Can explanation 1 to Sec 271(1)( c) be invoked to levy penalty....

[preetyparik]

The Deeming fiction of Explanation 1 to Section 271(1) (c) states - If in respect to any fact material to computation of total income of any person under this Act

(A) such a person fails to offer an explanation........
(B) such a person offers an explanation ------
 the amount added or disallowed shall be deemed to be income in respect of which particulars are concealed.

The deeming provision creates fiction for Income in respect of which particulars are concealed.
Accordingly, if the charge of penalty is for furnishing inaccuarate particulars of income, Explanation I cannot be applied.

The levy of penalty for inaccurate particulars of income is by virtue of Main Provision -271 (1)(c) only.The Onus of proof is on the AO to establish the existence of charge i.e It is for the AO who should be able to prove that particulars furnished by Assesee are inaccurate.

The Assessment Order should also properly indicate the satisfaction of Assessing Officer that the Assesee has furnished inaccurate particulars of Income. A Mere statement that  "Penalty Proceeding is initiated separately" is not sufficient satisfaction of AO  which does not even indicate whether the Assesee has a.concealed particulars of Income or b.furnished inaccurate particulars of Income".The Show cause notice should also in specific terms spell out  what are the inaccurate  particulars furnished by the Assesee and the levy of the penalty is for furnishing inaccurate particulars of income.It is then only the Assesee will be able to defend his case and submit his explanation.

In a penalty proceeding for furnishing inaccurate particulars of income, the burden of proof is on AO to establish the inaccuaracy of particulars of Income furnished by Assesee. Assesee should be able defend the findings of AO.The AO cannot plead on the ground that Assessee has not given explanation, or explanation given is false, or was not able to substantiate his claim.The burden is on the AO to establish the existence of charge on the basis of material on record.

[rajul5234]

please see decision of national textiles. 249 I T R 125(guj.)

more [particularly last para. pg. 133 till end at pg. 135