The Assessing Officer (AO) took into consideration material before him, including the fact that when the assessee was found in possession of Rs. 1,35,000/- by the concerned authority, in the search proceedings during the previous assessment year, the same was explained to be income receipts of the assessee from matka business. The A.O. came to the conclusion that there was positive concealment by the assessee.

He, therefore, levied penalty. The explanation offered by the assessee washeld to be an afterthought and not a genuine one and the superior officer having jurisdiction to impose penalty in penalty proceedings came to the positive finding that the facts stated by the assessee in the return were false. The concerned officer came to the positive conclusion, based on facts, that the assessee had not, in fact, borrowed from 3 persons as disclosed the return. In the face of this finding about falsehood of the statement made in the return, penalty for concealment was levied.

The Tribunal held that merely because the explanation offered by the assessee under section 68 had been rejected and cash credit added to income from undisclosed sources was not alone sufficient to levy penalty. This latter conclusion by the Tribunal was on the basis that disclosure in the return makes it a case of disclosure of particulars and accurate particulars within the meaning of section 271(1)(c). The Tribunal, however, held in favour of the assessee only on the ground that once there is a disclosure ofreceipts in the return, that disclosure takes the item outside the purview of concealment. Commenting on this finding of the Tribunal, the Court held at pages 94-95 as under: "... The word "concealment" inherently carries with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if takes out the case from the purview of non-disclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars.

In any case, disclosure which has been made in any part of the return which is incorrect or false to the knowledge of the assessee and if that fact is established, such disclosure cannot take it out from the purview of the act of concealment of particulars of income or act of furnishing inaccurate particulars for the purpose of levy of penalty. Considering all these facts, whether the particulars furnished are true and correct or whether the particulars furnished by the assessee are inaccurate and whether theparticulars furnished by the assessee are inaccurate or incorrect to his knowledge, all are questions which require an inquiry into the facts and consideration of the material on record before arriving at any conclusion whether the penalty is to be imposed or not, depending on the finding reached as a result of that inquiry. The process of inquiry into the correctness, truthfulness or accuracy of the particulars furnished by the assessee cannot be closed at the threshold by looking at the return. That would negative and render otiose the very provisions of the statute."

The Court went on to say that the expression of the principle that mere rejection of explanation is not sufficient to sustain penalty was not backed up by necessary enquiry. It may be noticed that as per rule of evidence, there is distinction between set of facts "not proved" and facts disproved and facts proved. Benefit of the principle that mere non-satisfactory nature of explanation furnished cannot amount to proof of falsity ofexplanation furnished, can apply in case the fact-finding authority reaches to a stage where it can conclude that the fact alleged is "not proved" which would result that except rejection of the explanation furnished by the assessee, there is no material to sustain the plea of concealment. But, on the other hand, if the state of affairs, reveals the stage where one can positively reach a conclusion that the fact alleged is proved or disproved, the principle that mere rejection of explanation cannot result in levy of penalty will have no application. To reach this stage also, enquiry will have to be undertaken of the disclosure made in the return or in the statement annexed to the return and to arrive at a finding whether the particulars disclosed are truthful or false or not proved to be satisfactory. The principle to which the Tribunal had referred would apply in the last case. In the first case (i.e., where the particulars are truthful), it would be a positive case of no concealment; in the second case(i.e., where the particulars are false), it would be a positive case of concealment; and in the third case (i.e., where the particulars are not proved to be satisfactory), benefit of doubt will go in favour of the assessee. However, enquiry would have to be made and cannot be stopped on the mere abstract -4-principle that mere rejection of explanation does not result into a levy of penalty.

The Court also referred to the following decisions from which it drew sustenance: (1) Kantilal Manilal v/s CIT [1981] 130 ITR 411 (Guj); (2) CIT v/s Suleman Abdul Sattar [1983] 139 ITR 8 (Guj); (3) CIT vs. Namlabhai Bhanabhai [1987] 163 ITR 189 (Guj); (4) CIT v/s Vilasben Hasmukhlal Shah (Smt.) [1991] 192 ITR 214 (Guj);and (5) CIT v/s Abdulgafur Ahmed Wagmar [1993] 199 ITR 827 (Guj). Except the first case, all other cases involved exemption claimed in the return (Part IV) which were proved to be false disclosures for exemption. To sum up, the mere fact that a person has disclosed an item in the relevant part of thereturn as, in his opinion, not taxable would not, by itself, prejudice the Department from proving that the statement made in the return was false to the knowledge of the assessee. In such an event, concealment penalty would become leviable as, in any event, inaccurate particulars have been furnished in the return.

The author is a Mumbai-based chartered accountant