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2016 (12) TMI 1087 - HC - Income TaxLevy of penalty under Section 271(1) (c) - surrender of cash credit - Held that - Once the surrender of cash credit had been accepted by the Settlement Commission and the immunity granted then the claim of interest on the same as expenditure in the succeeding assessment years cannot straightaway give rise to penalty proceedings and normally would merely be a case of disallowance of interest. While the immunity with regard to the loan amount may not apply to the interest claimed thereon but the effect shall normally be to the extent of disallowance of the said interest as expenditure in the few succeeding assessment years, particularly when the claim had been made much before the final surrender of the said cash credit before the Settlement Commission. Finally it has to be held that the present matter is squarely covered by the decision of the Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT ) wherein it was held that making an incorrect claim cannot tantamount to furnishing incorrect particulars and it has to be shown that there has been concealment of particulars of income and incorrect particulars have been furnished. - Decided in favour of assessee
Issues Involved:
1. Whether the Tribunal was correct in law in upholding the levy of penalty under Section 271(1)(c) of the I.T. Act for the A.Ys. 1981-82 and 1983-84? Detailed Analysis: Background and Facts: A search was conducted on the premises of the assessee, during which loose sheets containing details of cash creditors were discovered. The assessee filed a settlement application before the Settlement Commission, claiming the loans were taken during the period relevant to the assessment years 1977-78 to 1980-81. The Settlement Commission disposed of the matter on 18.4.1995, granting immunity under Section 245H of the Act. For the assessment years 1981-82 and 1983-84, the assessee filed returns, and the Assessing Officer concluded that the loans were bogus, disallowing interest claimed on these loans and adding them back to the income for the said years. Tribunal's Decision: The ITAT confirmed the disallowance but allowed the assessee to rectify the orders after the Settlement Commission's decision. Penalties were imposed under Section 271(1)(c) for concealment of income by claiming false deductions. The Deputy Commissioner of Income Tax (Appeals) confirmed the penalties, and the ITAT dismissed the further appeal. Assessee's Arguments: The assessee argued that the Tribunal erred in confirming the penalty, asserting that the surrender of cash credit was made to buy peace with the department and not due to dishonest intentions. They contended that the penalty proceedings are separate from the assessment proceedings and that the findings in the settlement proceedings cannot be used as evidence in penalty proceedings. They relied on the Supreme Court decision in M/s. Anantharam Veerasinghaiah & Co. Vs. Commissioner of Income Tax, which held that the burden lies on the Revenue to establish that the disputed amount represents income and that the assessee has consciously concealed particulars of his income. Revenue's Arguments: The Revenue argued that the loans were bogus, and the interest claimed was false, making the assessee liable for penalty under Section 271(1)(c). They cited the Supreme Court decision in Union of India & Ors. Vs. Dharmendra Textiles Processors & Ors., which held that wilful concealment is not an essential ingredient for attracting civil liability under Section 271(1)(c). Court's Analysis: The court noted that when the assessments were made, the status of the cash credit loan was pending before the Settlement Commission. The penalty can be imposed only after considering the entirety of the circumstances, pointing to the conclusion that the disputed loan relates to income and that the assessee has consciously concealed particulars of his income. The court found that the Revenue and Tribunal's conclusions were based on conjecture and surmises. The surrender of cash credit during the settlement hearing should not be used against the assessee as it could have been done to avoid protracted litigation. Legal Precedents: The court referred to the Supreme Court decision in Commissioner of Income Tax Vs. Reliance Petroproducts Private Limited, which held that making an incorrect claim cannot tantamount to furnishing incorrect particulars. The court also noted that the Tribunal did not consider the immunity granted under Section 245H properly. Conclusion: The court answered the question of law referred by the Tribunal in the negative, in favor of the assessee and against the Revenue, concluding that the penalty under Section 271(1)(c) was not justified. Judgment: The reference was answered accordingly, and the penalties under Section 271(1)(c) were not upheld.
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