2006 (1) TMI 157 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) on the amount of Rs. 8,70,941 being the amount of cash sales of copper scrap.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):

Background:
The revenue filed an appeal against the order of CIT(A) dated 29-7-1999 for the assessment year 1992-93, challenging the deletion of penalty under section 271(1)(c) on the amount of Rs. 8,70,941 related to cash sales of copper scrap. The original return was filed at Rs. 4,94,458 on 23-10-1992, which was processed under section 143(1)(a) on 18-12-1992. The assessee did not appear on the first notice issued under section 143(2) and subsequently filed a revised return declaring sales of copper scrap of Rs. 8,70,941.

Explanation by Assessee:
The assessee explained that copper scrap was purchased for use in manufacturing castings, but it was found unfeasible during testing. Due to an immediate need for funds and lack of buyers, the scrap was sold for cash, which was inadvertently not recorded in the books of account. The revised return was filed to correct this omission.

Assessing Officer's Findings:
The Assessing Officer noted that the assessee was not a dealer in copper scrap, and the raw materials were mild steel and stainless steel scrap. The purchases of copper scrap were substantial, and the assessee did not provide evidence of consumption or sale until filing the revised return. The officer concluded that the revised return was not voluntary but filed due to persistent inquiries by the department, indicating concealment of income. Consequently, a penalty under section 271(1)(c) was levied at 200%.

CIT(A)'s Decision:
CIT(A) deleted the penalty, stating that the revised return was filed voluntarily before detection by the Assessing Officer. There was no show-cause notice issued, and the details of purchases and sales were provided routinely. CIT(A) concluded that there was no intention of concealment, and the revised return was filed on the assessee's own volition.

Revenue's Argument:
The revenue argued that the revised return was filed only after the department's persistent inquiries, indicating that the concealment was already detected. The amount involved was substantial and could not have been omitted inadvertently. The revenue relied on several judicial precedents to support the contention that penalty under section 271(1)(c) was justified.

Assessee's Argument:
The assessee contended that the revised return was filed voluntarily before any detection by the department. The omission was bona fide, and the revised return corrected the mistake. The assessee relied on judicial precedents where penalties were not levied in similar circumstances.

Tribunal's Analysis:
The Tribunal examined Explanation 1 to section 271(1)(c), which deems the amount added or disallowed as concealed income if the explanation is not substantiated or bona fide. The assessee's explanation was found unsubstantiated and not bona fide. The Tribunal noted that the substantial amount involved could not have been omitted inadvertently, and the revised return was filed after the department's inquiries, indicating concealment.

Conclusion:
The Tribunal concluded that the Assessing Officer rightly held the assessee liable for penalty despite the revised return. However, the penalty was reduced from 200% to 100%, considering the facts of the case. The appeal by the revenue was partly allowed, reinstating the penalty at 100%.

Final Decision:
The order of CIT(A) deleting the penalty was set aside, and the Assessing Officer was directed to levy the penalty at 100%. The revenue's appeal was partly allowed.