2012 (10) TMI 482 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - The assessee did not discharge the onus regarding credit of cash in the name of two partners in the books of the firm, instead, in response to a query by the AO, seeking evidence in support of aforesaid cash, the assessee surrendered to tax the amount of Rs.30 lacs on 30.3.2007. Subsequently, in response to a show cause notice before levy of penalty, the assessee did not explain the source of cash introduced in the name of two partners nor submitted any further explanation, establishing their bonafide. Also, the assessee did not improve upon his case in the penalty proceedings. Before the ld. CIT(A) or even before us, no attempt was made to establishing the source of aforesaid cash, thus he assessee s explanation has not been found to be bona fide and it failed to furnish all relevant material particulars relating to the concealed income and to discharge its burden that lay upon it under Explanation 1 to section 271(1)(c). A very heavy onus is placed on the assessee to explain the difference between the assessed income and returned income and the assessee in the instant case did not discharge the said onus, thus no hesitation in upholding the order of the CIT(A) in confirming the penalty imposed by the AO u/s 271(1)(c) - against assessee.

Issues Involved:
1. Justification of sustaining the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of the penalty order when the assessed income is nil due to carry-forward losses.
3. Requirement of recording satisfaction by the Assessing Officer before initiating penalty proceedings.
4. Voluntariness of the surrender of income by the assessee.

Issue-wise Detailed Analysis:

1. Justification of sustaining the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961:

The core issue was whether the CIT(A) was justified in sustaining the penalty imposed by the I.T.O under Section 271(1)(c) for concealment of income. The assessment was completed based on a loss declaration, with additions made due to unexplained cash introduced in the names of two partners. The assessee failed to explain the source of the cash and surrendered the amount to tax. The AO initiated penalty proceedings for concealment of particulars of income. The CIT(A) upheld the penalty, stating that the firm was the ultimate beneficiary of the unexplained credits and that the nil tax effect did not absolve the firm from the penalty. The Tribunal agreed, noting that the assessee did not discharge the onus of explaining the cash credits and upheld the penalty.

2. Validity of the penalty order when the assessed income is nil due to carry-forward losses:

The assessee argued that since the assessed income was nil, no penalty could be levied. However, the CIT(A) and the Tribunal referred to Explanation 4 to Section 271(1)(c), which includes the concealment of income that reduces losses. The Tribunal emphasized that penalty could be levied even in loss cases where there is no tax liability, as the concealment of income or furnishing inaccurate particulars of income has the effect of reducing losses.

3. Requirement of recording satisfaction by the Assessing Officer before initiating penalty proceedings:

The assessee contended that the AO failed to record satisfaction as required under Section 271(1)(c). The Tribunal referred to judicial precedents, including decisions by the Hon'ble Supreme Court, which clarified that the AO's satisfaction regarding the concealment of income or furnishing inaccurate particulars is implicit in the initiation of penalty proceedings. The Tribunal found that the AO had indeed initiated penalty proceedings based on the assessee's failure to explain the cash credits, thereby satisfying the requirement.

4. Voluntariness of the surrender of income by the assessee:

The assessee claimed that the surrender of the amount was voluntary and hence, no penalty should be imposed. The Tribunal, however, noted that the surrender was made only after the AO's inquiry and was not voluntary. The Tribunal referred to the meaning of "voluntary" as interpreted by courts, which means out of free will without any compulsion. Since the surrender was made under the constraint of exposure to adverse action by the Department, it was not considered voluntary. The Tribunal upheld the penalty, stating that the assessee's explanation was not bona fide and failed to disclose all material facts.

Conclusion:
The Tribunal dismissed the appeal, upholding the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961. The decision was based on the assessee's failure to explain the source of cash credits, the applicability of penalty provisions even in cases of nil assessed income, the AO's implicit satisfaction in initiating penalty proceedings, and the non-voluntary nature of the income surrender.

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