2005 (2) TMI 93 - HC - Income Tax

Penalty levied u/s 271(1)(c) - concealment of income in respect of the unexplained cash credits - HELD THAT - It is clear from Explanation 1(B) to section 271(1)(c) of the Act that while computing the total income of an assessee if the assessee fails to prove that such explanation is bona fide then there will be a deemed concealment by the assessee. In the instant case in response to the notice issued by the Income-tax Officer for addition of Rs. 2, 01, 000 the assessee replied that he borrowed the same from different creditors who are all agriculturists. When the assessee was asked to substantiate this claim the assessee made attempts to secure those creditors to examine before the Income-tax Officer. Accordingly the Income-tax Officer computed the total income of the assessee at Rs.2, 99, 500 vide order of assessment dated August 3 1994 and on that the assessee has paid the taxes. Thus it cannot be said that the explanation of the assessee for non-inclusion of an income of Rs. 2, 01, 000 in his return of income is not bona fide. The explanation offered by the assessee is available on record. Bona fide failure on the part of the assessee in not substantiating his claim is also available on record. The Income-tax Officer while passing the order of penalty u/s 271(1)(c) of the Act has not considered the available explanation of the assessee and whether the explanation so offered is bona fide or not. The Tribunal by considering these facts concluded that the levy of penalty by the Income-tax Officer and the confirmation of the same by the CIT (A) is not just and proper and set aside the same. The order of the Tribunal in setting aside the penalty proceedings on the basis of the material on record in our opinion is just and proper. Thus the question of law referred to us is answered in the affirmative and against the Revenue. Ordered accordingly.

Summary

Issues:
1. Whether the Tribunal was right in canceling the penalty under section 271(1)(c) for alleged concealment of income in the case of unexplained cash credits in the assessee's books.

Analysis:
1. The case involved the assessment year 1993-94 where the assessee declared an income of Rs. 97,920 but was found to have unexplained cash credits of Rs. 2,01,000 in the books by the Income-tax Officer.
2. The Income-tax Officer issued a show-cause notice under section 271(1)(c) for alleged concealment of income, to which the assessee explained that the amount was borrowed from creditors but failed to produce evidence, leading to voluntary addition of the sum to income.
3. The Commissioner of Income-tax (Appeals) upheld the penalty, which was later set aside by the Income-tax Appellate Tribunal, prompting the Revenue to appeal the decision.
4. The main argument by the Revenue was that the voluntary offer by the assessee for addition to income amounted to concealment as per Explanation 1(B) to section 271(1)(c) of the Income-tax Act.
5. The assessee contended that the explanation was bona fide, as he couldn't produce creditors despite efforts, and the assessing authority failed to provide a specific finding against the explanation.
6. The court analyzed section 271(1)(c) and the relevant explanations, emphasizing that not every addition of income automatically attracts a penalty, especially if the explanation is bona fide as in this case.
7. It was noted that the assessee's attempts to secure creditors as witnesses were unsuccessful, leading to the voluntary addition of income, which was deemed bona fide by the court.
8. The court concluded that the Tribunal's decision to set aside the penalty was just and proper based on the available explanation and facts on record, ruling in favor of the assessee and against the Revenue.

This detailed analysis of the judgment showcases the legal intricacies involved in determining the levy of penalties for alleged concealment of income, emphasizing the importance of bona fide explanations and proper consideration of evidence by the assessing authorities and appellate bodies.