Law:

Section:

Section 271(1)(c), read with section 256, of the Income-tax Act, 1961 - Penalty - For concealment of income - Assessment year 1967-68 - Assessee showed certain amount as reserve for bonus in balance sheet attached with return and bona fide claim was asserted for said reserve which was disallowed by ITO - Penalty under section 271(1)(c) was also imposed - Whether mens rea is essential ingredient and in view of fact that assessee disclosed said amount but claimed it as reserve for bonus would show that there was no concealment - Held, yes - Whether, therefore, no penalty was leviable under section 271(1)(c) - Held, yes FACTS The ITO made the additions towards the total income, on account of disallowance of certain expenses claimed by the assessee. The ITO also initiated penalty proceedings and he referred to case to the IAC under section 274(2). The IAC, imposed a penalty. The Tribunal accepted the assessee's appeal and recorded a finding that disallowance of certain expenditure, claimed in good faith, could not be the basis for the levy of penalty under section 271(1)(c). The Tribunal declined to make reference under section 256(1). On application under section 256(2) : HELD The revenue accepted the position regarding items of small amount of expenditure that the said items were a claim bona fide made which was disallowed by the ITO and, thus, no penalty proceedings could be taken. As regards reserve for bonus, this amount was shown in the balance-sheet attached with the return and, thus, there was no concealment of that amount on the part of the assessee. The bona fide claim was asserted for the reserve for bonus which was disallowed by the ITO. It is well established that in penalty proceedings the means rea is the essential ingredient and in view of the fact that the assessee disclosed this amount of income but claimed it as a reserve for bonus, would clearly show that there was no concealment. Therefore, the claim made by the assessee on account of bonus reserve did not arise from any fraud or any gross or willful neglect on his part and the Tribunal was justified in deleting the penalty. Note : The decision was in favour of assessee. JUDGMENT B.S. Dhillon,…

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