1990 (7) TMI 141 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961.
2. Basis of additions to the returned income.
3. Applicability of Section 69 of the Income-tax Act.
4. Requirement of independent enquiry before levying penalty.
5. Burden of proof under Section 271(1)(c) and its explanation.
6. Bona fides of the assessee and the intention behind the disclosure.

Issue-wise Detailed Analysis:

1. Legitimacy of the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961:
The penalty of Rs. 55,417 was levied under Section 271(1)(c) for concealment of income and furnishing inaccurate particulars. The assessee argued that since the basis of the addition to the returned income had changed, penalty should not be levied. However, it was held that the Income Tax Officer (ITO) had issued the notice on the ground of concealment of particulars of income and levied the penalty on the same basis upon which he had commenced the penalty proceedings. Thus, the penalty was considered legitimate.

2. Basis of additions to the returned income:
The ITO estimated unaccounted purchases and suppressed sales based on material seized by the sales-tax authorities and his own study. The Tribunal adjusted these figures but did not change the basis of the addition. The Tribunal confirmed an addition of Rs. 39,600 for unaccounted purchases and Rs. 13,850 for suppressed profit. The assessee's argument that the penalty should not be levied due to changes in the basis of addition was rejected.

3. Applicability of Section 69 of the Income-tax Act:
The assessee contended that penalty should not be levied on amounts included in total income by virtue of Section 69. The Tribunal referred to the Gujarat High Court decision in Chandravilas Hotel and the Supreme Court decision in Chuharmal, which upheld the levy of penalty even in cases where income was estimated under Section 69. Thus, it was held that penalty under Section 271(1)(c) could be levied even in such cases.

4. Requirement of independent enquiry before levying penalty:
The assessee argued that the ITO levied the penalty based on the orders of the sales-tax authorities without independent enquiry. The Tribunal held that the ITO was justified in considering the orders passed by the sales-tax authorities and the income-tax authorities during assessment proceedings. It was found that the ITO had applied his mind to all material points before levying the penalty, thus rejecting the assessee's argument.

5. Burden of proof under Section 271(1)(c) and its explanation:
The Tribunal noted that the explanation to Section 271(1)(c) shifts the burden to the assessee to prove that the concealed income did not result from fraud or gross or wilful neglect. This burden is rebuttable. The Tribunal referred to the Supreme Court decisions in Mussadilal Ram Bharose and Chuharmal, which established that the initial burden lies on the department to prove the guilt of the assessee, but the explanation shifts the onus to the assessee.

6. Bona fides of the assessee and the intention behind the disclosure:
The assessee disclosed the matter of increased purchases and sales in Part III of the return, stating that the sales-tax liability should be deducted from any addition made. The Tribunal found that this disclosure was made voluntarily and in good faith, indicating no intention to conceal income. The Tribunal held that the assessee had satisfactorily proved that the concealed income did not result from fraud or gross or wilful neglect, thus discharging the burden placed by the explanation to Section 271(1)(c).

Conclusion:
The Tribunal set aside the order under appeal, cancelled the penalty levied, and allowed the appeal. The assessee's voluntary disclosure and bona fides were key factors in the decision to cancel the penalty.