2011 (7) TMI 525 - HC - Income Tax

Penalty under Section 27(1)(c) - Undisclosed credit - concealing income and furnishing of false/inaccurate particulars - Held that - The material on record would clearly show that assessee had accepted undisclosed credit. However, the assessee could not secure the presence of the creditor though confirmation letter had been filed. In any view of the matter, in the light of the principle laid down in CIT vs. Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT) the explanation offered in the penalty proceedings has to be taken into account and the reasons assigned for not accepting the explanation or that the assessee had failed to explain and conceded the undisclosed income in the assessment proceedings, would be a ground for imposing penalty under Sec.271(1)(c). In view of the provisions of explanation 1(d) to 271 it is clear that it satisfactory explanation is offered, it is always open for the AO to refrain from imposing any penalty under the said section. In the present case, having regard to the fact that assessee had conceded for accepting the order of the Assessing Officer which was based upon the submission made by the assessee since he could not secure the creditor, he conceded for addition of the undisclosed credit and also the explanation that there was no intention to avoid payment of tax which has been accepted concurrently by the Tribunal and the appellate authority - in favour of the assessee.

Summary

Issues:
1. Whether penalty under Section 271(1)(c) of the Act was correctly levied for furnishing inaccurate particulars and suppression of income?
2. Whether the explanation offered by the assessee absolves them from penalty under Explanation 1 to Section 271(1)(c) of the Act?

Analysis:

Issue 1:
The appeal was filed against the order passed by the Income Tax Appellate Tribunal regarding the levy of penalty under Section 271(1)(c) of the Act for furnishing inaccurate particulars and suppressing income. The assessee, an excise contractor, filed a return of income for the assessment year 1997-98, admitting an income of Rs.6,68,050/-. During scrutiny, unproved credits of Rs.14 lakhs were added to the income, leading to penalty proceedings under Section 271(1)(c). The Assessing Officer and Deputy Commissioner held the assessee liable for a penalty of Rs.6,00,000, which was later deleted by the appellate authority and the Tribunal. The Tribunal concurred with the appellate authority's decision, justifying the deletion of penalty under Explanation 1 to Section 271(1)(c) of the Act.

Issue 2:
The second substantial question of law revolved around whether the explanation provided by the assessee absolved them from penalty under Explanation 1 to Section 271(1)(c) of the Act. The assessee's explanation that they accepted the order adding undisclosed credit as they could not produce the creditors, even though confirmation letters were filed, was considered by the appellate authority and the Tribunal. The Tribunal upheld the deletion of penalty, emphasizing that the explanation offered by the assessee, along with the absence of intention to avoid tax payment, was satisfactory. The Tribunal and appellate authority's decisions were supported by the Hon'ble Supreme Court's principle in Reliance Petroproducts Pvt. Ltd.'s case, emphasizing that the mere non-acceptance of a claim by the Assessing Officer should not automatically attract a penalty under Section 271(1)(c) of the Act.

In conclusion, the High Court dismissed the appeal as devoid of merit, upholding the concurrent findings of the appellate authority and the Tribunal. The court found no perversity or arbitrariness in the decisions made, answering the substantial questions of law against the Revenue and in favor of the assessee.