2011 (10) TMI 277 - HC - Income Tax

Penalty - mistake of Accountant in books, as concealment - Firm had 16 partners who were uneducated and belonged to Banjara Community - Held that - Assessee Bonafidely surrendered the calim - Mere non explanation of entries in books of account where partners are uneducated and innocent cannot be valid ground for levy of penalty. - Thus Decided in favour of assessee.

Summary

Issues:
1. Justification of Tribunal's decision on the surrender of amount due to accountant's mistake.
2. Validity of Tribunal's decision on the bonafide surrender of amount and penalty imposition.
3. Burden of proof for concealment on the department.
4. Tribunal's decision on setting aside the penalty imposed by CIT (Appellate).
5. Determination of surrendering amount due to accountant's mistake as fraud or concealment.

Analysis:

Issue 1:
The appellant, a partnership concern, disclosed discrepancies in their accounts during the assessment. The Assessing Officer (A.O.) found unrecorded transactions and double entries, leading to proposed additions totaling Rs. 2,20,912/-. The appellant then voluntarily surrendered Rs. 2 lakhs, which the A.O. accepted and added to the income. The CIT (Appellate) canceled the penalty, stating that the mistakes were due to the accountant, and the partners were unaware. The Tribunal upheld this decision, emphasizing the lack of intention to conceal income.

Issue 2:
The department contended that the surrender of Rs. 2 lakhs by the appellant triggered penalty provisions under Section 271(1)(C). The appellant argued that the surrender was a bonafide act in response to discrepancies, not a deliberate concealment. Citing relevant case law, the appellant asserted that the department failed to prove concealment, and the Tribunal erred in allowing the appeal. The A.O. did not find willful concealment, and the partners' lack of accounting knowledge was considered in the surrender decision.

Issue 3:
The department relied on Section 271(1)(c) and Section 271(6)(c) of the Income Tax Act, emphasizing strict liability for concealment or inaccurate particulars. However, the A.O. did not establish willful concealment by the appellant. The circumstances of the case, including the partners' lack of accounting expertise and the voluntary surrender, indicated no deliberate intent to conceal income.

Issue 4:
The CIT (Appellate) had canceled the penalty, deeming it misconceived due to the innocent mistakes made by the partners and the lack of intention to conceal income. The Tribunal upheld this decision, considering the appellant's circumstances and the absence of evidence supporting willful concealment.

Issue 5:
The Tribunal found that the surrender of the amount resulting from accounting errors did not amount to fraud, willful neglect, or concealment under Section 271(1)(c) of the Act. The Tribunal's decision was based on the lack of evidence proving intentional concealment and the partners' genuine surrender in response to discrepancies in the accounts.

In conclusion, the High Court ruled in favor of the appellant, setting aside the Tribunal's decision and dropping any penalty proceedings. The judgment emphasized the lack of willful concealment, the partners' innocence in accounting matters, and the bonafide nature of the surrender in response to discrepancies identified during assessment.