2011 (5) TMI 593 - HC - Income Tax

Penalty u/s 271(1)(c) - Search and seizure - unexplained investment - Held that - A perusal of the assessment order clearly shows that the assessee had made surrender and the surrender has been accepted by the AO without doing any further verification. Further in the course of penalty proceedings the assessee has given detailed explanation. The assessee has brought evidence on record to substantiate the case of the assessee that the surrender itself was not called for and that the carpets were taken on approval basis. These evidences as furnished by the assessee as also the explanation as given by the assessee has nowhere been disputed by the AO. In fact the AO has levied the penalty without even making any comment on the explanation given by the assessee much less even without whispering about the falsity of the explanation. The Assessing Officer has gone on the presumption that the assessee himself agreed to the surrender on his own sweet will and consequently penalty is leviable. This is not a reason justifiable enough for the levy of penalty. Even in the case of the partnership firm of M/s. Gallaria June 1st wherein the assessee is a partner similar penalty under identical circumstances imposed by the Revenue had been deleted by the Income-tax Appellate Tribunal - Decided in favour of the assessee

Summary

Issues:
- Whether the Income-tax Appellate Tribunal was correct in law in deleting the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961.

Analysis:
1. The case involved an appeal admitted on the substantial question of law regarding the deletion of a penalty imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961. The assessee, a partner of a firm, surrendered an amount as unexplained investment during the assessment proceedings for the year 2004-05. The Assessing Officer imposed a penalty of Rs. 41.25 lakhs based on the surrender. The Commissioner of Income-tax (Appeals) found that the Assessing Officer did not adequately consider the defense and evidence provided by the assessee. The Commissioner concluded that there was no deliberate concealment of income and deleted the penalty.

2. The Revenue challenged the Commissioner's order before the Income-tax Appellate Tribunal, which upheld the deletion of the penalty. The Tribunal noted that the Assessing Officer levied the penalty without disputing the explanation and evidence provided by the assessee. The Tribunal emphasized that the mere surrender of an amount during assessment does not automatically justify the imposition of a penalty. The Tribunal found that the assessee's explanation, supported by evidence, was not rebutted by the Assessing Officer, leading to the deletion of the penalty.

3. Additionally, the Tribunal highlighted a similar penalty imposed on a partnership firm, where the penalty was also deleted under identical circumstances. The Tribunal found no error in the Commissioner's decision to delete the penalty and dismissed the Revenue's appeal. The judgment emphasized that if the assessee provides a valid explanation supported by evidence that is not disproved by the Assessing Officer, the penalty cannot be levied solely based on the surrender made during assessment proceedings.

4. Ultimately, the judgment favored the assessee, ruling against the Revenue's appeal. The decision was based on the lack of sufficient justification for the penalty imposition, the failure to challenge the assessee's explanation and evidence, and the consistency in deleting penalties under similar circumstances. The judgment highlighted the importance of thoroughly evaluating the evidence and explanations provided by the assessee before imposing penalties under section 271(1)(c) of the Income-tax Act, 1961.