1984 (12) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal misdirected itself in law by deciding the penalty appeal without waiting for the Appellate Assistant Commissioner's decision.
2. Whether the Tribunal was correct in holding that the assessee had discharged its onus under the Explanation to section 271(1)(c) of the Income-tax Act, 1961.
3. Whether the Tribunal was justified in cancelling the order of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Tribunal's Decision Without Waiting for Appellate Assistant Commissioner's Decision

The Revenue contended that since the appeal against the assessment was pending before the Appellate Assistant Commissioner, the Tribunal should have deferred the penalty appeal hearing. The Tribunal, however, concluded that the confessional statements of some creditors denying the genuineness of loans were not proved before the penalty was imposed. The Tribunal held that the assessee had discharged its burden by submitting confirmation letters from the creditors, and thus, the onus shifted to the Department. The Tribunal rejected the Department's request to defer the hearing, stating that evidence gathered after the penalty order could not be used to support the imposition of the penalty. The High Court upheld this view, stating that the jurisdiction to impose a penalty must be decided based on facts and materials available at the time of imposition. Subsequent findings by the Appellate Assistant Commissioner could not validate the penalty order.

Issue 2: Discharge of Onus Under Explanation to Section 271(1)(c)

The Tribunal found that the assessee had discharged the initial negative onus imposed by section 271(1)(c) by providing confirmation letters and relevant information about the creditors. The High Court agreed, noting that the confessional statements were not proved in any proceeding against the assessee before the penalty was imposed. The Tribunal correctly concluded that the Department failed to discharge its onus of proving concealment of income. The High Court emphasized that penalty proceedings are penal in character and must be based on the information available at the time of the penalty order.

Issue 3: Justification of Cancelling the Penalty Order

The Tribunal held that the penalty could not be imposed when the guilt of the assessee was not established by the facts on record. It rejected the Department's contention to await the Appellate Assistant Commissioner's decision on the confessions made by the creditors. The High Court supported this view, stating that the validity of the penalty order must be determined based on the information available at the time of its imposition. The High Court also noted that the Revenue did not request a remand of the penalty appeal to consider new evidence. Therefore, the Tribunal's decision to cancel the penalty was justified.

Conclusion:

The High Court answered the referred question in the affirmative, holding that the Tribunal was right in cancelling the penalty levied under the Explanation to section 271(1)(c) of the Income-tax Act, 1961. The Court emphasized that penalty proceedings must be based on the facts and materials available at the time of imposition, and subsequent findings cannot be used to support the penalty.