1983 (1) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of s. 271(1)(c) for penalty justification.
2. Justification of Rs. 14,000 penalty for gross profit addition.
3. Justification of Rs. 21,500 penalty for unproved credits.

Summary:

1. Applicability of s. 271(1)(c) for penalty justification:
The court examined the provisions of s. 271(1)(c) of the I.T. Act, which deals with penalties for concealment of income. The section has two limbs: one for initiating penalty action and the other for imposing and quantifying the penalty. The court noted that the ITO must be satisfied that the assessee concealed particulars of income or furnished inaccurate particulars. The Explanation to s. 271(1)(c) creates a rebuttable presumption of concealment if the returned income is less than 80% of the assessed income. The court emphasized that the penalty must be related to the income in respect of which particulars have been concealed.

2. Justification of Rs. 14,000 penalty for gross profit addition:
The Tribunal upheld a penalty of Rs. 14,000 based on an estimated addition to business income due to stock deficiencies. The court found that the Tribunal did not provide clear evidence of the value of the stock discrepancy. It held that for penalty under s. 271(1)(iii), there must be clear evidence of concealment of each rupee of the amount. The court concluded that the Tribunal's justification based on estimates was insufficient to impose a penalty, as there was no clear evidence of concealment of Rs. 14,000.

3. Justification of Rs. 21,500 penalty for unproved credits:
The Tribunal upheld a penalty of Rs. 21,500 for unexplained cash credits, relying on the Explanation to s. 271(1)(c). The court noted that the Tribunal's reliance on the presumption of concealment was relevant for assessment but not for penalty. The court held that the Explanation to s. 271(1)(c) could be used to initiate penalty proceedings but not to justify the actual imposition of penalty. The court emphasized that the penalty must be related to the income in respect of which particulars have been concealed. The Tribunal's reliance on unexplained cash credits without clear evidence of concealment was insufficient to justify the penalty.

Conclusion:
The court answered questions Nos. 2 and 3 in favor of the assessee, stating that while the provisions of s. 271(1)(c) were attracted, the actual imposition of penalty under s. 271(1)(iii) was not justified. The Department was directed to pay the assessee's costs.