2010 (11) TMI 84 - HC - Income Tax

Penalty concealment of income Contractor Total Bills raised against Municipality disclosed but sums deducted by Municipality not shown in gross receipt Matter in dispute and High court finally holding against assessee Not a case of concealment Not a case of change of method of accounting from mercantile to cash Penalty concealment of income appeal to Appellate Tribunal Findings in appeal from Assessment not binding Tribunal to examine material afresh and decide whether penalty for concealment or furnishing inaccurate particulars justified

Summary

Issues Involved:
1. Change in the method of accounting by the assessee.
2. Evidence regarding payment to sub-contractors.
3. Deletion of penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Change in the Method of Accounting:
The primary issue was whether the Income-tax Appellate Tribunal (ITAT) was correct in holding that the assessee had changed its method of accounting from mercantile to cash without any justifiable reason. The assessee argued that it consistently followed the mercantile system and only accounted for income from bills accepted by the Jaipur Municipal Corporation (JMC) after deductions. The CIT(A) supported this, noting that the system had been accepted by the department since 1990. The Tribunal, however, found that the assessee declared receipts based on amounts actually received, which contradicted the mercantile system. The High Court referenced several precedents, emphasizing the concept of "real income" and concluded that the Tribunal was incorrect in its finding. The court held that the assessee did not change its accounting method and could not be charged with suppressing receipts.

2. Evidence Regarding Payment to Sub-Contractors:
The second issue was whether there was evidence of payment of Rs. 36,17,980/- by the assessee to sub-contractors for garbage collection work. The CIT(A) deleted the addition, noting that the appellant maintained log books verified by JMC officials and deducted tax at source. The Tribunal reversed this, stating the log books alone were insufficient evidence. The High Court disagreed with the Tribunal, highlighting that the log books were contemporaneous documents authenticated by JMC, and the payments were verified in subsequent assessments. The court found that the Tribunal failed to consider these crucial aspects and deemed the Tribunal's finding as perverse.

3. Deletion of Penalty Under Section 271(1)(c):
The third issue was whether the ITAT was correct in deleting the penalty of Rs. 36,07,220/- imposed by the Assessing Officer under Section 271(1)(c). The Tribunal had deleted the penalty, stating that no "satisfaction" was recorded by the AO before initiating penalty proceedings and that the assessee did not conceal income or furnish inaccurate particulars. The High Court affirmed this, noting that the assessee disclosed all facts and the differences were due to divergent views within the department. The court referenced the Supreme Court's rulings, emphasizing that making an unsustainable claim does not equate to furnishing inaccurate particulars. The High Court agreed with the Tribunal that the assessee was not guilty of concealment or furnishing inaccurate particulars.

Conclusion:
The High Court concluded that the ITAT was incorrect in holding that the assessee changed its method of accounting without justification and that there was no evidence of payment to sub-contractors. The court also upheld the ITAT's decision to delete the penalty imposed under Section 271(1)(c), favoring the assessee on all counts. The appeals were disposed of accordingly.