2005 (1) TMI 85 - HC - Income Tax

Penalty under section 271(1)(c) - applicability of the Explanation to section 271(1)(c) - Every concealment does not attract the rigour of section 271(1)(c). It must be deliberate and intentional being in the knowledge of the assessee so as to evade payment of income-tax. The assessee being a non-profit organisation managed and controlled by the Government of India for supply/distribution of electricity in the State, it cannot be held that they had any deliberate intention to evade payment of tax. If due to some accountancy system maintained, one entry could not be subjected to tax, the same was rightly not made the basis for imposing a penalty of Rs. 1,00,000 under section 271(1)(c) ibid - Tribunal was justified in holding that the provisions of Explanation 4 to section 271(1) are not applicable

Summary

Issues:
1. Interpretation of Explanation 4 to section 271(1) of the Income-tax Act, 1961.
2. Justification for canceling penalty under section 271(1)(c) of the Income-tax Act.

Analysis:
Issue 1: Interpretation of Explanation 4 to section 271(1) of the Income-tax Act, 1961
The case involved an appeal by the Revenue against an order passed by the Income-tax Appellate Tribunal regarding the imposition of a penalty on the assessee under section 271(1)(c) of the Income-tax Act. The Tribunal had canceled the penalty, and the main question was whether Explanation 4 to section 271(1) applied in this case. The assessee, a Government of India undertaking, argued that the non-disclosure was unintentional due to the accounting practices at the head office. Both the Commissioner of Income-tax (Appeals) and the Tribunal accepted this explanation, leading to the dismissal of the penalty. The High Court upheld this decision, stating that the factual explanation accepted by the taxing authorities should not be re-examined in appellate jurisdiction unless it is perverse or against the law. The court concluded that the concealment must be deliberate and intentional to attract section 271(1)(c), which was not the case here as the assessee had no intention to evade tax.

Issue 2: Justification for canceling penalty under section 271(1)(c) of the Income-tax Act
The High Court found that the imposition of the penalty of Rs. 1,00,000 under section 271(1)(c) was not justified in this case. The court reasoned that the assessee, being a non-profit organization controlled by the Government of India for electricity supply, did not have any deliberate intention to evade tax. The non-disclosure of one entry due to accounting procedures was not sufficient to impose a penalty, especially when the assessee's explanation was accepted by the taxing authorities. The court emphasized that every concealment does not warrant the penalty under section 271(1)(c) and that deliberate intent to evade tax must be proven. Since the explanation provided by the assessee was reasonable and accepted, the High Court concurred with the decisions of the lower authorities to cancel the penalty. Consequently, the appeal filed by the Revenue was dismissed, and no costs were awarded.