2016 (5) TMI 1247 - AT - Income Tax

Penalty u/s. 271(1)(c) - Held that - There is no dispute that assessee as well as his employer have been stating that this undisclosed income is in fact an expenditure limit allowed to be incurred to the respective employees. There is no evidence quoted in the shape of incriminating material or otherwise which could prove that assessee s employer has not booked the corresponding sum as expenditure in its accounts maintained. The assessee s case is that he has spent the impugned sums for the purpose of the business of his employer. He fails to substantiate the same. This has led to assessment of the impugned sum in his hands as undisclosed income. We reiterate that he already admitted the same as income before the Settlement Commission. The Revenue strongly draws support from this action. There can hardly be any dispute about the settled legal position that quantum and penalty proceedings stand on different footing and each and every addition of undisclosed income does not lead to imposition of penalty. The present case is an instance where assessee has not been able to substantiate his explanation of having spent the impugned expenditure limit for his employer company for the purpose of the business and also the Revenue has failed to refer to the employer s books so as to negate the same by holding that the very sums have not been claimed as expenditure. We reiterate that this is a penalty case liable to be strictly interpreted. This factual position leads us to a conclusion that the authorities below have wrongly imposed the impugned penalty of ₹ 11,010/- u/s. 271(1)(c) of the Act. The same stands deleted - Decided in favour of assessee.

Summary

Issues:
Validity of penalty under section 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2002-03 & 2003-04.

Analysis:
1. The appeals arose from the CIT(A)-I, Ahmedabad's orders confirming penalties of Rs. 11,010/- and Rs. 33,300/- for the respective assessment years under section 271(1)(c) of the Income Tax Act, 1961.

2. The assessee, an individual working with M/s Meghmani Group, had undisclosed income issues after a search was conducted in the group's case. The Assessing Officer observed discrepancies in the assessee's income declarations and initiated penalty proceedings.

3. The assessee contended that the incriminating evidence was not cross-verified, and the undisclosed income was declared before the Settlement Commission to avoid litigation. However, the Assessing Officer treated the undisclosed income as salary and bonus, leading to penalty proceedings.

4. The Assessing Officer imposed penalties based on the assessee's admission of undisclosed income, considering it as concealment of income by furnishing inaccurate particulars. The CIT(A) upheld the penalties, leading to the appeal before the Tribunal.

5. During the hearing, the assessee maintained that there was no concealment or furnishing of inaccurate particulars, as the undisclosed income was declared before the Settlement Commission. The assessee sought the deletion of penalties.

6. The Tribunal noted that the undisclosed income was expenditure limits allowed to employees, but the assessee failed to prove the expenditure for the employer's business. The Tribunal emphasized the distinction between quantum and penalty proceedings, concluding that the penalty was wrongly imposed due to insufficient substantiation.

7. Consequently, the Tribunal allowed both appeals, holding that the penalties were unjustified under section 271(1)(c) of the Act. The penalties of Rs. 11,010/- and Rs. 33,300/- were deleted for the respective assessment years.

This detailed analysis covers the issues involved in the legal judgment comprehensively, outlining the facts, arguments, and the Tribunal's decision regarding the validity of the penalties imposed under section 271(1)(c) of the Income Tax Act, 1961.