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2013 (11) TMI 824 - AT - Income TaxPenalty u/s 271(1)(c) of the Income tax act Allegation of concealment of particulars of income - Shri Gopal G. Pairkh interrogated u/s. 131 on 20.11.1995 and who is the partner of M/s. Madhuri Developers and admitted this transaction of sale of land was unrecorded - Assessee offered for taxation Rs.28 lacs as unaccounted own money taken in various land transaction. Even he did not disclose after admission of additional income before the A.O. in regular return which was relevant to A.Y. 96-97 but filed VDIS before the Commissioner, which was rejected on the basis of not paying tax Held that - Apex court decision in the case of Union of India vs. Dharamendra Textile Processors 2008 (9) TMI 52 - SUPREME COURT clearly point out that the penalty is leviable for deliberate deception of the claim. Thus, the levy of penalty would depend on the existence or otherwise of the conditions calling for levy of penalty. The object behind the enactment of section 271(1)(c), read with the Explanations, indicates that the section has been enacted to provide for a remedy for loss of revenue, by reason of concealment of particulars of income - Thus, the assessee filed inaccurate particulars of income and concealed income Penalty under section 271(1)(c) leviable Decided in favor of Revenue. Quantum of penalty u/s 271(1)(c) of the Income tax act being 125% of the tax concealed Held that - The penalty imposed @ 125% which is reduced to 100% of tax sought to be evaded. Therefore, A.O. is directed to re-calculate the penalty @ 100% - Decided against the Revenue.
Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act for Assessment Years (A.Y.) 1997-98, 1998-99, and 1999-2000. 2. Validity of land development expenses claimed by the assessee. 3. Applicability of Explanation 1 to Section 37(1) of the Income Tax Act, regarding illegal expenses. Issue-Wise Detailed Analysis: 1. Deletion of Penalty under Section 271(1)(c): The Revenue appealed against the deletion of penalties amounting to Rs.1,99,780/- for A.Y. 1997-98, Rs.8,48,859/- for A.Y. 1998-99, and Rs.7,15,418/- for A.Y. 1999-2000 by the CIT(A)-II, Baroda. The Assessing Officer (A.O.) had imposed these penalties for "concealing the income and furnishing inaccurate particulars of income." The penalties were based on the disallowance of land development expenses claimed by the assessee without any documentary evidence. The A.O. argued that the assessee deliberately claimed these expenses despite knowing they were not allowable under Explanation 1 of Section 37(1) of the Income Tax Act. The CIT(A) deleted the penalties, observing that the assessee had filed returns voluntarily and provided explanations for the claimed expenses at all stages of assessment and reassessment. The CIT(A) also noted that the addition made based on information received to reopen the assessment for A.Y. 1997-98 had been deleted, and there was no change in the assessed income for that year after giving effect to the CIT(A)'s order. 2. Validity of Land Development Expenses: The A.O. disallowed the land development expenses claimed by the assessee for A.Y. 1997-98 (Rs.3,99,555/-), A.Y. 1998-99 (Rs.19,40,248/-), and A.Y. 1999-2000 (Rs.16,35,241/-), as the assessee failed to provide any vouchers, bills, or other evidence to support these expenses. The A.O. noted that the assessee admitted to paying Rs.18,00,000/- to various authorities for obtaining ULC permission and clearing land from litigation, which were illegal expenses not allowable under Explanation 1 to Section 37(1) of the Income Tax Act. The CIT(A) upheld the disallowance of these expenses, stating that the expenses were not allowable under Section 37 and that the liability for incurring such expenses was not on the assessee. 3. Applicability of Explanation 1 to Section 37(1): The A.O. invoked Explanation 1 to Section 37(1) of the Income Tax Act, which disallows expenses incurred for purposes that are an offense or prohibited by law. The A.O. argued that the assessee had claimed illegal expenses without any supporting evidence and that the assessee's explanation for these expenses was not bonafide. The CIT(A) disagreed, stating that the onus was on the Revenue to disprove the assessee's claim and that merely rejecting the assessee's explanation was insufficient to levy a penalty. However, the ITAT reversed the CIT(A)'s decision, holding that the assessee had filed inaccurate particulars of income and concealed income by claiming illegal expenses. The ITAT reduced the penalty from 125% to 100% of the tax sought to be evaded and directed the A.O. to recalculate the penalty accordingly. Conclusion: The ITAT concluded that the assessee had filed inaccurate particulars of income and concealed income by claiming illegal land development expenses without any supporting evidence. The ITAT reversed the CIT(A)'s order deleting the penalties and directed the A.O. to impose a penalty at 100% of the tax sought to be evaded for all three assessment years. The Revenue's appeals were partly allowed, and the penalties were upheld with a reduction in the penalty rate.
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