2011 (6) TMI 17 - HC - Income Tax

Penalty - Search and seizure - Block assessment - Undisclosed income - Mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi - Incorrect claim may not amount to furnishing of inaccurate particulars - Mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding income of assessee and such a claim can not amount to furnishing inaccurate particulars - the prima facie satisfaction of the Assessing Officer that the case may deserve the imposition of penalty, can be discerned from the order passed during the course of assessment proceedings. Unexplained Expenditure - it would be seen that all the authorities have recorded the plea of imprest amount of the assessee, as an afterthought - it is clearly discernible that the AO had recorded prima facie satisfaction that the unexplained amount of expenditure recorded in the seized document was the unexplained income. - It was a clear case of furnishing inaccurate particulars of the income by the assessee. - Penalty to be imposed

Summary

Issues Involved:
1. Justification of the Tribunal in reversing the CIT(A) order deleting the penalty under Section 271(1)(c) of the Income Tax Act.
2. Legitimacy of the penalty proceedings without explicit satisfaction recorded by the Assessing Officer.
3. Evaluation of the assessee's claim regarding the imprest account and its subsequent rejection.

Issue-wise Detailed Analysis:

1. Justification of the Tribunal in reversing the CIT(A) order deleting the penalty under Section 271(1)(c) of the Income Tax Act:
The Tribunal reversed the CIT(A)'s order and upheld the penalty levied by the Assessing Officer. The Tribunal emphasized that the additions were based on documentary evidence found during the search and seizure operation, which belonged to the assessee company. The Tribunal noted that the explanation provided by the assessee regarding the imprest account was an afterthought and not substantiated with evidence. The Tribunal highlighted that the expenditure was not recorded in the books of accounts contemporaneously and only entered much later, which invalidated the assessee's claim. Consequently, the Tribunal concluded that the amount of expenditure incurred was indeed the undisclosed income of the assessee, justifying the penalty.

2. Legitimacy of the penalty proceedings without explicit satisfaction recorded by the Assessing Officer:
The CIT(A) initially held that satisfaction, as required under Section 271(1)(c), was not necessary under Section 158BFA(2). However, the Tribunal and the High Court found that the Assessing Officer had recorded prima facie satisfaction regarding the unexplained expenditure being the undisclosed income during the course of assessment proceedings. The High Court referenced several judgments to support the principle that the initiation of penalty proceedings must be based on a clear satisfaction of concealment or furnishing inaccurate particulars of income. The High Court affirmed that the Assessing Officer's order contained sufficient prima facie satisfaction, thus validating the penalty proceedings.

3. Evaluation of the assessee's claim regarding the imprest account and its subsequent rejection:
The assessee claimed that the unexplained expenditures were covered by the imprest account given to the Director for company expenses. This claim was rejected by the Assessing Officer, CIT(A), and the Tribunal on the grounds that the expenditures were not recorded in the books of accounts until much later and only after the search operation. The Tribunal noted that the imprest account remained at the same figure for an extended period, and the expenditures were recorded only in September 2001, which indicated that the imprest account explanation was an afterthought. The High Court concurred with the findings of the lower authorities, emphasizing that the non-recording of expenditures for such a long period could not be considered a mere mistake, but rather an act of furnishing inaccurate particulars of income.

Conclusion:
The High Court dismissed the appeal, affirming the Tribunal's decision to uphold the penalty. The Court concluded that the Tribunal was justified in reversing the CIT(A)'s order and that the Assessing Officer had adequately recorded satisfaction for initiating penalty proceedings. The assessee's explanation regarding the imprest account was found to be an afterthought and not credible, leading to the conclusion that the penalty was rightly levied for furnishing inaccurate particulars of income.