NARAYAN GOYAL,SIKAR vs. ACIT, CENTRAL CIRCLE-3, JAIPUR, JAIPUR

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ITA 484/JPR/2026Status: DisposedITAT Jaipur31 August 2026AY 2014-156 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty under section 271(1)(c) was not sustainable. The AO's finding of furnishing inaccurate particulars was not clearly established, and the assessee's explanation, though not found to be false, was rejected without proper substantiation. The penalty order itself was inconsistent regarding the specific default.

What were the facts?

During a search, an addition of Rs. 1,74,528 was made to the assessee's income on account of undisclosed income from a mine. The assessee had provided an explanation regarding the mine's operations and outstanding debts. The Assessing Officer imposed a penalty under section 271(1)(c) for furnishing inaccurate particulars.

What were the issues?

Whether the penalty under section 271(1)(c) for furnishing inaccurate particulars of income is sustainable when the assessee has provided an explanation that was not found to be false, and the AO's findings are inconsistent?

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘SMC’ BENCH, JAIPUR

Before: Shri T.R. Senthil Kumar & Shri Prakash

IN THE INCOME TAX APPELLATE TRIBUNAL ‘SMC’ BENCH, JAIPUR (PHYSICAL HEARING) Before: Shri T.R. Senthil Kumar, Judicial Member And Shri Prakash, Accountant Member ITA Nos: 484/JPR/2026 Assessment Year: 2014-15

Narayan Goyal ACIT, Shahpura Road, Neem Ka Central Circle-03, Thana, Sikar Vs Jaipur PAN: AEOPG2797Q (Respondent) (Appellant)

Assessee Represented: Sh. P. C. Parwal, CA Revenue Represented: Mrs. Arti Rawat, JCIT Date of hearing : 25-08-2026 Date of pronouncement : 31-08-2026 आदेश/ORDER

PER : PRAKASH, ACCOUNTANT MEMBER:-

1.

This appeal by the Assessee is directed against the order of the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as “the learned CIT(A)”] dated 27.01.2026 arising out of the penalty order dated 17.03.2022 passed by the Assessing Officer (hereinafter referred to as “the AO”) under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2014-15.

2.

The grounds of appeal raised by the Assessee before us in the memorandum of appeal in Form No. 36 read as under:

ITA Nos. 484/JPR/2026 Narayan Goyal “1. The Ld. CIT(A) has erred on facts and in law in confirming the levy of penalty of Rs.35,950/- u/s 271(1)(c) of IT Act, 1961. 2. The appellant craves to alter, amend and modify any ground of appeal. 3. Necessary cost to be awarded to the assessee.” 3. Briefly stated, the facts of the case are that the assessee, an individual, is the proprietor of M/s Grasim Mineral and a partner in M/s Goyal Mineral and M/s United Mineral. For the year under consideration, he filed his original return of income on 31.03.2015 declaring total income of Rs 5,13,950. A search under section 132(1) of the Act was conducted on 13.06.2019 in the case of the Goyal Group, Neem Ka Thana, Sikar, to which the assessee belongs. In response to the notice issued under section 153A of the Act on 23.03.2021, the assessee filed his return on 02.04.2021 declaring the same total income of Rs 5,13,950. The assessment under section 143(3) read with section 153A of the Act was completed on 29.09.2021 determining the total income at Rs 6,88,480, after making an addition of Rs 1,74,528 on account of undisclosed income said to arise from unrecorded transactions of the Basai mine.

4.

The addition rests on a single loose sheet inventorised as page 3 of Exhibit 1 of Annexure A, found from the residence of Shri Sanjay Goyal. When called upon to explain it, the assessee filed a reply, the material part of which is reproduced in paragraph 5 of the assessment order as under:

“It is submitted that assessee was having lease of Mine at Basai. He was not able to operate this mine because of resistance of villagers and therefore he had given this mine for operation to Shri Billu and Shri Rambir who are resident of that village. The paper at Pg 3 of annexure of AS is written by Shri Billu where he has given the account of the working and its assets and liability from 05.09.2013 to 31.03.2014. According to this paper the cash, old debtor and the amount recoverable by him against sales is worked out at Rs.9,13,891/- … Against this he has incurred expenditure on salary and royalty of Rs.3,07,500/- … and the outstanding debtor of Rs.3,04,821/- totaling to Rs.7,39,363/- leaving a balance of Rs.1,74,528/-. … Thus what is projected by him is that from the working of this Mine he has not earned anything rather because of non-realization of debtors he has suffered loss.” 5. The AO computed the addition upon the very figures so furnished. His operative finding, in paragraph 5 of the assessment order, reads as under: 2

ITA Nos. 484/JPR/2026 Narayan Goyal “The assessee has received amount of Rs.913891/- and incurred expenses of Rs.7,39,363/- as noted on this paper. Accordingly, the assessee has concealed the income of Rs. 1,74,528/- and the same is hereby added to the total income of the assessee.” 6. The assessee did not carry the assessment order in appeal and paid the resultant demand. Penalty proceedings were initiated by a notice issued on 29.09.2021 and a show cause notice dated 20.01.2022 was served. The assessee replied that no income had been earned from the mine and that no question of hiding income arose. By order dated 17.03.2022 the AO imposed the minimum penalty of Rs 35,950, his finding in paragraph 5 of the penalty order being as under:

