2010 (3) TMI 804 - AT - Income Tax

Waiver of penalty - assessee in order to buy peace and to avoid further litigation surrendered the amount to tax Held that - The assessee has offered an explanation which has not been found false by the Assessing Officer. - The explanation of the assessee that whatever was returned by him was correct but because the books could not be produced due to plausible reason which explanation has not been found to be not bona fide and the Assessing Officer has not even doubted the same, the other condition of the explanation of section 271(1)(c) is also not established. So, when there is no presumption, the question of rebuttal does not arise or in other words, the presumption stands rebutted. - Decided in favor of assessee.

Summary

Issues Involved:
1. Legitimacy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of the assessee's explanation for discrepancies in income declaration.
3. Application of Explanation 1 to section 271(1)(c) of the Act.
4. Relevance of judicial precedents in determining the applicability of the penalty.

Detailed Analysis:

1. Legitimacy of Penalty under Section 271(1)(c):

The Revenue appealed against the order of the Commissioner of Income-tax (Appeals), which canceled the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. The penalty was originally levied because the assessee declared a total income of Rs. 81,060, but the assessment was completed at Rs. 18,54,764. The Assessing Officer issued a notice under section 271(1)(c) due to discrepancies and non-production of books of account. The Assessing Officer concluded that the assessee had concealed taxable income and levied a minimum penalty of Rs. 5,25,164 on the concealed income of Rs. 17,73,704. However, the Commissioner of Income-tax (Appeals) canceled the penalty, holding that it was neither a case of concealment of income nor furnishing inaccurate particulars of income.

2. Validity of the Assessee's Explanation:

The assessee argued that the additional income was offered voluntarily to buy peace and avoid further litigation, citing health issues and problems faced by his auditor. The explanation was that the books of account could not be produced due to the auditor's issues, but a balance-sheet and cash flow statement were prepared. The assessee surrendered Rs. 16,08,122 and later Rs. 2,46,642, which were accepted by the Assessing Officer. The Revenue argued that the offer was not voluntary but made when the assessee was cornered to explain discrepancies. The assessee's explanation was supported by a detailed letter explaining his circumstances, including health issues and inability to produce books of account due to the auditor's problems.

3. Application of Explanation 1 to Section 271(1)(c):

Explanation 1 to section 271(1)(c) raises a presumption of concealment if the assessee fails to offer an explanation or offers an explanation that is found false or not bona fide. The Tribunal noted that the presumption is not automatic and depends on the facts of the case. The assessee's explanation that the books could not be produced due to the auditor's issues was not found false by the Assessing Officer. The Tribunal held that the explanation was bona fide and the facts were disclosed, thus rebutting the presumption of concealment under Explanation 1.

4. Relevance of Judicial Precedents:

The Tribunal referred to several judicial precedents, including the Supreme Court's decisions in CIT v. Suresh Chandra Mittal and K.C. Builders v. Asstt. CIT, which supported the assessee's case. In Suresh Chandra Mittal, the Supreme Court held that if an assessee surrenders income to avoid protracted litigation and buy peace, penalty under section 271(1)(c) is not leviable. The Tribunal found that the assessee's case was similar, as the surrender was made to avoid litigation and due to circumstances beyond his control. The Tribunal also noted that the Revenue's reliance on Dharamendra Textile Processors was not applicable as the presumption of concealment did not arise in this case.

Conclusion:

The Tribunal confirmed the cancellation of the penalty, holding that the assessee's explanation was bona fide and the presumption of concealment under Explanation 1 to section 271(1)(c) was rebutted. The appeal of the Revenue was dismissed.