2014 (1) TMI 816 - HC - Income Tax

Penalty u/s 271(1)(c) - Unexplained credit entries - Held that - The assessee could bring confirmation with regard to 15 transaction but with regard to 5 whose parties became untraceable, the revised return was filed deleting the said entries - The revised return was filed only for the reasons that the dealers belong to a particular community who had left the Town or otherwise refused to give confirmation letter - The assessee opted to surrender the amount to end the litigation - The assessee surrendered the credits appearing in the name of those five persons to by peace and to cooperative with the department - The present is not a case of concealment of particulars of any income of the assessee - Decided against Revenue.

Summary

Issues:
- Whether the Tribunal is legally justified in holding that the Assessing Officer should prove mens rea of the assessee for concealing income to evade tax.
- Whether the Tribunal is correct in upholding the order canceling the penalty under Section 271(1)(c) imposed without appreciating the circumstances of filing a revised return.

Analysis:

Issue 1:
The case involved an appeal under Section 260-A of the Income Tax Act, 1961 against the judgment of the Income Tax Appellate Tribunal. The appellant, the Department, contested the imposition of a penalty under Section 271(1)(c) on the grounds of deliberate income concealment by the assessee. The appellant argued that the revised return filed by the assessee was not voluntary disclosure, as it was prompted by the Assessing Officer's notice to include outstanding amounts as income. The appellant relied on various judgments to support their stance. However, the Tribunal found that the disclosure was voluntary, as no evidence of non-voluntariness was presented by the Assessing Officer. The Tribunal emphasized that for penalty under Section 271(1)(c), the AO must prove mens rea of the assessee for concealing income, which was not established in this case. The Tribunal concluded that the penalty cannot be levied solely based on the revised return.

Issue 2:
Regarding the second issue, the Tribunal examined the circumstances leading to the cancellation of the penalty under Section 271(1)(c) by the Commissioner of Income Tax (Appeals) and upheld by the Tribunal. The Tribunal noted that the original return filed by the assessee showed outstanding amounts against various parties, but confirmation could not be obtained for some entries. The revised return was filed surrendering the outstanding amounts related to five traders, as they were untraceable due to riots. The Tribunal found that the revised return was filed to end the litigation and cooperate with the department, not due to concealment of income or furnishing inaccurate particulars. The Tribunal highlighted that the mere inability to obtain confirmation letters from a few traders did not constitute inaccurate particulars in the initial return. Therefore, the Tribunal agreed with the lower authorities' decision to cancel the penalty under Section 271(1)(c) as there was no concealment or furnishing of inaccurate particulars.

In conclusion, the High Court dismissed the appeal, finding no substantial question of law. The judgment emphasized the importance of proving mens rea for income concealment and the voluntary nature of disclosures in penalty proceedings under Section 271(1)(c).