2009 (7) TMI 1307 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty u/s 271(1)(c) for furnishing inaccurate particulars of income.
2. Applicability of Explanation 1 to Section 271(1)(c).
3. Distinction between assessment proceedings and penalty proceedings.
4. Relevance of judicial precedents in penalty imposition.

Summary:

1. Imposition of penalty u/s 271(1)(c) for furnishing inaccurate particulars of income:
The assessee appealed against the CIT(A)'s order confirming the penalty of Rs. 7,18,098 levied by the AO u/s 271(1)(c) for furnishing inaccurate particulars of income amounting to Rs. 23,66,343. The AO had added this amount under s. 68 of the IT Act, 1961, during the assessment proceedings, which resulted in a total income of Rs. 1,32,745 against the returned loss of Rs. 26,33,058.

2. Applicability of Explanation 1 to Section 271(1)(c):
The Tribunal examined Explanation 1 to s. 271(1)(c), which states that the amount added or disallowed in computing the total income shall be deemed to represent the income in respect of which particulars have been concealed if the assessee fails to offer an explanation or offers an explanation that is found to be false or unsubstantiated. The Tribunal noted that the presumption under Explanation 1 is rebuttable and not conclusive. The assessee had provided an explanation regarding the deposits, which was not proven false by the Revenue.

3. Distinction between assessment proceedings and penalty proceedings:
The Tribunal emphasized that assessment proceedings and penalty proceedings are distinct. The mere fact that an addition is made during assessment does not automatically lead to the imposition of penalty. The Tribunal cited the Gujarat High Court's decision in National Textiles v. CIT, which held that penalty cannot be imposed if the explanation is unproved but not disproved, and there is no material to show that the amount in question was the income of the assessee.

4. Relevance of judicial precedents in penalty imposition:
The Tribunal referred to various judicial precedents, including the Supreme Court's decision in Union of India v. Dharamendra Textile Processors, which held that penalty u/s 271(1)(c) is a civil liability and does not require mens rea. However, the Tribunal clarified that this decision does not imply that penalty is automatic upon addition. The Tribunal also discussed the Mumbai Bench-A's decision in Asstt. CIT v. VIP Industries Ltd., which reiterated that genuine claims for deductions, even if rejected, do not amount to concealment of income.

Conclusion:
The Tribunal concluded that the assessee had not furnished inaccurate particulars of income and had successfully rebutted the presumption of concealment. Therefore, the penalty imposed u/s 271(1)(c) was deleted, and the appeal was allowed.