2009 (2) TMI 863 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act.
2. Allegation of concealment of income or furnishing inaccurate particulars of income.
3. Applicability of Explanation 1 to section 271(1)(c).

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The core issue revolves around the levy of penalty amounting to Rs. 1,61,943 under section 271(1)(c) of the Income Tax Act for the assessment year 2001-02. The assessee had shown discrepancies in the creditor balances with M/s Elegant Enterprise and M/s Silva Sales & Service, leading the Assessing Officer (AO) to treat the differences as unexplained cash credits under section 68, subsequently imposing the penalty.

2. Allegation of Concealment of Income or Furnishing Inaccurate Particulars of Income:
The assessee contended that all necessary details, including reconciliations and confirmations from the parties, were furnished. The discrepancies arose due to different accounting systems and clerical errors. The AO, however, imposed the penalty without specifying whether the assessee concealed particulars of income or furnished inaccurate particulars. The Tribunal emphasized that the expressions "has concealed the particulars of his income" and "has furnished inaccurate particulars of income" are distinct and not defined in the Act, implying different circumstances leading to the same effect-keeping off a portion of income.

3. Applicability of Explanation 1 to Section 271(1)(c):
Explanation 1 to section 271(1)(c) deals with deemed concealment and imposes a civil liability for failure to offer a bona fide explanation or if the explanation is found false. The Tribunal noted that the assessee provided a reasonable explanation substantiated with evidence, such as books of accounts and reconciliations, which were not found false by the AO. The Tribunal highlighted that the AO must point out the exact failure of the assessee for penalty imposition, which was not done in this case. The Tribunal referred to various judicial precedents, including CIT vs. Mussadilal Ram Bharose and K.P. Madhusudhanan vs. CIT, to underline that mere non-acceptance of an explanation does not justify penalty unless the explanation is proven false with definite evidence.

Conclusion:
The Tribunal concluded that the penalty under section 271(1)(c) was not justified as the assessee had furnished all necessary details and explanations, which were substantiated and not found false. The AO failed to point out the specific default warranting the penalty. Consequently, the penalty of Rs. 1,61,943 was canceled, and the appeal of the assessee was allowed.