1987 (7) TMI 132 - AT - Income Tax

Summary

Issues Involved:
1. Justification of omissions in the original return as inadvertent.
2. Legal arguments regarding the necessity of positive assessed income for concealment.
3. Legal arguments on the liability to pay penalty when no tax is payable on assessment.

Summary:

1. Justification of Omissions in the Original Return as Inadvertent:
The CIT (A) concluded that the omissions in the original return by the assessee were inadvertent and did not justify a charge of concealment. The items in question were:
- Disallowance of interest u/s 40A(8) for Rs. 2,38,415.
- Disallowance of entertainment expenditure for Rs. 51,372.
- Disallowance of travelling expenses for Rs. 7,160.
- Disallowance of extra claim of depreciation for Rs. 2,14,364.

The CIT (A) found that the assessee had provided a note in the original return explaining the non-addition of Rs. 2,46,547 due to a proposed challenge to the vires of section 40A(8). This was deemed reasonable and not an act of concealment. Similarly, the CIT (A) accepted the assessee's explanation regarding entertainment and travelling expenses as bona fide mistakes and not concealment. However, the Tribunal disagreed with the CIT (A) regarding the extra claim of depreciation, concluding that the wrong claim could not be attributed to inadvertence and thus constituted concealment of income.

2. Legal Arguments Regarding the Necessity of Positive Assessed Income for Concealment:
The assessee argued that since the assessed total income was nil, no penalty for concealment could be levied. The Tribunal rejected this argument, stating that concealment of particulars of income and total income assessed are distinct. The Tribunal cited the Kerala High Court's decision in CIT v. India Sea Foods, which held that the amount of concealed income could exceed the total income assessed. The Tribunal emphasized that the word "income" in clause (c) of section 271(1) has a broader connotation than "total income assessed," and thus, concealment can occur regardless of whether the final assessed income is positive or nil.

3. Legal Arguments on the Liability to Pay Penalty When No Tax is Payable on Assessment:
The assessee contended that no penalty could be levied if no tax was payable on assessment, referencing the Madras High Court's decision in Addl. CIT v. Murugan Timber Depot. The Tribunal noted that the legal position had changed with the introduction of Explanation 4 to section 271(1) by the Taxation Laws (Amendment) Act, 1975, effective from 1-4-1976. This Explanation clarified that the amount of tax sought to be evaded includes the tax that would have been chargeable on the concealed income, even if the total income assessed is nil. Therefore, the Tribunal concluded that penalty could still be levied even if no tax was payable on assessment.

Conclusion:
The Tribunal upheld the CIT (A)'s findings that the disallowances of interest, entertainment expenditure, and travelling expenses did not constitute concealment. However, it reversed the CIT (A)'s decision regarding the extra claim of depreciation, holding that it constituted concealment of income. The Tribunal directed that a minimum penalty be imposed for the concealment of Rs. 2,14,364 on account of the wrong claim of depreciation. The appeal of the department was partly allowed.