2006 (3) TMI 558 - AT - Income Tax

Validity of penalty imposed u/s 271(1)(c) - For concealment of income - survey u/s 133A - HELD THAT - We find that at the time of survey operations under section 133A, the statement of Shri Ashok Bhagat, a partner of the firm, was recorded but no question regarding inflation of expenses was put to him. No other enquiry was made by the Department and apart from the admission of the assessee, there is no other evidence brought on record to suggest that the expenses were inflated by the assessee. The surrender of the assessee is a conditional one with a request not to levy penalty and is specifically mentioned that it is to buy peace of mind and also to ward off unnecessary litigation. There may be number of valid reasons for making a surrender of income at the time of survey and penalty u/s 271(1)( c ) of the Act cannot be imposed merely on the basis of the conditional surrender made by the assessee and particularly in a case where apart from the admission of the assessee, there is no other evidence or material brought on record by the Revenue to prove that the assessee has concealed its income. The argument of the ld DR that but for the survey operations, the assessee would not have come forward with the surrendered amount, we find that this proposition is too hypothetical and penalty for concealment of income or filing of inaccurate particulars of income cannot be levied merely on a mere possibility. In this case, the penalty for concealment of income of filing of inacurrate particulars of income was imposed without any objective material brought on record and by accepting only a part of the conditional offer of the assessee, which is unsustainable in law and accordingly, we cancel the penalty imposed u/s 271(1)( c ) of the Act for all the three years on the assessee and the grounds of the appeal of the assessee in all the years are allowed. In the result, the appeals of the assessee are allowed.

Summary

Issues:
Validity of penalty imposed under section 271(1)(c) of the Income-tax Act, 1961.

Analysis:
The appeals by the assessee challenged the penalty imposed under section 271(1)(c) for the assessment years 1998-99, 1999-2000, and 2000-01. The main contention was the surrender of Rs. 60 lakhs by the assessee during a survey under section 133A due to expenses not being fully verifiable and supported by self-made vouchers. The assessee claimed the surrender was conditional to avoid unnecessary litigation and penalties. The Department argued that the surrender prevented further investigations. The Tribunal noted that no evidence besides the assessee's admission supported inflated expenses. The surrender was conditional, and the Department's partial acceptance of it was deemed unacceptable. The Tribunal emphasized that penalty cannot be imposed solely based on conditional surrender without concrete evidence of concealment. The Department's argument that the surrender was prompted by the survey was deemed hypothetical, insufficient for penalty imposition. Consequently, the Tribunal canceled the penalty for all three years, citing lack of objective evidence for concealment or inaccurate reporting.

In conclusion, the Tribunal allowed the appeals of the assessee, canceling the penalty imposed under section 271(1)(c) for the assessment years in question.