2009 (1) TMI 526 - AT - Income Tax

Penalty u/s 271(1)(c) - concealment of income and furnished inaccurate particulars of income - HELD THAT - We find that AO while making assessment has been calculated the income as per law on the basis of particulars of income furnished by the assessee. When the assessee furnished the relevant particulars of income, AO is duty bound to calculate the correct income. If AO discharge his duty in calculation of such income on the basis of particulars filed by the assessee, under that circumstances it cannot be held that the assessee has furnished inaccurate particulars of his income or has concealed the particulars of income. The assessee has furnished necessary explanation though not before AO but before the CIT(A) that the additions made are highly debatable legally. The assessee has substantiated its explanation filed before the CIT(A) and has proved that such explanation is bona fide and that all the facts relating to computation of total income have been disclosed by the assessee. The bona fide explanation of the assessee has not found false. Under the circumstances, we are of the considered view that neither the assessee has concealed its particulars of income nor has furnished such inaccurate particulars of income nor Explanation to section 271(1)( c ) is applicable. We, therefore, find that this is not a fit case for levy of penalty u/s 271(1)( c ). Accordingly, the penalty levied by the AO u/s 271(1)(c) and confirmed by the CIT(A) is hereby deleted. In the result, the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Confirmation of penalty under section 271(1)(c) of the Income-tax Act.
2. Whether the assessee concealed income or furnished inaccurate particulars of income.
3. Applicability of Explanation 1 to section 271(1)(c).

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c):
The primary issue in this case is the confirmation of a penalty of Rs. 15,65,918 levied by the Assessing Officer (AO) under section 271(1)(c) of the Income-tax Act, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The penalty was imposed on the grounds that the assessee had concealed income and furnished inaccurate particulars of income.

2. Concealment of Income or Furnishing Inaccurate Particulars:
The AO disallowed certain expenses, including an interest expenditure of Rs. 42.55 lakh, claimed by the assessee for a construction business that had not commenced. The AO taxed the interest income under the head 'Income from other sources', resulting in an assessed income of Rs. 9,86,380 against a declared loss of Rs. 32,74,623. The AO invoked Explanation 1 to section 271(1)(c) to levy the penalty, which was sustained by the CIT(A) with the finding that the assessee had concealed income and furnished inaccurate particulars.

3. Applicability of Explanation 1 to Section 271(1)(c):
The Tribunal examined whether the penalty under section 271(1)(c) read with Explanation 1 was applicable. The Tribunal noted that the proceedings under section 271(1)(c) could be initiated if the AO or the first appellate authority was satisfied that the assessee had concealed particulars of income or furnished inaccurate particulars. The terms "concealed the particulars of income" and "furnished inaccurate particulars of income" were analyzed in detail.

The Tribunal emphasized that concealment implies a direct attempt to hide income, while furnishing inaccurate particulars may be indirect. The Tribunal also highlighted that the penalty under section 271(1)(c) is a civil liability, and wilful concealment is not necessary for attracting this liability.

The Tribunal further explained the duties of the assessee under the Act, including the obligation to make a correct and complete disclosure of income. It was noted that inaccuracies in the particulars of income, whether in books of account or otherwise, could result in penalties.

The Tribunal discussed the procedural aspects, including the requirement for the AO to provide an opportunity of hearing to the assessee under section 274. It was noted that the burden of proof lies on the assessee to rebut the presumption of concealment or furnishing inaccurate particulars.

Findings:
In this case, the Tribunal found that the AO calculated the income based on the particulars furnished by the assessee. The assessee provided an explanation before the CIT(A) that the additions made were legally debatable and substantiated the explanation with evidence. The Tribunal concluded that the explanation was bona fide and that all facts relating to the computation of income were disclosed. Therefore, the Tribunal held that the assessee neither concealed income nor furnished inaccurate particulars, and Explanation 1 to section 271(1)(c) was not applicable.

Conclusion:
The Tribunal deleted the penalty of Rs. 15,65,918 levied by the AO and confirmed by the CIT(A), concluding that this was not a fit case for levy of penalty under section 271(1)(c). The appeal of the assessee was allowed.