2004 (6) TMI 588 - AT - Income Tax

Summary

Issues:
Appeal against cancellation of penalty under section 271(1)(c) of the IT Act for concealing income by furnishing inflated stock figures to the bank.

Analysis:
1. The Department appealed against the cancellation of a penalty imposed on the assessee for concealing income by furnishing inflated stock figures to the bank. The Assessing Officer considered the stock figure of Rs. 4,27,125 declared to the bank as the correct stock position, leading to the penalty of Rs. 3,31,560 being levied.

2. The CIT(A) examined the case and found it probable that the assessee inflated the stock figure to obtain higher credit facilities, a common trade practice. He cited precedents where such explanations were accepted for assessment and penalty purposes. The CIT(A) held that the Assessing Officer erred in rejecting the details filed by the assessee during the penalty proceedings, as more inquiries should have been conducted. He concluded that the assessee's explanation was bona fide, thus canceling the penalty.

3. The Department contended that the CIT(A) erred in canceling the penalty, arguing that the assessee failed to substantiate her explanation and that the Assessing Officer correctly applied Explanation 1(B) under section 271(1)(c). The onus was on the assessee to prove the explanation was bona fide, which the Department claimed was not met.

4. The assessee's counsel argued that the stock figures were inflated due to the trade practice to secure higher credit facilities. They refuted the Assessing Officer's claim that the bank staff would have verified the stock, as the statement was provided later. The counsel emphasized that the details provided during the penalty proceedings supported the stock valuation and that the Assessing Officer lacked justification to deem them false or fabricated.

5. The Tribunal upheld the CIT(A)'s decision, stating that the Assessing Officer's charges of false details were not adequately supported. The Tribunal found that the assessee had furnished all relevant facts during the penalty proceedings, and the explanation provided was plausible and in line with common trade practices. As none of the conditions for invoking Explanation 1(B) were satisfied, the penalty cancellation was upheld, and the Department's appeal was dismissed.