2006 (9) TMI 104 - HC - Income Tax

Assessee had explained all the expenditure actually incurred but disallowed not a case where a revised return was filed as a result of discovery of some facts by AO no concealment of income cancellations of penalty justified

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Alleged concealment of income and furnishing inaccurate particulars by the assessee.
3. Validity of revised returns filed by the assessee.
4. Adequacy of reasons for disallowance of expenses by the Assessing Officer (AO).
5. Justification for the deletion of penalty by CIT (A) and ITAT.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The appeal contested the order of the Income Tax Appellate Tribunal (ITAT) which upheld the Commissioner of Income Tax (CIT)'s decision to delete the penalty of Rs. 1,33,02,242/- imposed on the assessee by the AO under Section 271(1)(c) of the Income Tax Act, 1961. The AO had imposed the penalty for alleged concealment of income and furnishing inaccurate particulars in the assessee's returns for the assessment year 2001-2002.

2. Alleged Concealment of Income and Furnishing Inaccurate Particulars:
The AO initiated penalty proceedings on the grounds that the assessee filed a revised return only after being confronted with a questionnaire issued by the AO regarding claims made in the original return. The AO disallowed several expenses claimed by the assessee, including advertisement and brand promotion expenses, compensation paid to Gemini Distilleries Private Limited, depreciation on vehicles and plant, and foreign exchange loss, which were later deleted by the assessee in the revised return.

3. Validity of Revised Returns Filed by the Assessee:
The CIT (A) and ITAT found that the revised return filed by the assessee was not solely prompted by the AO's questionnaire. The assessee had taken steps to rectify its returns in light of an adverse decision by the CIT (A) for the assessment year 1998-1999. The revised return was filed to reflect the disallowances made by CIT (A) in the earlier assessment year, demonstrating the assessee's bona fide intention to provide correct particulars.

4. Adequacy of Reasons for Disallowance of Expenses by the AO:
The AO disallowed a significant portion of the Rs. 2 crores compensation paid by the assessee to M/s GDL, reasoning that the benefit of this expenditure was spread over eight years. Additionally, the AO disallowed contributions to PF and ESI not made on the due date, and added an income of Rs. 18,54,512/-, which was later found to be a calculation mistake. The ITAT observed that the disallowances were based on a difference of opinion between the assessee and the revenue authorities, and not due to any deliberate concealment or suppression of facts by the assessee.

5. Justification for the Deletion of Penalty by CIT (A) and ITAT:
The CIT (A) and ITAT held that the penalty was not justified as the assessee had disclosed all material facts in its returns and there was no evidence of deliberate concealment of income. The ITAT noted that the AO had not recorded his satisfaction that the assessee had concealed any income or furnished inaccurate particulars, as required by law. The ITAT emphasized that the assessee's decision not to appeal against the CIT (A)'s order for the assessment year 1998-1999 was to avoid litigation, and the revised return was filed in good faith to reflect the disallowances made by CIT (A).

Conclusion:
The High Court upheld the decisions of the CIT (A) and ITAT, dismissing the appeal and concluding that there was no basis for imposing the penalty under Section 271(1)(c). The court emphasized that concealment must be accompanied by an intention to evade tax liability, which was not evident in this case. The assessee had disclosed all particulars and the disallowances were due to a difference of opinion, not deliberate concealment. The appeal was dismissed with no order as to costs.

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