bydocumentary evidence. In the instant case of theappellant, the addition was not proposed based ondocumentary evidence impounded/seized during thecourse of survey or search like the case of Mak Data.Apparently, in the instant case the agreed additionon account trading addition was voluntarily onestimate basis to buy peace and to avoid litigation.As such, the case of the Mak Data is not applicableto the case of the appellant. The case of the Mak Data is not applicable to thecase of the appellant at all and the ITAT has grosslyerred in making it applicable to the case of theappellant to sustain the penalty.” 8.Counsel for the appellant has relied upon in case ofCommissioner of Income-Tax vs. Bindal Jewellers, [2002] 257 ITR(Raj), observed as under:- “On the other hand, learned counsel for therespondent has contended that the learned Tribunal,on the basis of the material on record and the factthat goods of better quality carrying higher valuewere sold during the course of the accounting yearand goods of inferior quality were left, came to theconclusion after scrutinising the evidence. It issubmitted that proper accounts were kept and thateven the Income Tax Officer has not pointed out anydefect in the percentage in recovery of the finishedgoods and, as such, no question of law can bereferred on the finding of fact arrived at by theTribunal. Reliance has been placed on CWT v. SaraVarghese (Mrs.) [1991]187 ITR 450(Ker). We have heard learned counsel for the parties andperused the material on record. The value may differ from asset to asset and placeto place with different person and the value of theclosing stock cannot be mathematically calculated.The money value attributed to the stock should bedecided and estimated by the concerned authority ina reasonable and judicial manner on the basis of the facts and circumstances of the case available beforehim. In the instant case, the finding recorded by thelearned Tribunal cannot be said to be perverse. Noquestion of law for reference is made out.Consequently, the reference application underSection 256(2) of the Income Tax Act, 1961 isdismissed. 9.Counsel for the appellant has also relied upon in case ofCommissioner of Income-Tax vs. Reliance Petroproducts Pvt. Ltd.,[2010] 322 ITR 158 (SC), observed as under:- The value may differ from asset to asset and placeto place with different person and the value of theclosing stock cannot be mathematically calculated.The money value attributed to the stock should bedecided and estimated by the concerned authority ina reasonable and judicial manner on the basis of the facts and circumstances of the case available beforehim. In the instant case, the finding recorded by thelearned Tribunal cannot be said to be perverse. Noquestion of law for reference is made out.Consequently, the reference application underSection 256(2) of the Income Tax Act, 1961 isdismissed. 9.Counsel for the appellant has also relied upon in case ofCommissioner of Income-Tax vs. Reliance Petroproducts Pvt. Ltd.,[2010] 322 ITR 158 (SC), observed as under:- “8.A glance at this provision would suggest that inorder to be covered, there has to be concealment ofthe particulars of the income of the assessee.Secondly, the assessee must have furnishedinaccurate particulars of his income. Present is notthe case of concealment of the income. That is notthe case of the Revenue either. However, theLearned Counsel for Revenue suggested that bymaking incorrect claim for the expenditure oninterest, the assessee has furnished inaccurateparticulars of the income. As per Law Lexicon, themeaning of the word "particular" is a detail ordetails (in plural sense); the details of a claim, orthe separate items of an account. Therefore, theword "particulars" used in the Section 271(1)(c)would embrace the meaning of the details of theclaim made. It is an admitted position in thepresent case that no information given in the Returnwas found to be incorrect or inaccurate. It is not asif any statement made or any detail supplied wasfound to be factually incorrect. Hence, at least,prima facie, the assessee cannot be held guilty offurnishing inaccurate particulars. The LearnedCounsel argued that "submitting an incorrect claimin law for the expenditure on interest would amountto giving inaccurate particulars of such income". Wedo not think that such can be the interpretation ofthe concerned words. The words are plain andsimple. In order to expose the assessee to thepenalty unless the case is strictly covered by theprovision, the penalty provision cannot be invoked.By any stretch of imagination, making an incorrectclaim in law cannot tantamount to furnishinginaccurate particulars. In Commissioner of Income Tax,Delhiv.AtulMohanBindalMANU/SC/1496/2009MANU/SC/1496/2009 : 2009(9) SCC 589 where this Court was considering thesame provision, the Court observed that theAssessing Officer has to be satisfied that a personhas concealed the