2004 (10) TMI 32 - HC - Income Tax

Levy of penalty under section 271(l)(c) - Explanation 1 to section 271(1)(c) - absence of any material disclosing any receipt on account of delivery charges (labour room charges) in addition to what is recorded in the accounts - that it cannot be said that the income was concealed. The explanation given by the assessee was that so far as the delivery charges are concerned, in many cases, charges were not realised. But the only drawback was that the assessee was not able to prove that delivery charges were not received in all such cases. It is also found that in many cases, delivery charges were not recovered. - it is not a case where there is concealment or willful evasion. Hence, we are of the view that the Appellate Tribunal was not correct in treating the income as concealed penalty set aside

Summary

Issues:
1. Justification of penalty under section 271(1)(c) for estimated addition of Rs. 51,515 for the assessment year 1984-85.
2. Applicability of Explanation 1 to section 271(1)(c) in the absence of material disclosing receipt on account of delivery charges.
3. Legality, validity, and sustainability of the order allowing the departmental appeal.

Analysis:

Issue 1:
The case involved a hospital proprietor who filed an income tax return for the assessment year 1984-85, declaring an income of Rs. 35,148. Following a search on the premises, certain additions were made, including Rs. 51,515 for omission to account for delivery charges. The Tribunal sustained this addition, leading to penalty proceedings under section 271(1)(c). The Commissioner of Income-tax (Appeals) held that penalty could only be levied on the amount of Rs. 51,515, not on the other deleted additions. However, the Tribunal set aside this order, allowing the departmental appeal and upholding the penalty on Rs. 51,515. The Tribunal found that the assessee had not disclosed charges in a significant number of cases, indicating potential concealment.

Issue 2:
Regarding the applicability of Explanation 1 to section 271(1)(c), the Assessing Officer found omissions in accounting for receipts in the hospital, including delivery charges. The Officer observed discrepancies in the birth register and bills, indicating non-levy of charges in a substantial number of cases. The Tribunal supported the penalty on the basis that the assessee failed to substantiate the explanation for not accounting for delivery charges in numerous cases, suggesting potential concealment.

Issue 3:
The appellant argued that there was no concrete evidence to prove that the income of Rs. 51,515 was earned, emphasizing a bona fide explanation. The Department contended that the assessee concealed income related to delivery charges. The High Court, after considering both sides, concluded that there was no concealment or willful evasion. The Court accepted the explanation that charges were not realized in many cases, leading to the decision that the income was not concealed. Consequently, the Court set aside the Tribunal's judgment, ruling that the assessee was not liable to pay a penalty for the amount of Rs. 51,515.