2012 (11) TMI 668 - HC - Income Tax

Penalty u/s 271(1)(c) - Concealment of Income - held that - Tribunal was justified in observing that the assessing officer before imposing penalty did not held any independent inquiry and no specific and concrete materials were brought on record by the assessing officer to establish the fact that the assessee had really concealed the amount and Tribunal was also justified in the facts of the case, in observing that no material indicating any specific asset, investment or income to the extent of the said amount were brought on record - Tribunal has not committed any error. Therefore, the question is answered that in the facts of the case, the ITAT was right in deleting the penalty levied under Section 271(1)(c).

Summary

Issues:
- Whether the ITAT was right in deleting the penalty levied under Section 271(1)(C) despite undisclosed income deliberately not declared in the return.

Analysis:
1. The case involved a reference under Section 256(1) of the Income Tax Act, 1961, questioning the deletion of penalty under Section 271(1)(C) by the ITAT despite deliberate non-disclosure of income during a search.

2. The appellant-Revenue argued that one partner of the firm voluntarily disclosed Rs. 20 lakhs of undisclosed income during a search, leading to an assessment order adding the undisclosed income. The assessing officer then imposed a penalty under Section 271(1)(C) based on this undisclosed income.

3. The appellant contended that since the partner's disclosure was undisputed and formed part of the final assessment order, no further inquiry was necessary, and the penalty was rightly imposed. However, the Tribunal set aside the penalty citing lack of additional inquiry by the assessing officer, which the respondent argued was unnecessary given the admission of undisclosed income.

4. The High Court noted that penalty imposition under Section 271 is a separate proceeding requiring an inquiry to establish concealment of income. Merely accepting the assessment order's findings without independent examination is insufficient. The Court emphasized the need for an inquiry or application of mind by the assessing officer to determine concealment.

5. Upon reviewing the assessment order, the Court found that the partner's disclosure was allegedly due to pressure from the searching officer, not actual undisclosed income. The assessing officer failed to consider this defense before imposing the penalty, indicating a lack of independent inquiry. No specific evidence of concealment was presented by the assessing officer.

6. Consequently, the Tribunal's decision to delete the penalty was upheld by the High Court. The Court concluded that the assessing officer did not conduct a proper inquiry or provide concrete evidence of concealment, justifying the Tribunal's decision.

7. In light of the above analysis, the High Court affirmed that the ITAT was correct in deleting the penalty under Section 271(1)(C) based on the lack of sufficient evidence of deliberate concealment of income by the assessee.