2011 (5) TMI 494 - AT - Income Tax

Penalty u/s 271(1)(c) - The case of the assessee in the present assessment year would not fall in clause (c) as returned income is a loss - There is a distinction between NIL income and loss returned - Case of loss return would fall in clause (a) and case of NIL income returned would fall in clause (c) - The precedence cited by ld. AR cannot be applied to the present assessment year as in the present assessment year assessee has declared a loss - Held that - there is a case of deemed concealment of income by virtue of Explanation 1(B) to section 271(1)(c) and tax sought to be evaded has to be calculated by invoking clause (a) to Explanation 4 to section 271(1)(c) - Since the calculation done by the Assessing Officer is in accordance with clause (a), therefore, his order is required to be upheld and that of ld. CIT(A) is set aside - Hence, the appeal filed by the revenue is allowed.

Issues Involved:
1. Cancellation of penalty levied under section 271(1)(c) of the Income-tax Act.
2. Applicability of Explanation 1 and Explanation 4 to section 271(1)(c).
3. Determination of tax sought to be evaded.

Detailed Analysis:

1. Cancellation of Penalty Levied Under Section 271(1)(c) of the Income-tax Act:
The revenue's appeal contested the decision of the CIT(A) to cancel the penalty of Rs. 3,19,400 levied under section 271(1)(c) by the Assessing Officer (AO). The AO had imposed the penalty due to the assessee's failure to substantiate its explanation regarding various entries in its books of account, leading to the addition of unexplained cash credits. The CIT(A) had canceled the penalty, arguing that the issue was disputable and debatable, and that the assessee's explanation was not false or mala fide.

2. Applicability of Explanation 1 and Explanation 4 to Section 271(1)(c):
The tribunal examined whether there was concealment of income or deemed concealment within the meaning of Explanation 1 to section 271(1)(c). It was noted that the assessee failed to provide confirmation letters or addresses for certain creditors, which are material evidence necessary for the AO to carry out enquiries. The tribunal concluded that the case fell under clause (B) of Explanation 1 to section 271(1)(c), which applies when an assessee offers an explanation that they cannot substantiate and fails to prove that the explanation is bona fide.

The tribunal also considered which clause of Explanation 4 to section 271(1)(c) was applicable. Explanation 4(a) was found to be relevant, as it pertains to situations where the addition of concealed income reduces the declared loss or converts it into income. The tribunal referred to the Supreme Court's decision in CIT v. Gold Coin Health Food (P.) Ltd., which held that Explanation 4(a) is clarificatory and applies retrospectively even to assessment years prior to 1-4-2003.

3. Determination of Tax Sought to be Evaded:
The tribunal analyzed the different clauses of Explanation 4. Clause (a) applies when the addition of concealed income reduces the declared loss or converts it into income. Clause (b) applies when the assessee fails to file a return within the specified time, and clause (c) is a residual clause for other cases. The tribunal concluded that the present case fell under clause (a), as the assessee had declared a loss of Rs. 28,06,873, which was reduced to NIL after the addition of Rs. 7,42,785. Therefore, the tax on the addition of Rs. 7,42,785 represented the tax sought to be evaded.

The tribunal upheld the AO's calculation of the penalty, which was in accordance with clause (a) of Explanation 4 to section 271(1)(c), and set aside the CIT(A)'s order. The appeal filed by the revenue was allowed.

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