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Full and true disclosure of income is a primary obligation of the assessee. Any omission in this regard may lead to levy of penalty u/s 271(1) © on either of the following grounds:

  1. concealment of particulars of income
  2. furnishing inaccurate particulars of income


In a case before the Gujarat high Court in the case of A.M. Shah & Co.(108TAX137) the assessing officer found discrepancies in the stock records and made an addition of RS. 37,535 on account of understatement of closing stock and also initiate penalty proceedings for concealment of particulars of income. Further, the Tribunal in terms sustained an addition to the extent of Rs.37535 made by the ITO and also added a further sum of RS. 15000 by drawing a “natural inference” that the purchased goods must have been sold away and profit realised. In levying the penalty u/s 271(1) (c) the assessing officer levied a penalty with reference to addition made for RS. 37535 +15000. The assessee contended that after addition on account of realizable profit on inferential sale, basis of levy of penalty stood changed, basis being non-disclosure of sale and as such, penalty having been levied on different ground than one for which notice was issued, penalty could not be sustained. The court prima-facie accepted the assesses plea that basis of issuing notice and levying penalty must be the same and in this context also reiterated the Gujarat High Court ruling in the case of CIT v. Lakhdhir Singh Lalji (85ITR77). It further held that this is to ensure that the assessee gets an adequate opportunity in respect of the default which is detected and alleged against him and which forms the basis of the issuance of the notice u/s 271(1) © and to ensure that he is not put to the peril of answering against something which never was specifically determined as his default or in respect of which no notice was issued by the ITO, whose satisfaction alone mattered at the stage of the initiation of the penalty proceedings. However in the instance case of the assessee the court held that the further addition of RS. 15000 is a mere ‘natural inference’ in so far as the purchased goods must have been sold away and profit realised. The Court held that there was therefore neither any shift of that basis in the quantum appeal nor in the appeal before the Tribunal from the penalty proceedings and thus negatived the contention of the assessee that the basis had changed.

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