2019 (2) TMI 127 - HC - Income Tax

Penalty issued u/s 271(1)(c) - assessee has not offered any explanation to the satisfaction of the AO - Held that - Merely because the assessee agreed for addition and accordingly, assessment order was passed on the basis of addition and when the assessee paid the tax and the interest thereof in the absence of any material on record to show the concealment of income, it cannot be inferred that the said addition is on account of concealment, so as to levy penalty under Section 271(1)(c) of the Act. We find no error in the order passed by the Tribunal especially when it is admitted that the decision in C.I.T. Vs. Manjunatha Cotton and Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT) has attained finality. - Decided against the Revenue and in favour of the assessee

Summary

Issues:
1. Setting aside of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Explanation 1 in the absence of explanation by the assessee.

Analysis:
1. The appeal was filed by the Revenue against the order of the Income Tax Appellate Tribunal, Madras, regarding the imposition of penalty under Section 271(1)(c) for the assessment years 2008-09. The substantial questions of law raised were whether the Tribunal was justified in setting aside the penalty when the assessee failed to provide a satisfactory explanation to the Assessing Officer and whether Explanation 1 would apply in such a scenario.

2. The Tribunal set aside the penalty based on the ground that the notice issued to the assessee at the beginning of the penalty proceedings was defective and not legally sustainable. The Tribunal relied on the decision of the Division Bench of the High Court of Karnataka in C.I.T. Vs. Manjunatha Cotton and Ginning Factory, which held that the mere agreement by the assessee for an addition to the income without evidence of concealment does not warrant a penalty under Section 271(1)(c) of the Act.

3. The High Court, after considering the arguments presented by both parties, upheld the decision of the Tribunal. It emphasized that the decision in C.I.T. Vs. Manjunatha Cotton and Ginning Factory had already been settled and concluded. The Court found no error in the Tribunal's order and dismissed the appeal filed by the Revenue, ruling in favor of the assessee on the substantial questions of law raised.

This detailed analysis of the judgment highlights the key issues of setting aside the penalty under Section 271(1)(c) and the applicability of Explanation 1 in cases where the assessee fails to provide a satisfactory explanation. The decision of the High Court provides clarity on the legal principles involved and affirms the importance of evidence of concealment before imposing penalties under the Income Tax Act.