particulars of his income orfurnished inaccurate particulars of such income.This Court referred to another decision of this Courtin Union of India v. Dharamendra Textile ProcessorsMANU/SC/4448/2008MANU/SC/4448/2008 : 2008(13) SCC 369 as also, the decision in Union of Indiav. Rajasthan Spg. & Wvg. Mills 2009 (13) SCC 448and reiterated in para 13 that (page 13 of 317 ITR): 13. It goes without saying that for applicability ofSection 271(1)(c), conditions stated therein mustexist. Tax,Delhiv.AtulMohanBindalMANU/SC/1496/2009MANU/SC/1496/2009 : 2009(9) SCC 589 where this Court was considering thesame provision, the Court observed that theAssessing Officer has to be satisfied that a personhas concealed the particulars of his income orfurnished inaccurate particulars of such income.This Court referred to another decision of this Courtin Union of India v. Dharamendra Textile ProcessorsMANU/SC/4448/2008MANU/SC/4448/2008 : 2008(13) SCC 369 as also, the decision in Union of Indiav. Rajasthan Spg. & Wvg. Mills 2009 (13) SCC 448and reiterated in para 13 that (page 13 of 317 ITR): 13. It goes without saying that for applicability ofSection 271(1)(c), conditions stated therein mustexist. 9. Therefore, it is obvious that it must be shownthat the conditions under Section 271(1)(c) mustexist before the penalty is imposed. There can beno dispute that everything would depend upon theReturn filed because that is the only document,where the assessee can furnish the particulars of hisincome. When such particulars are found to beinaccurate, the liability would arise. In Dilip N.Shroff v. Joint Commissioner of Income Tax,MumbaiandAnr.MANU/SC/3182/2007MANU/SC/3182/2007 : 2007(6) SCC 329 this Court explained the terms"concealment of income" and "furnishing inaccurateparticulars". The Court went on to hold therein thatin order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to theCourt, the word "inaccurate" signified a deliberateact or omission on behalf of the assessee. It wenton to hold that Clause (iii) of Section 271(1)provided for a discretionary jurisdiction upon theAssessing Authority, inasmuch as the amount ofpenalty could not be less than the amount of taxsought to be evaded by reason of such concealmentof particulars of income, but it may not exceedthree times thereof. It was pointed out that theterm "inaccurate particulars" was not definedanywhere in the Act and, therefore, it was held thatfurnishing of an assessment of the value of the property may not by itself be furnishing inaccurateparticulars. It was further held that the assesseemust be found to have failed to prove that hisexplanation is not only not bona fide but all thefacts relating to the same and material to thecomputation of his income were not disclosed byhim. It was then held that the explanation must bepreceded by a finding as to how and in whatmanner, the assessee had furnished the particularsof his income. The Court ultimately went on to holdthat the element of mens rea was essential. It wasonly on the point of mens rea that the judgment inDilip N. Shroff v. Joint Commissioner of Income Tax,Mumbai and Anr. was upset. In Union of India v.Dharamendra Textile Processors (cited supra), afterquoting from Section 271 extensively and alsoconsidering Section 271(1)(c), the Court came tothe conclusion that since Section 271(1)(c)indicated the element of strict liability on theassessee for the concealment or for givinginaccurate particulars while filing Return, there wasno necessity of mens rea. The Court went on to holdthat the objective behind enactment of Section271(1)(c) read with Explanations indicated with thesaid Section was for providing remedy for loss ofrevenue and such a penalty was a civil liability and,therefore, willful concealment is not an essentialingredient for attracting civil liability as was thecase in the matter of prosecution under Section276C of the Act. The basic reason why decision inDilip N. Shroff v. Joint Commissioner of Income Tax,Mumbai and Anr. (cited supra) was overruled by thisCourt in Union of India v. Dharamendra TextileProcessors (cited supra), was that according to thisCourt the effect and difference between Section271(1)(c) and Section 276C of the Act was lostsight of in case of Dilip N. Shroff v. JointCommissioner of Income Tax, Mumbai and Anr.(cited supra). However, it must be pointed out thatin Union of India v. Dharamendra Textile Processors(cited supra), no fault was found with the reasoningin the decision in Dilip N. Shroff v. JointCommissioner of Income Tax, Mumbai and Anr.(cited supra), where the Court explained themeaning of the terms "conceal" and inaccurate". Itwas only the ultimate inference in Dilip N. Shroff v.Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) to the effect that mens rea was anessential ingredient for the penalty under Section271(1)(c) that the decision in Dilip N. Shroff v. JointCommissioner of Income Tax, Mumbai and Anr.