2007 (4) TMI 220 - HC - Income Tax

Penalty levied u/s 271(1)(c) - concealment of income on the cost of purchase of machinery - Whether the Tribunal was right in law in holding that making a false claim of depreciation, extra shift allowance, investment allowance, etc., neither amounts to concealment of income, nor furnishing of inaccurate particulars to attract penalty u/s 271(1)(c)? - HELD THAT - We are of the view that the Assessing Officer cannot be said to have committed any error particularly in the light of the false information for the purpose of benefits in terms of the Act. The same was challenged before the appellate authority. The appellate authority has chosen to dismiss the same thereby confirming the findings of the Assessing Officer. Surprisingly, when the matter was taken to the Tribunal, the Tribunal has failed to look into the matter for the purpose of false information in terms of section 271(1)(c) in its order. On the other hand, the Tribunal condones the conduct by holding that the claim was made on the basis of the certificate issued by the factory manager. The Tribunal forgot to notice that when the claim was made on the basis of installation, the machinery had not even left the premises of the seller. The defence of factory manager's certificate can never be considered. Even otherwise, it cannot be said that the certificate of the factory manager would come to the aid of the assessee in a matter like this. In fact the Tribunal has chosen to rely on its decision rendered in T. Ashok Pai v. Asst. CIT 1994 (7) TMI 109 - ITAT BANGALORE In the case on hand, it is not counsel/agent but it is the factory manager, who has issued the certificate. The assessee is bound by the act of his servants/factory manager as well. In these circumstances, we are of the view that the Tribunal has committed a serious legal error in the case on hand. The assessing authority after noticing the conduct has given a detailed finding with regard to the matter in his order. He has also commented upon the certificate issued by the auditor. We have no hesitation in reversing the order of the Tribunal and thereby restoring the order of the assessing authority. Section 271(1)(c) has to be strictly applied in the larger interest of discipline in filing correct returns by the assessee. In these circumstances, this appeal is accepted. Questions of law are answered in favour of the Revenue.

Summary

Issues:
1. Appeal against the cancellation of penalty under section 271(1)(c) for concealment of income.
2. Interpretation of whether false claims of depreciation, extra shift allowance, and investment allowance amount to concealment of income.

Analysis:
1. The case involved an appeal by the Revenue against the cancellation of a penalty under section 271(1)(c) for concealment of income. The Assessing Officer had imposed a penalty on the Assessee for concealing income related to the purchase of machinery. The Commissioner (Appeals) upheld the penalty, but the Tribunal canceled it, leading to the Revenue filing a reference to the High Court. The key issue was whether the Assessee's false claim, based on a certificate from the factory manager, justified the penalty under section 271(1)(c). The Tribunal's decision was based on the timing of the claim withdrawal and the reliance on the factory manager's certificate.

2. The Assessing Officer found discrepancies in the Assessee's claim regarding the machinery's arrival and use before the relevant accounting year. Despite evidence showing otherwise, the Assessee maintained the claim, leading to the penalty imposition. The Tribunal, however, focused on the Assessee's reliance on the factory manager's certificate and the timing of claim withdrawal. The High Court disagreed with the Tribunal, emphasizing that false information provided by the Assessee, even based on a certificate, could not absolve them of penalty under section 271(1)(c). The Court highlighted the importance of accurate declarations for tax benefits and upheld the penalty, stressing the need for strict application of tax laws.

3. Referring to previous judgments, the High Court emphasized that an Assessee is bound by the actions of their representatives, such as legal advisers or factory managers. Relying on advice or certificates without due diligence does not excuse false claims or concealment of income. The Court cited a case where an Assessee's ignorance of a representative's actions did not absolve them of penalty. In the present case, the Court found the Assessee's conduct questionable, leading to the reversal of the Tribunal's decision and restoration of the penalty imposed by the Assessing Officer. The judgment underscored the importance of accurate tax filings and penalizing false declarations for tax benefits.

This detailed analysis of the judgment highlights the key legal issues, interpretations, and the High Court's decision regarding the cancellation of the penalty under section 271(1)(c) for concealment of income based on false claims and reliance on certificates.