2004 (12) TMI 45 - HC - Income Tax

Penalty under section 271(1)(c) - Assessing Officer, after considering the explanation tendered by the assessee, levied penalty at Rs. 1 lakh under section 271(1)(c) of the Act by holding that the Explanation to section 271(1)(c) of the Act was clearly applicable and the assessee had failed to discharge the onus under the Explanation and this was a case of deemed concealment - Tribunal has found that the assessee has discharged the onus and there is no further material adduced by the Revenue to shift the burden once again so as to sustain penalty. Hence, Tribunal was justified in deleting the penalty imposed by invoking the provision of section 271(1)(c) read with the Explanation thereto and it cannot be stated to be a finding which was either unreasonable or perverse.

Summary

Issues involved:
1. Interpretation of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Application of legal fiction in the Explanation to section 271(1)(c) for penalty imposition.

Issue 1: Interpretation of penalty under section 271(1)(c) of the Income-tax Act, 1961:
The case involved a dispute regarding the imposition of a penalty under section 271(1)(c) of the Income-tax Act, 1961. The Assessing Officer initiated penalty proceedings against the assessee for concealment of income due to a significant difference between the income declared and the assessed income. The Tribunal ultimately canceled the penalty after accepting the explanation provided by the assessee, which led to a reduction in the assessed income. The Tribunal found that the explanation given by the assessee in response to specific discrepancies raised by the authorities was reasonable and probable, shifting the burden of proof onto the Revenue. The Tribunal's decision was based on the principle that the burden on the assessee to disprove concealment was discharged satisfactorily, and there was no additional evidence presented by the Revenue to uphold the penalty.

Issue 2: Application of legal fiction in the Explanation to section 271(1)(c) for penalty imposition:
The court analyzed the legal fiction created by the Explanation to section 271(1)(c) of the Act, which imposes a penalty if the total income returned by the assessee is less than 80% of the total income assessed. However, this legal fiction can be rebutted if the assessee proves that the failure to report the correct income did not result from fraud or neglect. The burden of proof rests on the assessee to demonstrate, on a balance of probabilities, that there was no intentional wrongdoing. In this case, the Tribunal found that the assessee successfully rebutted the legal fiction by providing plausible explanations for the discrepancies highlighted by the authorities. The Tribunal's decision aligned with the Supreme Court's ruling that the initial burden of rebuttal lies with the assessee, and once discharged, the burden shifts back to the Revenue to provide further evidence, which was not done in this instance.

In conclusion, the High Court upheld the Tribunal's decision to cancel the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, as the assessee successfully demonstrated that the discrepancies in income reporting were not due to intentional concealment. The court found the Tribunal's decision to be reasonable and not perverse, answering both questions in favor of the assessee and against the Revenue.