2014 (1) TMI 138 - HC - Income Tax

Penalty u/s 271(1)(c) - Held that - During the search and survey operation unaccounted income was disclosed and accepted by the assessee - The assessee also failed to furnish the details of depositors - The assessee has no objection for disallowing the interest claim made on these deposits in the computation of income - The explanation offered by the assessee is false - Decided against assessee.

Summary

Issues:
Challenging penalty under Section 271(1)(c) of the Income Tax Act for undisclosed income; Disallowance of sundry creditors and interest payments; Justifiability of penalty imposition without evidence of false explanation.

Analysis:

1. Challenging Penalty under Section 271(1)(c):
The appellant, engaged in money lending, filed revised returns declaring income that had escaped assessment due to a survey revealing unaccounted transactions. Despite suffering losses, the appellant accepted additions and disallowances during assessment to avoid prolonged disputes with the tax department. Subsequently, notices for penalty under Section 271(1)(c) were issued, alleging false claims regarding sundry creditors and interest payments. The appellant contended that paying tax on unearned income was a gesture to maintain peace, not an admission of liability. However, the authorities found the explanation false and imposed penalties. The appellate and tribunal courts upheld the penalty, leading to the present appeal.

2. Disallowance of Sundry Creditors and Interest Payments:
During the survey, unrecorded transactions were discovered, prompting the appellant to acknowledge unaccounted income and offer it for taxation. The appellant failed to provide details of depositors, leading to suspicions of false claims. The appellant agreed to disallow interest claims on deposits but did not substantiate the creditors' information. The authorities deemed the explanation false, justifying penalty imposition under Section 271(1)(c) for non-disclosure of income and misleading information.

3. Justifiability of Penalty Imposition without Evidence of False Explanation:
The appellant argued that unless an explanation is proven false, penalties should not be imposed. However, the authorities, after considering the appellant's responses and lack of supporting details for creditors, concluded the explanation was false. The courts upheld this finding, emphasizing that the concurrent factual determination of the explanation's falsehood justified penalty imposition. As no substantial legal question arose, the appeals challenging the penalty were dismissed, affirming the penalty under Section 271(1)(c) for non-disclosure and false explanations.

In conclusion, the High Court of Karnataka upheld the penalty under Section 271(1)(c) of the Income Tax Act, emphasizing the importance of accurate disclosures and genuine explanations to avoid penalties for undisclosed income and misleading information during assessments.