1996 (11) TMI 97 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty u/s 271(1)(c) of the Income-tax Act, 1961.
2. Validity of the basis for imposing the penalty.
3. Compliance with the conditions for immunity from penalty.

Summary:

1. Levy of Penalty u/s 271(1)(c):
The assessee challenged the levy of a penalty amounting to Rs. 5,00,000 u/s 271(1)(c) for the assessment year 1988-89. The penalty was imposed following a search on 11-8-1987, during which the assessee disclosed undisclosed income totaling Rs. 9,25,000.

2. Validity of the Basis for Imposing the Penalty:
The Assessing Officer (AO) imposed the penalty on the grounds that the assessee had not paid taxes on the disclosed amount, thus violating conditions for immunity from penalty as per Explanation 5 to section 271(1)(c). However, the CIT (Appeals) found that taxes were indeed paid in relation to the disclosed amount, but sustained the penalty on the basis that the disclosure was not reflected in the return of income filed by the assessee.

3. Compliance with Conditions for Immunity from Penalty:
The assessee argued that the penalty should not be levied as the disclosure was made in good faith to obtain immunity from penalty, and taxes were paid. The CIT (Appeals) acknowledged the payment of taxes but held that the non-disclosure in the return of income constituted concealment, thereby justifying the penalty.

Judgment:
The Tribunal found that the assessee had consistently disclosed the amount of Rs. 9,25,000 from the day of the search and in subsequent communications. The Tribunal held that the CIT (Appeals) could not change the basis of the penalty imposed by the AO. Additionally, the Tribunal noted that the assessee's consistent disclosure and the department's conscious knowledge of the disclosed amount negated the charge of concealment. Consequently, the penalty was deleted, and the appeal was allowed.