1991 (4) TMI 113 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was right in cancelling the penalty levied u/s 271(1)(c) of the Income-tax Act, 1961.

Summary:

Issue 1: Tribunal's Cancellation of Penalty u/s 271(1)(c)
- Facts: The assessee, a registered firm, faced discrepancies in its cash book and bank account for the assessment year 1965-66. The Income-tax Officer (ITO) found unexplained cash receipts totaling Rs. 43,800 and added this amount to the assessee's income from undisclosed sources. Penalty proceedings u/s 271(1)(c) were initiated for concealment of income.

- Penalty Proceedings: The Inspecting Assistant Commissioner (IAC) levied a penalty of Rs. 20,000 as the assessee failed to produce evidence supporting its explanation for the source of Rs. 27,000. The Appellate Assistant Commissioner confirmed the addition of Rs. 43,800. The assessee appealed to the Tribunal, which did not admit an affidavit from Smt. Janki Devi as additional evidence but confined the addition to Rs. 27,000.

- Tribunal's Findings: The Tribunal observed that mere inability to explain the source of income does not justify penalty unless the Department proves concealment. It found no fraud or gross or wilful negligence on the part of the assessee and noted that the explanation regarding Rs. 27,000 was not denied by Smt. Janki Devi. Consequently, the Tribunal cancelled the penalty.

- Legal Principles: The Court reiterated that penalty provisions must be strictly construed and penalties are quasi-criminal in nature, requiring proof of deliberate defiance of law or gross negligence. The Explanation to section 271(1)(c) shifts the onus to the assessee to prove the absence of fraud or gross neglect if the returned income is less than 80% of the assessed income. However, the Department must still establish that the disputed amount represents the assessee's income.

- Court's Decision: The Court agreed with the Tribunal's findings that the Revenue failed to prove that the amount represented the assessee's income and that there was no fraud or gross negligence. The Tribunal's decision to cancel the penalty was upheld, and the question was answered in the affirmative, in favor of the assessee.

Conclusion:
The High Court affirmed the Tribunal's decision to cancel the penalty levied u/s 271(1)(c) of the Income-tax Act, 1961, as the Revenue failed to prove that the disputed amount represented the assessee's income and there was no evidence of fraud or gross negligence.