2014 (8) TMI 354 - HC - Income Tax

Penalty proceedings against firm and partners u/s 271(1)(c) Income derived from the firm or not Held that - Penalty proceedings cannot be taken both in the hands of the partners as well as in the hands of the firm any tax imposed upon a firm is in fact a tax upon the partners - penalty is nothing but an additional tax and consequently, a person cannot be punished more than once in respect of the same offence CIT(A) was justified in cancelling the penalty imposed upon the assessee, who was subjected to penalty in the status of an individual - the assessee has not concealed the income on FDRs - the amounts invested in the Fixed Deposit Receipts belongs to the firm and the income also belong to the firm FDRs were made from the current income of the firm and that the suppressed income was of the firm, which has been remitted and interest has been paid by the firm there appears no justification for penalty on concealment does not appear in the hands of the assessee Decided against Revenue.

Summary

Issues:
- Assessment year 1989-90
- Best judgment assessment under Section 144/147 of the Income Tax Act
- Penalty proceedings under Section 271(1)(c) against firm and partners
- Appeal against penalty imposition
- Tribunal's decision on penalty cancellation
- Appeal under Section 260A on substantial questions of law

Analysis:
The judgment pertains to the assessment year 1989-90 where a search & seizure operation was conducted at the business premises of M/s Jagan & Co. and its partners' residential premises under Section 132(1) of the Income Tax Act, 1961. Subsequently, the Assessing Officer made a best judgment assessment under Section 144/147 of the Act and initiated penalty proceedings under Section 271(1)(c) against both the firm and the partners. The assessee contended that the partners derived income from the firm, arguing against imposing a penalty on both entities. The Assessing Officer, however, imposed a penalty after considering the reply.

The appeal against the penalty imposition was filed and subsequently allowed, setting aside the penalty order. The appellate authority held that since the assessee had only a share income from the firm, any penal action should be directed towards the firm rather than the partners. The appellate authority concluded that the penalty for concealment did not seem justifiable in this scenario. The department challenged this decision by filing an appeal before the Tribunal, which was dismissed, leading to the current appeal under Section 260A of the Act.

The substantial questions of law admitted for consideration in the current appeal revolve around the correctness of the Tribunal's decision in canceling the penalty under Section 271(1)(c) for failure to disclose true income and attributing contumacious conduct to the partner for concealing income based on the firm's income assessment. The Court, in reference to a previous decision, emphasized that penalty proceedings cannot be duplicated by imposing penalties on both the firm and its partners. It was highlighted that a person cannot be punished multiple times for the same offense, as a penalty is essentially an additional tax.

Considering the previous decision and the facts of the case, the Court concluded that the Commissioner of Income Tax (Appeals) was justified in canceling the penalty imposed on the assessee, who was treated as an individual for penalty purposes. Additionally, it was noted that the income from Fixed Deposit Receipts belonged to the firm, and there was no concealment of income on the part of the assessee. The Court found no merit in the appeal, answering the questions of law against the department and dismissing the appeal accordingly.