1987 (11) TMI 95 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act.
2. Explanation and burden of proof regarding the penalty.
3. Application of deeming provisions under Section 69C.
4. Authority and findings of the Commissioner (A).

Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act:

The primary issue in this appeal is the confirmation of a penalty of Rs. 13,794 levied by the Income Tax Officer (ITO) under Section 271(1)(c) of the Income Tax Act, 1961. The ITO's order dated 18th March 1983 highlighted that the assessee firm filed a return declaring total income at Rs. 2,57,890, but the assessment was finalized at Rs. 1,00,450. The ITO noted that the firm furnished inaccurate particulars of its income, leading to the issuance of a notice under Section 271(1)(c). Despite multiple opportunities, the firm did not respond, prompting the ITO to proceed based on available records, resulting in the penalty.

2. Explanation and Burden of Proof Regarding the Penalty:

The assessee's representative argued that the burden of proving guilt was on the Revenue, citing the decision in CIT vs. Khoday Eswara & Sons (1972) which stated that penalty based solely on assessment findings is not conclusive. The representative emphasized that the addition was made under deeming provisions of Section 69C, which uses discretionary language ("may be"). They contended that penalty could not be levied based on such provisions, referencing CIT vs. Jewels Paradise (1975) and other cases supporting this view.

3. Application of Deeming Provisions under Section 69C:

The ITO's penalty order was based on the finding that there was an unexplained investment, leading to an addition of Rs. 15,885 under deeming provisions, likely Section 69A. However, for penalty imposition, the deemed income must be converted into actual income of the year, which was not done. The Revenue's representative argued that inferred income under deeming provisions should be treated as actual income, supported by the decision in CIT vs. Mussadilal Ram Bharose (1987). The representative highlighted that the ITO had given multiple opportunities to the assessee, which were not utilized.

4. Authority and Findings of the Commissioner (A):

The Commissioner (A) confirmed the penalty, stating that the assessee could not explain excess expenditure and various concealments were found during a raid. The Tribunal confirmed the addition as income from undisclosed sources. The Commissioner (A) relied on the ratios from Rajpal Automobiles vs. CIT (1979) and CIT vs. P.R. Seetharama Rao (1976), asserting that it was sufficient to show the assessee could not explain the nature and source of expenditure. However, the Tribunal found that the Commissioner (A) did not properly appreciate the issue, as the addition was based on excess payments in the cash book, not excess expenditure.

Conclusion:

The Tribunal concluded that the levy of penalty was not justified. They emphasized that penalty proceedings are quasi-criminal and require strict construction of provisions and conscious concealment. The ITO's order was based on findings from assessment proceedings without converting deemed income into actual income. The Commissioner (A)'s findings were also flawed, as they did not correctly interpret the nature of the addition. The Tribunal set aside the Commissioner (A)'s order and canceled the penalty, allowing the appeal.