2008 (2) TMI 895 - HC - Income Tax

Summary

Issues Involved:
1. Justification of penalty u/s 271(1)(c) of the IT Act.
2. Assessee's burden to disclose presumption under Explanation to s. 271(1)(c) of the IT Act, 1961.

Summary:

Issue 1: Justification of Penalty u/s 271(1)(c) of the IT Act
The High Court examined whether the levy of penalty u/s 271(1)(c) was justified. The appellant filed returns, and notices were issued u/s 143(2) and 142(1). The assessment was finalized, and a penalty notice was issued for concealing particulars of income and non-filing of higher estimates. The Dy. CIT imposed a penalty of Rs. 2,75,000, concluding that the assessee failed to explain why the penalty should not be imposed, as the payments to M/s Radha Kishan Bal Kishan Muchhal and M/s Pyroff Packaging (P) Ltd. were not for business consideration. The Tribunal upheld the penalty, stating that the assessee concealed particulars of income. However, the High Court found that the AO did not record a positive satisfaction for initiating penalty proceedings, as required by s. 271(1). The Court emphasized that imposition of penalty is not automatic and requires a deliberate act of concealment or furnishing inaccurate particulars, which was not established in this case.

Issue 2: Assessee's Burden to Disclose Presumption under Explanation to s. 271(1)(c)
The Tribunal concluded that the assessee did not discharge the burden to disclose the presumption arising against him under Explanation to s. 271(1)(c). The High Court referred to the Supreme Court's judgment in Dilip N. Shroff vs. Jt. CIT, which clarified that mere disallowance of a deduction does not automatically lead to penalty. The Court noted that the assessee had bona fidely claimed the deduction, and the authorities did not find that the payments were not made, but rather that they were not for business purposes. The High Court held that the Tribunal's conclusion that the assessee concealed particulars of income was not supported by a finding of a deliberate act of concealment, as required by law.

Conclusion:
The High Court allowed the appeal, quashing the orders of the Tribunal and the AO (Dy. CIT), and answered both questions in favor of the assessee and against the Revenue.