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2005 (2) TMI 94 - HC - Income TaxPenalty levied u/s 271(1)(c) on the ground assessee filed a false return of income - concealment of income and furnishing inaccurate particulars - HELD THAT - We are in respectful agreement with the view expressed in National Textiles v. CIT 2000 (10) TMI 19 - GUJARAT HIGH COURT and CIT v. Santhosh Financiers 2000 (7) TMI 22 - KERALA HIGH COURT ). In the instant case, the assessee in their return claimed deduction of Rs. 12 lakhs under the head Lease rent paid to the licensor. The Revenue has not disputed the payment of Rs. 12 lakhs by the assessee to the licensor. The only contention of the Revenue is that there is no obligation for the assessee to pay the lease rent to the licensor under the agreement dated December 29, 1979, and therefore the assessee is not entitled for deduction and the Revenue brought the same to tax. Merely because the Revenue refuses to accept the claim of the assessee and treated the same as income it cannot be said that the assessee has concealed the income. In order to justify the levy of penalty the circumstances must show that the assessee is having an intention to conceal the income and to evade the payment of tax. In this case the assessee showed the payment of Rs. 12 lakhs to the licensor in the return filed by the assessee and the same is not disputed by the Revenue. Though the Revenue refuses to accept the claim of the assessee and added the same for tax it will not automatically lead to a circumstance to levy the penalty. Thus, the questions of law referred to us are answered in the negative and in favour of the assessee.
Issues:
1. Interpretation of section 271(1)(c) of the Income-tax Act regarding penalty imposition. 2. Justification of claim for deduction made by the assessee. 3. Evidence of payment made by the assessee to another company for claim justification. Issue 1: Interpretation of section 271(1)(c) of the Income-tax Act regarding penalty imposition The case involved the interpretation of section 271(1)(c) of the Income-tax Act to determine if penalty imposition was justified. The assessee claimed a deduction of Rs. 12 lakhs as lease rent paid to its licensor, which was disallowed by the Income-tax Officer. The Revenue argued that the failure to justify this claim amounted to furnishing inaccurate particulars, justifying the penalty. However, the court emphasized that for penalty imposition, there must be evidence of intent to conceal income. The court referred to relevant case law, including National Textiles v. CIT, to highlight that penalty cannot be imposed solely based on disallowed claims without proving intent to conceal income. The court concluded that the Revenue's refusal to accept the claim does not automatically imply intent to conceal income, thus ruling in favor of the assessee. Issue 2: Justification of claim for deduction made by the assessee The assessee claimed a deduction of Rs. 12 lakhs as lease rent paid to the licensor. The Revenue disputed this claim, arguing that there was no obligation for the assessee to pay the lease rent under the agreement. However, the court noted that the assessee had shown the payment of Rs. 12 lakhs to the licensor, which was not disputed by the Revenue. The court emphasized that the mere refusal to accept the claim and taxing the amount does not establish intent to conceal income. The court highlighted that the circumstances must demonstrate the assessee's intention to evade tax, which was not evident in this case. Therefore, the court ruled that the assessee had not concealed income and was not liable for penalty under section 271(1)(c). Issue 3: Evidence of payment made by the assessee to another company for claim justification The case revolved around the evidence of payment of Rs. 12 lakhs by the assessee to the licensor. The assessee claimed this amount as lease rent, which was disputed by the Revenue. However, the court noted that the Revenue did not contest the actual payment made by the assessee. The court emphasized that the burden of proof for penalty imposition lies in demonstrating intent to conceal income, which was not established in this case. The court analyzed the circumstances surrounding the claim and payment, ultimately ruling that the assessee had not concealed income. The court's decision was based on the lack of evidence indicating deliberate intent to evade tax, leading to a ruling in favor of the assessee. In conclusion, the High Court of Karnataka ruled in favor of the assessee, stating that the questions of law referred to them were answered in the negative and in favor of the assessee. The judgment highlighted the importance of proving intent to conceal income for penalty imposition under section 271(1)(c) of the Income-tax Act, emphasizing that mere disallowance of claims does not automatically warrant penalty if there is no evidence of deliberate concealment.
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