2007 (6) TMI 139 - HC - Income Tax

Penalty AO levied penalty on assessee on the ground of concealment of brokerage income No direct attempt at concealment of income from the knowledge of ITA proved, hence penalty set aside

Summary

Issues:
- Whether the Tribunal properly exercised its discretion in deleting the penalty imposed under section 271(1)(c) of the Income Tax Act?
- Whether there was concealment of income by the assessee regarding brokerage earnings?

Analysis:
1. The appeal was filed by the Revenue against the order of the Income Tax Appellate Tribunal regarding the deletion of a penalty imposed under section 271(1)(c) of the Income Tax Act. The substantial question of law raised was whether the Tribunal had rightly exercised its discretion in deleting the penalty when the assessee had not included the total brokerage received in its profit and loss account.

2. The assessee, a share broker company, filed its income tax return for the relevant assessment year admitting taxable income. The Assessing Officer made various additions and disallowances to the income tax return, including disallowing brokerage payable to a UK company. Subsequently, a penalty was imposed on the assessee for concealment of income earned through brokerage.

3. The Commissioner of Income-tax (Appeals) confirmed some additions and disallowances but canceled the penalty, stating that the assessee had not filed inaccurate particulars of income or concealed any income. The Revenue appealed to the Income-tax Appellate Tribunal, which upheld the cancellation of the penalty, leading to the current appeal by the Revenue.

4. The Revenue contended that the assessee did not show sub-brokerage in the profit and loss account, only the net brokerage, which was against the accounting method. The Assessing Officer found an understatement of brokerage receipts, justifying the penalty.

5. However, it was argued that the assessee followed an accounting practice of netting brokerage earned against sub-brokerage payable, showing only the net amount in the profit and loss account. The sub-brokerage payable was reflected in the balance sheet. The mistake was deemed unintentional, with no attempt to conceal income.

6. Both the Tribunal and the First Appellate Authority found no concealment or inaccurate particulars furnished by the assessee, attributing the discrepancy to a genuine mistake. The Supreme Court precedent was cited to support accepting concurrent factual findings by lower authorities.

7. Ultimately, the High Court dismissed the tax case, finding no substantial question of law for consideration, as the findings of the Tribunal and lower authorities were based on valid evidence, and no legal infirmity warranted interference.

This judgment clarifies the distinction between genuine accounting errors and intentional concealment of income, emphasizing the importance of factual findings by lower authorities in tax penalty cases.