2008 (1) TMI 267 - HC - Income Tax

Penalty u/s 271 - assessee derived income from chitty business & showed credit balance in balance-sheet in respect of kuries terminated during 1977 to 1983 AO opined that amount of auction discounts forgone by defaulter subscribers was income of assessee assessee failed to offer any explanation assessee was aware that impugned amount didn t represent liability burden is not on department to prove concealment - penalty is justified for concealment of income

Summary

Issues:
Appeal challenging cancellation of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Analysis:
1. The appeal filed by the Revenue under section 260A of the Income-tax Act contested the cancellation of penalty by the Income-tax Appellate Tribunal. The Assessing Officer noted a credit balance in the balance-sheet of the assessee, a private limited company involved in chitty business, and deemed it as income carried over as liability. Despite requests for explanation, the assessee failed to provide a satisfactory response. The Tribunal's order questioned whether the burden of proof was rightly placed on the Revenue due to the lack of a genuine explanation from the assessee.

2. The Assessing Officer levied a penalty under section 271(1)(c) as the assessee did not clarify the credit balance in the balance-sheet. The first appellate authority annulled the penalty, leading to the current appeal. The main issue revolved around whether the Tribunal was justified in shifting the burden of proof to the Revenue when the assessee failed to provide a bona fide explanation for the concealed income. The Tribunal's decision was influenced by a prior case involving similar circumstances.

3. The Tribunal's decision was based on the lack of a credible explanation from the assessee regarding the credit entries in the balance-sheet. The Revenue argued that Explanation 1 to section 271(1)(c) applied as the assessee did not offer a valid explanation. However, the assessee contended that by remitting the tax despite contesting the assessment, they demonstrated good faith. The Tribunal's error lay in placing the burden of proof on the Revenue, contrary to statutory provisions.

4. The Court disagreed with the Tribunal, emphasizing that the burden of explanation rested with the assessee. The Tribunal erred in absolving the assessee of proving the nature of the entries in the balance-sheet. The Court found the assessee's actions, such as transferring part of the amount to the profit and loss account, contradictory to claiming the credit balance as a liability. The Court concluded that the assessee's explanation lacked bona fides and upheld the penalty, rejecting the Tribunal's decision. The penalty amount was deemed appropriate under the law.

This detailed analysis covers the key issues and arguments presented in the legal judgment, outlining the reasoning behind the decision to uphold the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961.