1998 (1) TMI 96 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the IT Act, 1961.
2. Validity of additional income disclosure by the assessee.
3. Applicability of Explanation 5 to Section 271(1)(c).
4. Relevance of the assessee's admission for penalty imposition.
5. Procedural correctness in invoking Explanation 1 to Section 271(1)(c).

Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c) of the IT Act, 1961:

The assessee appealed against the penalty of Rs. 5,39,662 levied by the AO under Section 271(1)(c) for concealment of income or filing inaccurate particulars of income. The CIT(A) confirmed the penalty, holding that the assessee was not entitled to immunity under Explanation 5 to Section 271(1)(c) because the additional income was disclosed only after protracted investigation by the Department.

2. Validity of Additional Income Disclosure by the Assessee:

The assessee's representative argued that the additional income of Rs. 10,10,000 was voluntarily disclosed and not due to any intensive investigation by the Department. It was contended that the admission alone cannot be used as evidence for levying the penalty. The representative cited various judicial precedents, including CIT vs. National Alloy and Metal Works (P) Ltd. and Sir Shadilal Sugar & General Mills Ltd. vs. CIT, to support this argument.

3. Applicability of Explanation 5 to Section 271(1)(c):

The assessee argued that Explanation 5 to Section 271(1)(c) applies only to money, bullion, jewellery, or other valuable articles found in possession and control of the assessee, and not to immovable property. The representative cited the case of South India Finance vs. ITO to argue that the disclosure of Rs. 7 lakhs related to immovable property, for which Explanation 5 is not applicable.

4. Relevance of the Assessee's Admission for Penalty Imposition:

The Tribunal noted that the entire assessment was based on the admission of the assessee and her son-in-law. The Tribunal emphasized that the admission alone is insufficient for charging the assessee with concealment of income. The Tribunal referred to the Supreme Court's decision in Sir Shadilal Sugar & General Mills Ltd., which held that agreeing to additions does not necessarily mean the income was concealed.

5. Procedural Correctness in Invoking Explanation 1 to Section 271(1)(c):

The Tribunal observed that the AO did not invoke Explanation 1 to Section 271(1)(c) at the time of initiating penalty proceedings. The Tribunal cited the Bombay High Court decisions in CIT vs. Dharamchand L. Shah and CIT vs. P.M. Shah, which require that the assessee be informed that penalty proceedings are being commenced under Explanation 1. The Tribunal concluded that the penalty could not be levied by resorting to Explanation 1 unless the assessee was informed accordingly.

Conclusion:

The Tribunal concluded that the penalty under Section 271(1)(c) was not justified. The Tribunal emphasized that the findings in the assessment proceedings are relevant but not sufficient for penalty imposition. The Tribunal also noted that the assessee's declaration of investments did not conclusively prove ownership due to the Benami Transaction (Prohibition) Act, 1988. Consequently, the Tribunal directed the deletion of the penalty and allowed the appeal.