2009 (10) TMI 616 - AT - Income Tax

Penalty u/s 271(1)(c) - whether the claim of the assessee relating to the deduction of ₹ 4,68,301 towards transport charges in the account of SJT was false and therefore the assessee was covered by provision of s. 271(1)(c) of the Act - when the cross-cheques were issued in the name SJT , whether these were encashed by SJT or endorsed to somebody else was not concern of the assessee. - There is no justification to term the explanation of the assessee as false. - No case for levy of penalty has been made by the Revenue as relevant facts stated above were neither considered nor challenged during the course of the proceedings.

Summary

Issues Involved:
1. Legitimacy of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the assessee furnished inaccurate particulars of income.
3. Evaluation of the evidence provided by the assessee regarding the payment to Shree Jalaram Transport.
4. Applicability of Explanation 1 to Section 271(1)(c) of the Income Tax Act, 1961.
5. Relevance of findings in assessment proceedings to penalty proceedings.

Issue-wise Detailed Analysis:

1. Legitimacy of the Penalty Levied under Section 271(1)(c):
The penalty of Rs. 1,50,334 was levied by the Assessing Officer (AO) under Section 271(1)(c) for allegedly furnishing inaccurate particulars of income. The AO disallowed an expenditure of Rs. 4,68,305 claimed by the assessee as paid to Shree Jalaram Transport, which was deemed non-genuine. The CIT(A) and the Tribunal upheld this disallowance, leading to the initiation of penalty proceedings.

2. Whether the Assessee Furnished Inaccurate Particulars of Income:
The AO noted discrepancies in the bills provided by the assessee, such as the lack of signatures and the inability to produce the proprietor of Shree Jalaram Transport. The CIT(A) and the Tribunal observed that the transport firm did not maintain any bank account, and the cheques issued were not proven to be account payee cheques. Consequently, the penalty was upheld on the grounds that the assessee furnished inaccurate particulars of income.

3. Evaluation of the Evidence Provided by the Assessee:
During the penalty proceedings, the assessee submitted various documents, including an affidavit from the proprietor of Shree Jalaram Transport, a certificate from the bank confirming cheque payments, and other supporting documents. The assessee argued that the payments were made through crossed cheques, not account payee cheques, and provided evidence of the transport firm's existence and operations. Despite these submissions, the AO and CIT(A) found the evidence insufficient to substantiate the genuineness of the payments.

4. Applicability of Explanation 1 to Section 271(1)(c):
The CIT(A) concluded that the case fell under Explanation 1 to Section 271(1)(c), which raises a presumption of concealment if the returned income is less than 80% of the assessed income. The Tribunal's majority view held that the assessee failed to discharge the burden of proof to rebut this presumption. However, the dissenting opinion argued that the penalty should be canceled as the assessee provided substantial evidence, and the findings in the assessment proceedings were not conclusive for penalty purposes.

5. Relevance of Findings in Assessment Proceedings to Penalty Proceedings:
The Tribunal's majority view emphasized that findings in the assessment proceedings are relevant but not conclusive for penalty proceedings. The dissenting opinion highlighted that the assessee's explanation and evidence provided during the penalty proceedings should be considered independently. The Third Member (President) agreed with the dissenting view, noting that the explanation given by the assessee was not found to be false, and the penalty was not justified.

Conclusion:
The Third Member (President) concluded that the penalty under Section 271(1)(c) was not leviable, as the assessee provided substantial evidence to support the genuineness of the payments. The penalty of Rs. 1,50,334 was canceled, and the appeal of the assessee was allowed. The decision emphasized that penalty proceedings are separate from assessment proceedings, and the explanation provided by the assessee must be independently evaluated.