2011 (7) TMI 1020 - AT - Income Tax

Penalty u/s 271(1)(c) - CIT deleted penalty - Held that - penalty is levied on account of non-furnishing of bank reconciliation statement and assessee s non-co-operation - In the penalty order, it is not certified as to on what reason-whether on account of concealment of income or on account of furnishing inaccurate particulars of income, is being levied. Under the provisions of section 271(1)(c) of the Act, it is the statutory duty of the Assessing Officer to specify as to what is the reason for levy of penalty under section 271(1)(c). Under this section a penalty can be levied only if the assessee has either concealed the particulars of income or has furnished inaccurate particulars of income or has committed both defaults. These two defaults are different and do not overlap on each other. However, both refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of either suppressio veri or suggestio falsi. The levy of penalty under this section is not automatic. By the reason of such concealment or furnishing of inaccurate particulars alone the assessee does not, ipso facto, become liable to a penalty but he has a right to explain against the same. Not only is the levy of penalty discretionary in nature but also the discretion has to be exercised keeping the relevant factors in mind and the approach of the Assessing Officer must be fair and objective. The acceptance of a particular amount of income or offering additional income by the assessee and not filing appeal against any such addition would not itself lead to levy of penalty under section 271(1)(c) of the Act. The standard of proof for making quantum addition and for levy of penalty, are entirely different. A penalty provision accepts reasonable cause as provided in section 273B of the Act - Any addition made on the basis of offer which is made despite there being any specific evidence and based on guesstimate of the assessee in order to avoid further litigation and to buy peace, cannot be made a ground for imposing penalty under section 271(1)(c) of the Act. The Explanation below 271(1)(c) of the Act will not apply in this case as nothing specific has been found by the Department even during survey which can attract any deeming provision which the assessee has to disprove - Following decision of Commissioner Of Income-Tax, Kerala II, Ernakulam Versus K. Mahim 1983 (7) TMI 36 - KERALA High Court and K. P. Madhusudanan Versus Commissioner of Income Tax 2001 (8) TMI 8 - SUPREME Court - Decided against Revenue.

Summary

Issues Involved:
1. Legality of the penalty under section 271(1)(c) of the Income Tax Act.
2. Justification for the deletion of the penalty by the Commissioner of Income-tax (Appeals).
3. Assessment of whether the assessee concealed income or furnished inaccurate particulars.

Issue-Wise Detailed Analysis:

1. Legality of the Penalty under Section 271(1)(c) of the Income Tax Act:
The appeal concerns the imposition of a penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2006-07. The penalty was levied following a survey conducted under section 133A, during which the assessee offered an additional income of Rs. 3 crores due to omissions/mistakes and missing vouchers. The Assessing Officer imposed a penalty of Rs. 1,25,00,000, asserting that the assessee had either concealed income or furnished inaccurate particulars. However, the Tribunal found that the Assessing Officer did not clearly specify whether the penalty was for concealment of income or for furnishing inaccurate particulars, which are distinct defaults under the Act. This lack of specificity was a critical factor in determining the legality of the penalty.

2. Justification for the Deletion of the Penalty by the Commissioner of Income-tax (Appeals):
The Commissioner of Income-tax (Appeals) deleted the penalty, observing that the assessee had voluntarily offered Rs. 3 crores without any specific mistake or fault being pointed out by the Assessing Officer and had paid the tax thereon. The Tribunal upheld this deletion, noting that the penalty provisions under section 271(1)(c) are not automatic and require a deliberate act of concealment or furnishing inaccurate particulars, which was not evident in this case. The Tribunal emphasized that the acceptance of additional income by the assessee to avoid further litigation and buy peace does not automatically warrant a penalty. The Tribunal also referenced the hon'ble Supreme Court's decision in CIT v. Reliance Petroproducts P. Ltd. [2010] 322 ITR 158 (SC), which supports the view that mere acceptance of additional income does not justify a penalty.

3. Assessment of Whether the Assessee Concealed Income or Furnished Inaccurate Particulars:
The Tribunal analyzed the facts presented by the Assessing Officer, including the non-furnishing of bank reconciliation statements and the assessee's explanation regarding the missing vouchers and crashed computers. The Tribunal found that the Assessing Officer's conclusion that the assessee had not made a full and true disclosure of income was not substantiated by specific evidence of concealment or furnishing inaccurate particulars. The Tribunal highlighted that the penalty order did not clearly establish the basis for the penalty, whether it was for concealment or inaccurate particulars, which is a prerequisite under section 271(1)(c). The Tribunal also considered the assessee's explanation that the additional income was offered to avoid litigation and maintain peace, which was deemed a reasonable cause under section 273B of the Act. The Tribunal concluded that the facts did not support the imposition of the penalty and dismissed the Revenue's appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the deletion of the penalty by the Commissioner of Income-tax (Appeals). The decision was based on the lack of clear evidence of concealment or furnishing inaccurate particulars by the assessee and the voluntary nature of the additional income offered to avoid further litigation. The Tribunal emphasized the discretionary nature of penalty provisions and the necessity for a fair and objective approach by the Assessing Officer. The order was pronounced in the open court on July 20, 2011.