(cited supra) was overruled. 10. We are not concerned in the present case withthe mens rea. However, we have to only see as towhether in this case, as a matter of fact, theassessee has given inaccurate particulars. InWebster's Dictionary, the word "inaccurate" hasbeen defined as: not accurate, not exact or correct; not accordingto truth; erroneous; as an inaccurate statement,copy or transcript. 11.We have already seen the meaning of the word"particulars" in the earlier part of this judgment.Reading the words in conjunction, they must meanthe details supplied in the Return, which are notaccurate, not exact or correct, not according totruth or erroneous. We must hasten to add herethat in this case, there is no finding that any detailssupplied by the assessee in its Return were found tobe incorrect or erroneous or false. Such not beingthe case, there would be no question of inviting thepenalty under Section 271(1)(c) of the Act. A meremaking of the claim, which is not sustainable in law,by itself, will not amount to furnishing inaccurateparticulars regarding the income of the assessee.Such claim made in the Return cannot amount tothe inaccurate particulars. 11.We have already seen the meaning of the word"particulars" in the earlier part of this judgment.Reading the words in conjunction, they must meanthe details supplied in the Return, which are notaccurate, not exact or correct, not according totruth or erroneous. We must hasten to add herethat in this case, there is no finding that any detailssupplied by the assessee in its Return were found tobe incorrect or erroneous or false. Such not beingthe case, there would be no question of inviting thepenalty under Section 271(1)(c) of the Act. A meremaking of the claim, which is not sustainable in law,by itself, will not amount to furnishing inaccurateparticulars regarding the income of the assessee.Such claim made in the Return cannot amount tothe inaccurate particulars. 13. In this behalf the observations of this Courtmade in Sree Krishna Electricals v. State of TamilNaduandAnr.MANU/SC/0628/2009MANU/SC/0628/2009 : (2009)23VST 249 (SC) as regards the penalty areapposite. In the aforementioned decision whichpertained to the penalty proceedings in Tamil NaduGeneral Sales Tax Act the Court had found that theauthorities below had found that there were someincorrect statements made in the Return. However,the said transactions were reflected in the accountsof the assessee. This Court, therefore, observed: “So far as the question of penalty is concernedthe items which were not included in the turnover were found incorporated in the appellant's accountbooks. Where certain items which are not includedin the turnover are disclosed in the dealer's ownaccount books and the assessing authorities includethese items in the dealer's turnover disallowing theexemption, penalty cannot be imposed. The penaltylevied stands set aside.” 10.Counsel for the appellant has further relied upon incase of Shiv Lal Tak vs. Commissioner of Income-Tax, [2001] 251 ITR 373 (Raj.),observed as under:- “14. It may be noticed that in the Explanation I tosec. 271(1)(c), as recast, while the expression"failure to return the total assessed income as notarising on account of any fraud or wilful negligenceon the part of assessee" does not find place butclause (b) read with proviso (ii) makes it abundantlyclear that where difference in the assessed incomeand returned income is not arising on account of anygross or wilful negligence on the part of assessee'still no penalty is leviable. The statute has clearlydrawn distinction between furnishing a deliberate,false explanation by the assessee and anexplanation, which may not be false but is notaccepted because assessee was not able tosubstantiate it. While there is no relaxation in therigour of Explanation in raising presumption againstthe assessee in the former case, in the latter class ofcases, the statute itself relaxes its rigour by directingthat where in respect of any amount, added ordisallowed and any explanation is offered by suchperson (assessee) which is not accepted because theassessee has failed to substantiate the same, butsuch explanation is bona fide and all the factsrelating to same and material to the computation oftotal income has been disclosed by him, theExplanation shall not apply. In other words, thecases under clause (A) of the Explanation I are thosewhere explanation furnished by the assessee falls inthe category of a fact 'disproved' whereas caseswhere an explanation so furnished falls in thecategory of fact 'not proved.' The expressions'proved' disproved' and 'not proved' has well known,distinct connotation in legal terminology, as may beapparent from the provisions of Indian Evidence Act. As per interpretation clause, a fact is said to be'disproved' when after considering the matter beforeit, the court either believes that it does not exist orconsiders its non-existence so probable