1988 (2) TMI 59 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal is justified in holding that the assessee had concealed the particulars of its income by deliberately furnishing inaccurate particulars of closing stock and, therefore, was liable to penalty u/s 271(1)(c) of the Income-tax Act, 1961.
2. Whether the Tribunal is justified in its finding that the assessee had concealed the particulars of its income when the authority levying the penalty held that the assessee was deemed to have concealed income or furnished inaccurate particulars of income in terms of the Explanation to section 271(1)(c) of the Income-tax Act.

Summary:

Issue 1: Concealment of Income and Penalty u/s 271(1)(c)
The assessee, a partnership firm dealing in gold jewellery, declared an income of Rs. 73,163 for the assessment year 1973-74, valuing the closing stock at Rs. 3,72,311. The Income-tax Officer (ITO) found this undervalued and recalculated it at Rs. 4,53,524, leading to an addition of Rs. 36,799 to the income. The ITO issued a notice u/s 274 for concealment of income, and the Inspecting Assistant Commissioner (IAC) levied a penalty of Rs. 36,799 u/s 271(1)(c) by invoking the Explanation to the section. The Tribunal upheld the penalty, but the Revenue did not rely on the Explanation before the Tribunal, justifying the penalty under the substantive provision of section 271(1)(c). The Tribunal found enough material to conclude that the assessee concealed income by undervaluing the closing stock.

Issue 2: Justification of Penalty Based on Explanation to Section 271(1)(c)
The assessee argued that the Revenue failed to establish concealment to justify the penalty u/s 271(1)(c). The assessee had consistently valued gold jewellery at Rs. 17 per gram, considering market price and customary deductions. The ITO had previously accepted similar valuations for past years without interference. The Tribunal's reliance on the ITO's valuation was questioned, as the assessee might have accepted the assessment to avoid further disputes, not necessarily agreeing with the valuation. The court emphasized that penalty proceedings are distinct from assessment proceedings, and the Revenue must prove concealment positively. The court concluded that the Revenue failed to establish concealment warranting penalty u/s 271(1)(c).

Conclusion:
The court answered question No. 1 in the negative, in favor of the assessee, stating that the Revenue failed to establish concealment of income. Consequently, question No. 2 was not addressed. The reference was answered accordingly, with no costs.