2018 (8) TMI 990 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - ITAT deleted the penalty - voluntary disclosure by the assessee to buy peace - additions were made on account of gift - assessee had not given details like name of the donor, mode of receipt, etc. - Additions towards unsecured loans - Additions were made on account of undisclosed rental income - Held that - Under Section 271(1)(c) of the 1961 Act, the imposition of penalty is not automatic whenever there is less income returned. The pre-condition for imposition of penalty is subjective satisfaction of the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or the Commissioner, as the case may be, that the assessee has concealed particulars of his income or furnished inaccurate particulars of such income. The furnishing of inaccurate particulars would have to be deliberate. In view of the explanation added, it cannot be said that the onus lies on the Revenue to establish mens rea in cases of concealment and/or short payment of tax. There is an onus on the assessee to show that there was no mens rea. Whether the assessee has been able to discharge the onus of establishing that there was no concealment or deliberate furnishing of inaccurate particulars of income, would depend on the facts and circumstances of the case. The initiation of penal proceedings is not automatic and depends upon the facts and circumstances of each case. In the case at hand, the learned Tribunal arrived at factual findings which ought not to be interfered with in an appeal under Section 260A of the Income Tax Act. In this case, the learned Tribunal, as observed above, arrived at the finding that the claim to the expenditure towards brokerage/commission was bogus and in effect, held that imposition of penalty was justified. No question of law - Decided against the revenue.

Summary

Issues Involved:
1. Validity of additions/disallowances made by the Assessing Officer.
2. Legitimacy of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
3. Evaluation of explanations provided by the assessee for various additions/disallowances.
4. Examination of the substantial question of law for appeal under Section 260A of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Additions/Disallowances:
The Assessing Officer made various additions/disallowances to the respondent assessee's income, resulting in an assessed income of ?1,04,67,100/-. These included:
- Loan obtained in 1988-89 shown as a gift in the assessee's capital account: ?40,80,000.
- Loan from creditors added as unexplained Cash Credits under Section 68: ?39,62,212.
- Rental income from group company: ?6,75,000.
- Disallowance of interest and commission: ?2,35,125.
- Disallowance of depreciation: ?45,933.

2. Legitimacy of Penalty Proceedings:
The Assessing Officer initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961, and levied a penalty of ?31,61,994/- for concealing income and furnishing inaccurate particulars. The Commissioner of Income Tax (Appeals) [CIT (A)] and the Income Tax Appellate Tribunal (ITAT) both found that the respondent assessee had not concealed income or furnished inaccurate particulars, leading to the deletion of the penalty.

3. Evaluation of Explanations Provided by the Assessee:
- Addition under Section 41(1)(a): The CIT (A) observed that the amounts had already been declared over the years, and thus, penalty under Section 271(1)(c) was not warranted.
- Unexplained Cash Credits under Section 68: The CIT (A) noted that the unsecured creditors included an NRI loan creditor whose identity, creditworthiness, and genuineness were accepted by the Assessing Officer. Since these additions were opening balances, penalty was not leviable.
- Addition of Rental Income: The CIT (A) found reasonable cause for the omission of rental income due to the timing of the company's audit.

4. Examination of Substantial Question of Law:
The Revenue raised the question of whether the ITAT was correct in deleting the penalty under Section 271(1)(c) when the Tribunal had upheld the additions to the income. The High Court examined whether there was a substantial question of law involved under Section 260A of the Income Tax Act, 1961. The Court found no substantial question of law, as the findings of the CIT (A) and the ITAT were based on factual determinations that the respondent assessee had not concealed income or furnished inaccurate particulars.

Conclusion:
The High Court dismissed the Revenue's appeal, holding that there was no substantial question of law involved. The Court affirmed the findings of the CIT (A) and the ITAT that the respondent assessee had not concealed income or furnished inaccurate particulars, and thus, the deletion of the penalty under Section 271(1)(c) was justified. The appeal was dismissed with no costs.