2005 (9) TMI 658 - HC - Income Tax

Summary

Issues:
Assessment under Section 143(3) of the Income Tax Act, Notice under Section 132(3) of the Act, Re-assessment proceedings under Section 148, Penalty proceedings under Section 271(1)(c) and 273(1), Appeal before the Income-tax Appellate Tribunal, Referral of question of law regarding penalty cancellation.

Assessment under Section 143(3) of the Income Tax Act:
The assessee, a firm, filed its return for the assessment year 1987-88 declaring total income of Rs. 2,85,150. The Assessing Authority completed the assessment at Rs. 2,87,970. During an investigation in other cases, discrepancies in loans were highlighted, leading to a notice under Section 132(3) to explain the alleged borrowed amounts. The assessee offered Rs. 1,15,000 for taxation to avoid penalties, which was accepted.

Re-assessment proceedings under Section 148:
After the Assistant Director's report, re-assessment proceedings were initiated under Section 148. The assessee filed a revised return admitting income of Rs. 4,00,150. However, penalty proceedings were initiated under Section 271(1)(c) and 273(1) despite the revised return being filed based on assurances to avoid penalties.

Penalty proceedings under Section 271(1)(c) and 273(1):
The Assessing Officer levied a penalty of Rs. 70,000 under Section 271(1)(c), which was confirmed by the first Appellate Authority. The Tribunal, in an appeal, found no concealment of income and canceled the penalty, citing the agreement not to levy penalties based on the revised return.

Appeal before the Income-tax Appellate Tribunal:
The Tribunal set aside the penalty imposed under Section 271(1)(c) by the Assessing Officer, disagreeing with the decision of the first Appellate Authority. The Tribunal's reasoning primarily focused on the agreement not to levy penalties based on the revised return filed by the assessee.

Referral of question of law regarding penalty cancellation:
The Income Tax Appellate Tribunal referred the question of whether canceling the penalty of Rs. 70,000 under Section 271(1)(c) was justified. The High Court disagreed with the Tribunal's decision, citing legal precedents that an agreement not to levy penalties does not prevent the Assessing Authority from imposing penalties for income concealment. The question was answered in the negative, against the assessee.