1998 (8) TMI 113 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of penalty imposed under section 271(1)(c) of the Income Tax Act.
2. Whether the order of the CIT(A) should be set aside and the order of the Assessing Officer restored.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed Under Section 271(1)(c) of the Income Tax Act:

During the assessment proceedings, the Assessing Officer completed the assessment under section 143(3) of the IT Act and initiated penalty proceedings under section 271(1)(c) due to an addition of Rs. 1,12,000 based on the peak of the credit, which was surrendered by the appellant. The appellant argued that the surrender of peak credit of agricultural cash credits was made to avoid further litigation and harassment, and was subject to no penalty proceedings of concealment. The appellant relied on the decision of CIT v. Bhimji Bhanjee & Co. [1984] 146 ITR 145 (Bom).

The CIT(A) observed that the Assessing Officer imposed the penalty mainly because the addition was not based on the assessee's surrender but was called for on merits as the assessee failed to produce the creditors. The CIT(A) found that the Assessing Officer wrongly refused the opportunity to produce the creditors at the penalty stage, as penalty proceedings are independent and the assessee had the legal right to produce the creditors even if they were not produced at the assessment stage. The CIT(A) noted that the addition was made based on a letter of surrender, which was subject to no penalty under section 271(1)(c), and thus the penalty was wrongly imposed, violating the letter of surrender. This view was supported by the Punjab & Haryana High Court in Banta Singh Kartar Singh v. CIT [1980] 125 ITR 239.

The Tribunal agreed with the CIT(A), stating that the Assessing Officer should have either accepted the total offer or informed the appellant that the surrender was not accepted and investigated the matter further. The Tribunal emphasized that the appellant had the right to take a fresh stand in the penalty proceedings and that the Assessing Officer's refusal to allow the production of cash creditors in penalty proceedings was not legally maintainable.

The Tribunal also referred to the Supreme Court's decision in Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705, which held that agreeing to additions does not automatically indicate concealed income, and the burden of proving concealment lies with the Revenue. The Tribunal cited various High Court decisions supporting the view that penalty under section 271(1)(c) is not exigible in cases of surrendered additions made to avoid harassment or litigation, provided the surrender is subject to no penalty.

2. Whether the Order of the CIT(A) Should Be Set Aside and the Order of the Assessing Officer Restored:

The Department Representative (DR) argued that the cash creditors should have been examined at the level of CIT(A) and requested that the matter be referred back to the CIT(A) to allow the opportunity to produce the case creditors. However, the appellant's counsel contended that it was the duty of the Assessing Officer to allow reasonable opportunity to the appellant for rendering an explanation in the penalty proceedings. The counsel argued that the addition was made after a surrender subject to no penalty proceedings, and the satisfaction of the Assessing Officer is relevant for imposing or not imposing penalty under section 271(1)(c).

The Tribunal concluded that the Assessing Officer's refusal to allow the production of cash creditors during penalty proceedings and the imposition of penalty without giving proper opportunity to the assessee were significant errors. The Tribunal upheld the CIT(A)'s decision to delete the penalty, emphasizing that the penalty proceedings are distinct from the assessment proceedings and that the burden of proving concealment lies with the Revenue.

Conclusion:

The Tribunal dismissed the appeal filed by the revenue and the cross-objection filed by the assessee, thereby upholding the CIT(A)'s order to delete the penalty imposed under section 271(1)(c). The Tribunal emphasized that the penalty was wrongly imposed as the surrender was made subject to no penalty, and the Assessing Officer failed to provide the appellant with a proper opportunity to produce the creditors during the penalty proceedings.