that aprudent man ought under the circumstances of theparticular case, to act upon the supposition that itdoes not exist. In contrast, a fact is said to be'proved' when after considering the mailer before it,the court either believes it to exist or considers itsexistence so probable that a prudent man oughtunder the circumstances in particular case, to actupon the supposition that it exists. In juxta position,the expression 'not proved' denotes a fact is said tobe 'not proved' when it is neither proved nordisproved. With this, it is of significance that while with theaddition of income or disallowance of expenses isattached, the presumption about non-disclosure orconcealment of particulars of such additions orexpenses, no such presumption about existence oflack of 'bona fide' of the assessee is raised in a casefalling under clause (B) of the Explanation. On thecontrary, on finding an explanation as was existentor disproved, a reasonable inference of lack of bonafide can be drawn, mere failure to substantiate theexplanation as a fact not proved, can not raise apresumption about deliberate concealment and lackof bona fide. In such events, question of bona fidehas to be proved as a fact like any other fact onpreponderance of probability uninfluenced with anypresumption. 15. In the first place, we find in the present casethat even during course of assessment, it was not acase of rejecting the explanation furnished by theassessee, before making any additions in its income.Once no explanation was said to be tested andrejected by the Assessing Officer before converting,the question Of invoking Explanation I itself wouldnot have arisen however. Explanation I was attractedfor the purpose of giving jurisdiction to AssessingOfficer for initiating the proceedings. It could nothave further taken place of conclusive proof so as todiscard the explanation furnished by the assessee, for the very same reason for which result shown byhim in the Books of Accounts has been rejected, notby rejecting the explanation furnished by theassessee but by accepting the explanation furnishedby the assessee that he does not have necessarymaterial to verify each and every detail of theexpenses and therefore, gross profit rate on thereceipts has been taken by the assessee. Once theplea of the assessee has been accepted during thecourse of assessment and additions have been madeat his behest, the question of making additions byrejecting explanation, which was not sustainable orcould not be substantiated, would not arise and inthat event, the question of bona fides of theassessee could not be doubted. 11.Counsel for the appellant has further relied upon in case of Commissioner of Income-Tax vs. Sangrur Vanaspati MillsLtd., [2008] 303 ITR 53 (P&H), observed as under:- 11.Counsel for the appellant has further relied upon in case of Commissioner of Income-Tax vs. Sangrur Vanaspati MillsLtd., [2008] 303 ITR 53 (P&H), observed as under:- “7. The order passed by the ITAT is based upon twodecisions of this court in CIT vs. Ravail Singh andCo. [2002] 254 ITR 191 and Harigopal Singh v. CIT[2002] 258 ITR 85. In both these decisions, thiscourt has held that in order to attract clause (c) ofSection 271(1) of the Act, it is necessary that theremust be concealment by the assessee of theparticulars of his income or furnishing of inaccurateparticulars of such income. The provisions ofass3essed on estimate basis and additions are madetherein. It was held that when the addition had beenmade on the basis of estimate and not on account ofany concrete evidence of concealment, then thepenalty was not leviable. The similar view was alsotaken by this court in CIT v. Dhillon Rice Milles[2002] 256 ITR 447, where the addition was madeby the Assessing Officer by estimating the yield ofsuper phak as well as of chhilka and also the price ofchhilka, that addition was reduced by theCommissioner of Income-tax (Appeals). However,the penalty levied by the Assessing Officer wasdeleted by the Commissioner of Income-tax(Appeals). The order of the Commissioner of Income-tax (Appeals) was confirmed by the ITATand the appeal filed by the Revenue against the saidorder of the ITAT was dismissed by this court, on theground that the Assessing Officer had made theadditions on the basis of the estimate of the yield ofphak and chhilka and an estimate of the price andthat the estimate would not ipso facto lead topenalty.” 12. Counsel for the respondent has contended that theview taken by the Tribunal is just and proper. He has relied uponthe decision of the Supreme Court in Mak Data’s case (supra)which reads as under:- “7. The AO, in our view, shall not be carried away by theplea of the Assessee like "voluntary disclosure", "buypeace", "avoid litigation", "amicable settlement", etc. toexplain away its conduct. The question is whether theAssessee has offered any explanation for concealment ofparticulars of income or furnishing inaccurate particularsof income. Explanation to Section 271(1) raises apresumption of concealment, when a difference isnoticed by the AO, between reported and assessedincome. The burden is then on the Assessee to showotherwise, by cogent and reliable evidence. When theinitial onus placed by the explanation, has beendischarged by him, the onus shifts on the Revenue toshow that the amount in question constituted theincome and not otherwise. 