“From the above discussion, it is a clear case that assessee has furnished inaccurate particulars of its income. Thus, it is clear that the assessee had furnished inaccurate particulars of income by not disclosing income of Rs.1,74,528/-.” 7. The learned CIT(A) confirmed the levy. The reasons recorded in paragraph 4.2 of the impugned order are as under:

“The appellant’s plea that certain outstanding debts were not considered while computing undisclosed income is merely an afterthought and was not substantiated with any cogent evidence either during assessment or penalty proceedings. … The explanation offered by the appellant was neither substantiated nor shown to be bona fide, and therefore Explanation 1 to section 271(1)(c) is clearly attracted.” 8. The learned Authorised Representative (hereinafter referred to as “the learned AR”) reiterated the submissions made before the learned CIT(A). He submitted that penalty proceedings are independent of the assessment proceedings, that the explanation of the assessee had never been found to be false, and that the addition had been accepted only to buy peace.

9.

The learned Departmental Representative (hereinafter referred to as “the learned DR”) supported the orders of the authorities below and submitted that the explanation of the assessee was neither substantiated nor shown to be bona fide.

ITA Nos. 484/JPR/2026 Narayan Goyal 10. We have heard the rival contentions and perused the material available on record. The assessee did not challenge the assessment order and the addition of Rs 1,74,528 has attained finality. We express no view upon it. The only question before us is whether the penalty levied under section 271(1)(c) of the Act can be sustained.

11.

Section 271(1)(c) of the Act contemplates two separate and distinct defaults, namely, concealment of the particulars of income and furnishing of inaccurate particulars of income. Being a penal provision, it must be construed strictly. In CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC), the Hon’ble Supreme Court held as under:

“In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked.” 12. Their Lordships further held that where there is no finding that any details supplied by the assessee in his return are found to be incorrect or erroneous or false, there is no question of inviting the penalty under section 271(1)(c) of the Act. Applying that test, the finding recorded by the AO does not answer the description of either default. What he has held is that the assessee “had furnished inaccurate particulars of income by not disclosing income of Rs.1,74,528/-”. The furnishing of inaccurate particulars, as explained in Reliance Petroproducts (P.) Ltd. (supra), is concerned with the details supplied in the return being found to be incorrect or false. The non-disclosure of an amount is not the furnishing of inaccurate particulars; it belongs, if at all, to the other default. The confusion runs through the penalty order itself, for the proceedings are stated in paragraph 3 to have been initiated for concealment of income, the finding in paragraph 5 is one of furnishing inaccurate particulars, and the conclusion in paragraph 7 returns to concealment. The assessee was thus never told, and has never been held guilty of, any one specific identified default.

ITA Nos. 484/JPR/2026 Narayan Goyal 13. The AO rested his conclusion on Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 (SC), for the proposition that the levy of penalty is a civil liability and that wilful concealment is not an essential ingredient. The proposition is correct and we respectfully follow it. Dharamendra Textile Processors (supra) dispensed with the requirement of proof of mens rea. It did not render the levy of penalty automatic upon the making of an addition, and it did not relieve the AO of the obligation to find that the conditions of section 271(1)(c) of the Act are satisfied. Read with Reliance Petroproducts (P.) Ltd. (supra), the position is that the civil character of the liability governs the standard of proof, while the terms of the charging provision continue to govern what must be proved.

14.

Nor is Explanation 1 to section 271(1)(c) of the Act attracted. It operates where the assessee offers no explanation, or offers one found to be false, or offers one which he cannot substantiate and whose bona fides he fails to prove. Here the assessee offered his explanation at the first opportunity, during the assessment proceedings, and neither authority has found it to be false. The learned CIT(A) rejected it as “merely an afterthought”, but that finding is contrary to the record, since the plea regarding the outstanding debts forms part of the very reply reproduced in paragraph 5 of the assessment order. That was the only reason assigned for holding the explanation to be wanting in bona fides, and it cannot be sustained. We are conscious of MAK Data (P.) Ltd. v. CIT [2013] 358 ITR 593 (SC), where it was held that a disclosure made to buy peace is not a defence recognised by the statute and that the burden under Explanation 1 lies on the assessee. That case, however, was one in which no explanation at all was offered. Here an explanation was offered, was not found false, and was in fact adopted by the AO himself, who computed the addition by taking the figures of Rs 9,13,891 and Rs 7,39,363 from that very reply and striking a balance upon them. MAK Data (P.) Ltd. (supra) therefore does not govern these facts. 5

ITA Nos. 484/JPR/2026 Narayan Goyal 15. For these reasons, the default alleged has not been identified with the certainty which a penal provision requires, and the conditions of section 271(1)(c) of the Act, read with Explanation 1 thereto, are not satisfied. The penalty of Rs 35,950 is not sustainable and is directed to be deleted. Ground No. 1 is allowed. 16. Ground No. 2 is general in nature and does not call for any separate adjudication. As regards Ground No. 3, no case for the award of costs has been made out and the same is rejected. 17. In the result, the appeal filed by the Assessee is partly allowed. Order pronounced in the open court on 31.08.2026

Sd/- Sd/- (T.R. SENTHIL KUMAR) (PRAKASH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 31/08/2026 *Ganesh Kr., Sr. PS आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT 6. Guard file. By order/आदेश से, सहायक पंजीकार आयकर अपील�य अ�धकरण, t;iqj

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