1998 (4) TMI 501 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the penalty levied under Section 271(1)(c) of the Income-tax Act.
2. Voluntariness of the revised return filed by the assessee.
3. Validity of the revised return filed before the issuance of notice under Section 148.
4. Assessment of the mens rea for concealment of income.

Issue-wise Detailed Analysis:

1. Legitimacy of the Penalty Levied Under Section 271(1)(c):
The Revenue appealed against the deletion of the penalty of Rs. 1,60,000 levied by the Assessing Officer under Section 271(1)(c). The Assessing Officer had issued the penalty notice concerning unexplained investments in drafts totaling Rs. 2,50,000. The Commissioner of Income-tax (Appeals) (CIT(A)) cancelled the penalty, noting that the assessee had voluntarily surrendered the amount before the investigation concluded and had paid the due tax. The CIT(A) emphasized that the penalty was based merely on the voluntary offer by the assessee without independent findings of concealment or inaccurate particulars of income. The Tribunal upheld the CIT(A)'s order, noting that the revised return was filed before the notice under Section 148 and the drafts were entered in the books, albeit on later dates.

2. Voluntariness of the Revised Return Filed by the Assessee:
The Revenue contended that the revised return was not voluntary and was filed only after the detection of the drafts by the ADI. The CIT(A) and the Accountant Member of the Tribunal, however, found that the revised return was filed voluntarily to buy peace and avoid litigation. The Accountant Member noted that the revised return was filed on March 9, 1989, before the notice under Section 148 was issued on May 3, 1989. The Tribunal concluded that the voluntary nature of the revised return, coupled with the payment of additional tax, indicated the assessee's bona fides.

3. Validity of the Revised Return Filed Before the Issuance of Notice Under Section 148:
The Tribunal considered the timing of the revised return, which was filed before the notice under Section 148. The CIT(A) and the Accountant Member emphasized that the revised return and the payment of additional tax were made voluntarily and before any formal notice from the Department. This timing was crucial in determining the voluntariness and the intent behind the revised return. The Judicial Member, however, argued that the revised return was not voluntary as it was filed only after the ADI's investigation. The Third Member sided with the Accountant Member, affirming that the revised return's timing supported its voluntary nature.

4. Assessment of the Mens Rea for Concealment of Income:
The Tribunal examined whether the assessee had the mens rea (guilty mind) for concealment of income. The CIT(A) and the Accountant Member found no evidence of deliberate concealment, noting that the drafts were entered in the books on later dates due to an accountant's mistake. The Tribunal referred to the Supreme Court's decision in Sir Shadilal Sugar and General Mills Ltd. v. CIT, which held that an assessee agreeing to additions does not necessarily imply concealed income. The Judicial Member, however, believed that the concealment was deliberate and the revised return was a result of the ADI's detection. The Third Member agreed with the Accountant Member, concluding that the Revenue failed to prove the mens rea for concealment.

Conclusion:
The Tribunal, by majority opinion, upheld the CIT(A)'s order deleting the penalty. The revised return was filed voluntarily before the notice under Section 148, and there was no independent evidence of deliberate concealment. The assessee's actions were seen as an effort to buy peace and avoid litigation, and the penalty under Section 271(1)(c) was deemed unjustified.