8. Assessee has only stated that he had surrendered theadditional sum of Rs. 40,74,000/- with a view to avoidlitigation, buy peace and to channelize the energy andresources towards productive work and to make amicablesettlement with the income tax department. Statute doesnot recognize those types of defences under theexplanation 1 to Section 271(1)(c) of the Act. It is tritelaw that the voluntary disclosure does not release theAppellant-Assessee from the mischief of penalproceedings. The law does not provide that when anAssessee makes a voluntary disclosure of his concealedincome, he had to be absolved from penalty. 9. We are of the view that the surrender of income in thiscase is not voluntary in the sense that the offer of 8. Assessee has only stated that he had surrendered theadditional sum of Rs. 40,74,000/- with a view to avoidlitigation, buy peace and to channelize the energy andresources towards productive work and to make amicablesettlement with the income tax department. Statute doesnot recognize those types of defences under theexplanation 1 to Section 271(1)(c) of the Act. It is tritelaw that the voluntary disclosure does not release theAppellant-Assessee from the mischief of penalproceedings. The law does not provide that when anAssessee makes a voluntary disclosure of his concealedincome, he had to be absolved from penalty. 9. We are of the view that the surrender of income in thiscase is not voluntary in the sense that the offer of surrender was made in view of detection made by the AOin the search conducted in the sister concern of theAssessee. In that situation, it cannot be said that thesurrender of income was voluntary. AO during the courseof assessment proceedings has noticed that certaindocuments comprising of share application forms, bankstatements, memorandum of association of companies,affidavits, copies of Income Tax Returns and assessmentorders and blank share transfer deeds duly signed, havebeen impounded in the course of survey proceedingsUnder Section 133A conducted on 16.12.2003, in thecase of a sister concern of the Assessee. The survey wasconducted more than 10 months before the Assesseefiled its return of income. Had it been the intention of theAssessee to make full and true disclosure of its income, itwould have filed the return declaring an income inclusiveof the amount which was surrendered later during thecourse of the assessment proceedings. Consequently, itis clear that the Assessee had no intention to declare itstrue income. It is the statutory duty of the Assessee torecord all its transactions in the books of account, toexplain the source of payments made by it and to declareits true income in the return of income filed by it fromyear to year. The AO, in our view, has recorded acategorical finding that he was satisfied that theAssessee had concealed true particulars of income and isliable for penalty proceedings Under Section 271 readwith Section 274 of the Income Tax Act, 1961. 10. The AO has to satisfy whether the penaltyproceedings be initiated or not during the course of theassessment proceedings and the AO is not required torecord his satisfaction in a particular manner or reduce itinto writing. The scope of Section 271(1)(c) has alsobeen elaborately discussed by this Court in Union of Indiav. Dharmendra Textile Processors MANU/SC/4448/2008 :(2008) 13 SCC 369 and CIT v. Atul Mohan BindalMANU/SC/1496/2009 : (2009) 9 SCC 589.” 13. He contended that taking into consideration theabove, the view taken by the Tribunal is required to be upheld. 14. We have heard learned counsel for the appellant aswell as respondent. 15. From the order of AO, it seems that because of thepressure, the appellant has surrendered the amount and observations which has been made by the AO which we havealready reproduced above, it clearly shows that it is a case ofconsent and the CIT(A) while considering the decision ofSupreme Court in case of Commissioner of Income Tax vs.Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC) andother decisions which we have referred in the above paragraphs,the Tribunal was not justified in holding that correct statement ofthe valuation of the closing stock was not filed alongwith thereturn. 16. In that view of the matter, the view taken by the CIT(A) isrequired to be accepted and the order of Tribunal is quashed andset aside. 17. The issue is answered in favour of the assessee and theappeal stands allowed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. Chouhan/66