2014 (9) TMI 822 - HC - Income Tax

Levy of penalty u/s 271(1)(c) Gold seized and confiscated by the Central Excise Department owned by the brother of the applicant - Held that - In a proceeding initiated under that provision are quasi-criminal in nature and the burden to justify the exercise squarely rests upon the revenue relying upon ANANTHARAM VEERASINGHAIAH & CO. v. C.I.T. 1980 (4) TMI 2 - SUPREME Court - mere intangible addition to the assessees book profits, cannot by itself, lead to the conclusion that there was any concealment - in case there existed any admission on the part of the applicant that the gold was held by him and, being under an obligation to furnish its value in the income tax returns, he did not do so, the allegation as to the concealment would have become acceptable - Though the impact of the proceedings initiated under the Central Excise Act and the Income Tax Act can constitute the basis to add income, levy of penalty on the allegation of concealment cannot be sustained - The reason is that concealment was not from the authorities of the Income Tax Department - It has already been mentioned that the applicant was not maintaining books of accounts and there was no occasion to disclose or conceal the gold from the point of view of Income Tax though, the applicant did not have the benefit of having the gold, its value was computed as income, instead of taking the seizure thereof as loss - Once it is treated as loss, non-disclosure thereof cannot be the subject matter of Section 271 (1)(c) of the Act - The provision concerned does not deal with the concealment of losses thus, the levy of penalty runs contrary to the provisions of the Act Decided in favour of assessee.

Summary

Issues:
Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
The applicant filed returns for the assessment year 1983-84, disclosing income, which was processed by the Income Tax Officer. A search by the Central Excise Department resulted in the seizure of gold and cash from the applicant's shop and residence. Subsequently, penalty and tax were imposed, leading to the initiation of penalty proceedings under Section 271(1)(c) of the Act.

The applicant contended that the seized gold belonged to his brother, and inconsistencies in the treatment of the gold led to the imposition of penalty without a finding of concealment. The Income Tax Officer added the value of the seized gold to the applicant's income, triggering penalty proceedings. The applicant argued that as a regular assessee without bookkeeping obligations, there was no basis for penalty imposition.

The Income Tax Department argued that once gold is confiscated, it must be treated as unexplained income, justifying penalty proceedings. The Department relied on precedents to support the contention that inaccurate information or particulars are sufficient to trigger penalty proceedings under Section 271(1)(c).

The Court examined the circumstances surrounding the seizure and imposition of penalty. It emphasized that penalty proceedings are quasi-criminal, requiring the revenue to justify the exercise. Precedents highlighted the need for the revenue to prove deliberate concealment or furnishing of inaccurate particulars.

The Court noted that the applicant's case revolved around the treatment of the seized gold and the subsequent penalty imposition. It highlighted the importance of the Assessing Officer's satisfaction regarding concealment before initiating penalty proceedings under Section 271(1)(c). The Court also referenced amendments to Section 37 of the Act regarding business expenses related to illegal activities.

Considering the facts and legal principles, the Court found that the penalty imposition of the equivalent amount of the seized gold contradicted the Act and established law. The Court ruled in favor of the applicant, concluding that the penalty levy was unjustified in the given circumstances, thereby ruling against the Department.

This detailed analysis of the judgment from the Andhra Pradesh High Court highlights the key legal arguments, precedents, and findings related to the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.