2006 (10) TMI 114 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal committed an error of law by not drawing presumption u/s 271(1)(c) Explanation 5 of the Income-tax Act that the assessee firm concealed income.
2. Whether the penalty imposed on the firm for concealing particulars of income was justified.

Summary:

Issue 1: Tribunal's Error of Law
The substantial question framed was whether the Tribunal erred by not drawing a presumption u/s 271(1)(c) Explanation 5 that the assessee firm concealed income. The Tribunal found that the search was conducted in the presence of Sh. Madanlal in his individual capacity, and the order u/s 132(5) was made against him individually. The Tribunal concluded that the income surrendered by Madanlal was in his individual capacity and not by the firm. Therefore, the firm could not be attributed with the guilt of concealing the particulars of income.

Issue 2: Justification of Penalty Imposed
The assessee-firm initially filed a return for the assessment year 1987-88 declaring an income of Rs. 47,671, which was later revised to Rs. 4,46,761. The Assessing Officer disallowed a claim of loss and assessed the firm at Rs. 4,47,761. Penalty proceedings were initiated u/s 271(1)(c) for concealing particulars of income. The Assessing Officer rejected the plea to invoke Explanation 5 to section 271(1)(c) on the grounds that no statement u/s 132(4) was recorded during the search. However, the Tribunal found that the tax on the surrendered income made by Madanlal in his individual capacity was paid by him, and the firm mistakenly declared this income as its own. Consequently, the Tribunal ruled that penalty could not be levied u/s 271(1)(c).

The Tribunal's decision was based on the material available on record and the explanation furnished by the assessee. The presumption u/s 271(1)(c) Explanation 5 is rebuttable, and the Tribunal found that the assessee was not guilty of concealing particulars of income. The Tribunal's findings were based on relevant material and were not perverse. Hence, the levy of penalty was rightly not sustained.

Conclusion:
The appeal was dismissed, and the Tribunal's order was upheld, finding no error in the Tribunal's decision to not sustain the penalty. There was no order as to costs.