2019 (7) TMI 606 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - rejection of claim of sundry creditors which were offered for taxation in the course of the assessment proceedings by the Appellant - concealment of Income or furnishing of inaccurate particulars of Income - penalty imposed by AO, deleted by the CIT(Appeals) and restored by the Tribunal in the impugned order is warranted - HELD THAT - In the instant case, there was no allegation made against the assessee that the statement given by the assessee was either mala fide or lacks bona fide. There is no allegation against the assessee that he suppressed information to the Department with an intent to evade payment of tax. The details called for by the Assessing Officer during the course of assessment proceedings were culled out from the books of the assessee. In similar circumstances, this Court in Sree Krishna Electricals Vs. State of Tamil Nadu 2009 (4) TMI 428 - SUPREME COURT held that penalty was not imposable under the provisions of the Tamil Nadu General Sales Tax Act, when the details were culled out from the books of accounts of the assessee/dealer. If the assessee gives an explanation which is unproved but not disproved i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false. The explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee. In Commissioner of Income Tax Vs. Suresh Chandra Mittal 1999 (7) TMI 34 - MADHYA PRADESH HIGH COURT it was held that the burden shifts to the assessee only if he fails to offer any explanation for the undisclosed income or offers explanation, which is found to be false by the Assessing Officer. However, proviso to Explanation 1 provides for shifting of this burden again where the explanation offered by the assessee is found to be bona fide. In the instant case, the explanation offered by the assessee was not found to be false by the Assessing Officer, in fact, the reconciliation made by the assessee was accepted for the amount of ₹ 34,51,447/-. The decision in Suresh Chandra Mittal (supra) was affirmed by the Hon'ble Supreme Court 2001 (6) TMI 63 - SC ORDER Tribunal was wrong in reversing the order passed by the CIT(A), which deleted the penalty imposed on the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act on rejection of claim of sundry creditors.
2. Warranted penalty imposition by the Assessing Officer, deletion by Commissioner of Income Tax (Appeals), and restoration by the Tribunal.

Issue 1: Levy of Penalty under Section 271(1)(c)
The appeal questions the correctness of sustaining the penalty under Section 271(1)(c) of the Income Tax Act on the rejection of the claim of sundry creditors offered for taxation by the appellant during assessment proceedings. The key contention is whether the presumption of concealment of income or furnishing inaccurate particulars of income, as per Explanation 1, was rebutted. The case involves the appellant, a dealer in iron and steel, with income from various sources, declaring total income including agricultural income for a specific year. The Assessing Officer noted outstanding amounts to sundry creditors for over three years, leading to the appellant offering a substantial amount for taxation under Section 41(1) of the Act. The penalty was imposed under Section 271(1)(c) based on the explanation provided by the appellant, which was not accepted by the Assessing Officer.

Issue 2: Warranted Penalty Imposition
The second issue revolves around whether the penalty imposed by the Assessing Officer, deleted by the Commissioner of Income Tax (Appeals), and subsequently restored by the Tribunal was justified. The Commissioner of Income Tax (Appeals) held that the appellant's explanation regarding the sundry creditors, including the amount treated as income, was reasonable and sustainable. The Commissioner also noted that the appellant had paid off some creditors in subsequent years, indicating the genuineness of the transactions. However, the Tribunal reversed this decision and reinstated the penalty. The High Court analyzed various legal precedents, including the Supreme Court's stance on Section 271(1)(c), emphasizing the necessity of proving concealment or furnishing inaccurate particulars of income for penalty imposition. The Court highlighted that the burden of proof lies on the revenue department once the assessee provides a credible explanation. In this case, the Court found that the appellant's explanation was not disproved, and there was no evidence of mala fide intent or suppression of information. Therefore, the Tribunal's decision to restore the penalty was deemed incorrect, and the Commissioner's order deleting the penalty was upheld.

In conclusion, the High Court allowed the appeal, setting aside the Tribunal's order and restoring the Commissioner's decision to delete the penalty. The judgment underscores the importance of providing a bona fide explanation and shifts the burden of proof to the revenue department if the initial explanation by the assessee is credible. The case serves as a reminder of the stringent requirements for penalty imposition under Section 271(1)(c) of the Income Tax Act, emphasizing the need for clear evidence of concealment or furnishing inaccurate particulars of income.