2009 (7) TMI 830 - HC - Income Tax

Penalty concealment of income Held that - Finding that assessee had explained reason for disparity between returned income and assessed income penalty could not be imposed

Summary

Issues:
- Interpretation of section 271(1)(c) of the Income-tax Act, 1961 regarding penalty imposition
- Application of the proviso below Explanation 1(B) of section 271(1)(c) in the case of confirmed addition of Rs. 89,273 on account of bogus purchases
- Assessment of the bona fides of the respondent-assessee's explanation for the purchases

Analysis:
The High Court of Allahabad addressed the reference made by the Income-tax Appellate Tribunal regarding the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 1984-85. The respondent-assessee, a registered firm engaged in milling and trading activities, had shown purchases of chuni/bhusi amounting to Rs. 89,273 from five parties, out of which three purchases were found to be bogus. The Tribunal confirmed the addition of the bogus purchases to the declared income. The Assessing Officer imposed a penalty of Rs. 22,000 under section 271(1)(c), which was upheld by the Commissioner of Income-tax (Appeals). However, the Tribunal overturned the penalty, citing the respondent's explanation as bona fide and disclosing all material facts for income computation.

The Tribunal based its decision on the respondent's bona fides, supported by the purchase rates from the parties involved. Notably, the Tribunal highlighted the consistency in purchase rates from the genuine party compared to the varying rates from the parties with bogus purchases. The High Court, after hearing arguments from both parties, upheld the Tribunal's decision, emphasizing that the respondent's explanation was bona fide and well-supported by the available evidence. The Court concluded that the findings of the Tribunal were justified based on the record.

In its judgment, the High Court answered the questions referred in favor of the assessee and against the Revenue, indicating that the cancellation of the penalty was deemed appropriate in this case. The Court also ruled that there would be no order as to costs, bringing a conclusion to the legal proceedings surrounding the penalty imposition under section 271(1)(c) for the disputed purchases.