2019 (5) TMI 301 - HC - Income Tax

Penalty u/s 271(1)(c) - penalty was imposed for two reasons viz., (i) Unvouched Expenses and (ii) Unexplained Credits - Revised Return surrendering the amounts as income - coercion of the authorities concerned - fair investigation - income in the Revised Return as 'Cessation of Liability' u/s 41 (1) - HELD THAT - We are satisfied that the authorities below, right from the Assessing Authority, have abused their powers u/s 271 (1) (c) in the present case. The explanation furnished by the Assessee for both the additions made to the declared income in the Revised Return filed by the Assessee was a plausible explanation which required consideration at the hands of the Assessing Authority. Part of expenses, which were not at all even claimed as deduction from the profits of the Assessee, were said to have been incurred by the Assessee-the forwarding Agent- to be reimbursed by his customers. Without holding any inquiry in the matter from the said customers as to whether they were reimbursed or not, no such finding of guilty animus or concealment of income could have been rendered by the Assessing Authority in such cases. The surrender on the part of the Assessee appears to be under the coercion exercised by the Survey Authority at the time of survey or the Assessing Authority. The Assessee furnished a plausible explanation, which required an investigation and inquiry. Instead of undertaking such fair exercise, the Assessing Authority and subsequently the Appellate Authorities just imposed and upheld the penalty in question to the extent of 100% of tax on such surrendered income, which was not at all called for. The reconciliation of the accounts of the Sundry Creditors is a routine accounting practice in day-to-day business and it was a matter for scrutiny and, therefore, the explanation of the Assessee that there were some unreconciled balances only required further examination and an opportunity was to be given to the Assessee to reconcile such account balances with creditors. Such unreconciled balances could not have been added as 'income' on account of 'Cessation of Liability' to be brought to tax u/s 41 (1) and invoking of Section 41 (1) in the present case was wholly erroneous. The said provision applies if a liability has completely ceased for Assessee, de facto and de jure. Having carefully gone through the order of the Tribunal, we are sorry to observe that it was passed by the final fact finding body comprising of responsible Members. The tenor of the order does not impress us at all and leaves much to be desired. The said order seems to be a '' cut and paste '' order, taking pieces from here and there and as if quoting some of the judgments of Supreme Court and High Courts would be enough for the final fact finding body. Further, we are sorry to notice this quality of order passed by the learned Tribunal in this case. The very premise on which the penalty u/s 271 (1) (c) was imposed by the Assessing Authority should have invoked the good conscience of the learned Members of the Tribunal, who should have either sent back the matter to the Assessing Authority for investigating into the affairs once again or set aside the penalty in the fair exercise of their discretion in the matter. It seems, the learned Tribunal chose to uphold the order of penalty, which was passed wholly on erroneous premises, just by citing and quoting some judgments and not giving any of their own findings. The said order of the Tribunal, therefore, cannot be sustained in the eye of law. Present Appeals filed by the Assessee deserves to be allowed with costs, quantified at ₹ 10,000/-, to be borne by the Assessing Authority, who passed the impugned penalty orders in the present case to be paid to the Appellant-Assessee within three months from today and Compliance Report should be sent to this Court.

Summary

Issues Involved:
Appeal against penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961 for unvouched expenses and unexplained credits for various assessment years.

Analysis:

1. Failure to Record Satisfaction for Penalty Proceedings:
The appellant contended that the Assessing Officer's failure to record satisfaction of wilful concealment or inaccurate particulars before initiating penalty proceedings vitiates the penalty process. The appellant argued that the burden lies on the Department to prove concealment, especially when the Assessee provided explanations. The High Court noted that the penalty was imposed for unvouched expenses and unexplained credits. The Assessee explained that certain expenses were incurred on behalf of customers and not claimed as deductions. The penalty was upheld by the Appellate Authority based on the Assessee's revised return. The Court examined if the authorities had validly considered the Assessee's explanations.

2. Unvouched Expenses and Unexplained Credits:
The penalty was imposed due to unvouched expenses and unexplained credits found during a survey. The Assessee claimed the expenses were for customers and not deducted from profits. The Court found that the authorities did not thoroughly investigate the Assessee's explanations before imposing the penalty. The Assessee's act of filing a revised return was deemed coerced, and the penalty was seen as unjustified. The reconciliation of accounts with creditors was considered routine practice, and the application of Section 41(1) was found erroneous. The Court criticized the Tribunal's order for lacking thorough examination and blindly upholding the penalty.

3. Judicial Precedents and Penalty Imposition:
The Tribunal cited a Supreme Court decision to justify the penalty imposition. However, the High Court disagreed with the Tribunal's approach, finding the penalty unjust and lacking proper investigation. The Court criticized the Tribunal for not conducting a fair inquiry and merely relying on legal precedents without independent analysis. The Court concluded that the Assessee's appeals should be allowed, with costs imposed on the Assessing Authority for the erroneous penalty orders.

In conclusion, the High Court held that the penalty imposed on the Assessee was unjust and lacked proper investigation. The authorities failed to consider the Assessee's explanations adequately, leading to an erroneous penalty under Section 271(1)(c) of the Income Tax Act. The Court allowed the Assessee's appeals, with costs imposed on the Assessing Authority.