2016 (6) TMI 847 - HC - Income Tax

Penalty u/s 271(1)(c) - concealment of income with respect to the addition made u/s 41(1) of the Act on account cessation of liabilities - Held that - In penalty proceedings all three authorities have concurrently arrived at a finding of fact that the claim made by the assessee with regard to its outstanding liabilities for subject assessment year was false. These findings of fact are not shown to be perverse in any manner. The legal claim made before us that once a liablility is shown in the balance sheet, it must follow that it is bonafide, is not understood. The liability shown in the balance sheet as existing is found to be false. The assessee has to show the reason why he believed at the time he filed his balance sheet, it was true. No such attempt was even made. It was next contended that no claim was made in the return of income and therefore imposition of penalty under Section 271(1)(c) of the Act cannot be sustained. We are unable to appreciate the above submission. The fact is that in terms of Section 139 of the Act a return of income under the Act has to be filed along with the balance sheet and profit and loss account. In its absence the return of income is defective. Thus, same are to be considered as a part of the return of income. Further by showing a non existing liability as an existing liability, in the subject assessment year, the attempt was to escape offering of the ceased liability as income obliged to do under Section 41(1) of the Act. Thus, not offering to tax, the above ceased liabilities would by itself amount to furnishing inaccurate particulars of income leading to escapement of income from tax. - Decided against assessee.

Summary

Issues:
Challenge to penalty under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2005-06.

Analysis:
1. The appellant contested the penalty imposed under Section 271(1)(c) of the Act, questioning the Tribunal's decision. The primary issues raised were whether the penalty for concealment of income due to the addition made under Section 41(1) of the Act was justified and whether the Tribunal's decision was based on incorrect considerations.

2. In the quantum proceedings for the relevant assessment year, the Assessing Officer added ?1.26 crores to the appellant's income for ceased trade liabilities under Section 41(1) of the Act. Despite appeals, the addition was upheld, including by the High Court. Subsequently, a penalty notice was issued under Section 271(1)(c) for furnishing inaccurate income particulars. The penalty of ?38.71 lakhs was imposed, leading to further appeals.

3. The Commissioner of Income Tax (Appeals) upheld the penalty, emphasizing the inaccurate disclosure of ceased liabilities. The Tribunal, in its order, highlighted the appellant's failure to prove the genuineness of the outstanding liabilities and raised queries regarding the liability's origin and related correspondence, which the appellant couldn't address. The Tribunal upheld the penalty, concluding that the appellant furnished inaccurate income particulars, resulting in income concealment.

4. During the proceedings, the appellant's counsel argued against the penalty's imposition, citing differences between assessment and penalty proceedings, the balance sheet's credibility, and the absence of a direct claim in the income return. However, the Court found the appellant's claims unsubstantiated, emphasizing the false nature of the liabilities shown and the obligation to disclose ceased liabilities under Section 41(1) of the Act.

5. The Court, considering the previous findings and the consistent decisions of the authorities, dismissed the appeal. It reiterated that the liability claim was false, the balance sheet's entries were misleading, and the appellant failed to justify the non-disclosure of ceased liabilities. The Court concluded that no substantial legal question arose, affirming the penalty imposition under Section 271(1)(c) of the Act.

6. Ultimately, the Court upheld the penalty, emphasizing the appellant's failure to substantiate the liabilities, the misleading nature of the balance sheet entries, and the obligation to disclose ceased liabilities under the Income Tax Act. The appeal was dismissed, with no costs awarded.