2006 (3) TMI 133 - HC - Income Tax

Penalty levied u/s 271(1)(c) - Concealment of Income - HELD THAT - In our considered opinion it is a clear case where the assessee failed to prove certain heavy transactions which they claimed to have entered into with some kabaddies for purchase of scrap raw material for manufacturing of steel items in their factory. If the assessee despite affording them an opportunity, to prove the transactions relied on by them for claiming benefits failed to substantiate, then a case for imposition of penalty is made out. In other words in such circumstances it becomes a case of concealment of true income chargeable to tax. When a bogus claim is made to evade tax and the same is proved to be bogus then in these circumstances, a case for imposition of penalty is made out. It is for the reason that it exhibits animus on the part of the assessee in concealing the true income and further exhibits an attempt on the part of the assessee to set up a bogus claim to avoid payment of legitimate tax which is otherwise due and payable on their true income for the year in question. We are also unable to accept the submission of learned counsel for the assessee when he contended that in the absence of any finding on the latter part of Explanation (1) to section 271(1)(c), the case has to be either remanded or the impugned penalty be set aside. As a result we do to find any merit in this appeal which fails and is hereby dismissed.

Summary

Issues:
Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961, legality of application of section 68, provisions of Explanation to section 271(1)(c), conditions of Explanation (B) to section 271(1)(c).

Analysis:
The appeal involved the imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1991-92. The appellant contested the penalty imposed by the Assessing Officer and upheld by the Tribunal, seeking relief on the grounds that it was legally unjustified. The primary issue was whether there was a valid case for the imposition of the penalty. The Tribunal upheld the penalty, emphasizing the appellant's failure to establish the identity of the kabaddies, leading to doubts about the genuineness of credits in the books. The Tribunal held that the burden of proof lay on the assessee to substantiate explanations for credits, citing relevant case laws. The Tribunal concluded that the penalty was rightly imposed based on the available evidence.

The High Court analyzed the Tribunal's decision and the arguments presented by both parties. It observed that the appellant failed to prove substantial transactions with kabaddies for the purchase of scrap "raw material." The court noted that if the appellant could not substantiate the claimed transactions despite opportunities provided, it amounted to concealment of true income chargeable to tax. The court highlighted that making bogus claims to evade tax indicated an intention to conceal income, justifying the penalty imposition. The court referred to precedents to support its conclusion, dismissing the appellant's reliance on certain case laws and rejecting the argument that the absence of a specific finding on Explanation (B) to section 271(1)(c) warranted setting aside the penalty.

In the final analysis, the High Court found no merit in the appeal and dismissed it. The court emphasized that the appellant's failure to prove the transactions with kabaddies, leading to doubts about the legitimacy of claims, justified the penalty under section 271(1)(c). The court rejected the appellant's arguments and upheld the Tribunal's decision, concluding that the penalty imposition was justified based on the circumstances and evidence presented in the case.