2008 (4) TMI 5 - SC - Income Tax

Penalty u/s 271(1)(c) imposed by AO was cancelled by the CIT(A) and Tribunal. However high court has restored the AO while setting aside the order of tribunal - high court ignored the question of law referred to it - SC has resorted the order of tribunal and cancelled the penalty.

Summary

Issues Involved:
1. Legality of the penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Jurisdiction of the High Court in overturning the Tribunal's findings.
3. Applicability of Section 132(4) read with Explanation 5 to Section 271(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. Legality of the penalty under Section 271(1)(c) of the Income Tax Act, 1961:

The case revolves around the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment years 1984-85 to 1987-88. A search conducted on the assessee's premises revealed concealment of income, leading to the filing of revised returns by the assessee. The Assessing Officer levied the maximum penalty under Section 271(1)(c), rejecting the assessee's contention that a promise had been made not to levy the penalty. The CIT (Appeals) and the Tribunal, however, found that the revised returns were filed to "purchase peace," and no books or documents proving concealment for earlier years were discovered. Consequently, they set aside the penalty. The High Court later reversed this, deeming the findings perverse and holding that penalty was indeed exigible.

2. Jurisdiction of the High Court in overturning the Tribunal's findings:

The Supreme Court emphasized that the Tribunal is the final fact-finding authority, and its decision on facts can be reviewed by the High Court only if a question is referred that specifically challenges the findings as perverse. In this case, the High Court overstepped by concluding the findings were perverse without such a question being referred. The Supreme Court cited precedents (K. Ravindranathan Nair v. Commissioner of Income Tax and T. Ashok Pai v. Commissioner of Income Tax) to underline that the High Court should not disturb the Tribunal's factual findings unless explicitly challenged on grounds of perversity.

3. Applicability of Section 132(4) read with Explanation 5 to Section 271(1)(c) of the Act:

The CIT (Appeals) and the Tribunal noted that the additional income was declared under the impression of Section 132(4) and to avoid litigation, not due to actual concealment discovered for earlier years. The Tribunal inferred that an inducement must have been given by the search party, leading the assessee to offer higher incomes for several years. The Tribunal's findings suggested that the revised returns were filed in good faith and without sufficient documentary evidence of concealment for earlier years, making the penalty under Section 271(1)(c) inapplicable.

Conclusion:

The Supreme Court set aside the High Court's order, restoring the CIT (Appeals) and Tribunal's decision that no penalty under Section 271(1)(c) was exigible. The High Court had exceeded its jurisdiction by addressing the perversity of the Tribunal's findings without a specific question to that effect. The appeals were accepted with costs, reaffirming the Tribunal's role as the final fact-finding authority.