1981 (2) TMI 100 - AT - Income Tax

Summary

Issues:
1. Penalty under section 271(1)(c) of the Income Tax Act for concealment of income.
2. Adequacy of explanation provided by the assessee for the addition of Rs. 36,352 to the total income.
3. Burden of proof regarding concealment of income.
4. Validity of findings regarding interpolation in the books of accounts.

Detailed Analysis:

1. The judgment deals with an appeal against a penalty of Rs. 36,352 imposed under section 271(1)(c) of the Income Tax Act for the assessment year 1970-71. The penalty was levied by the Income Tax Officer (ITO) based on an addition made to the total income of the assessee, relating to 284 bags of toria pledged with a bank to raise an overdraft. The assessee, a commission agent, claimed that the toria belonged to four sellers who had left the bags with him for sale at a later date. The ITO found the explanation unsatisfactory, leading to the initiation of penalty proceedings. The Income-tax Appellate Tribunal (ITAT) was tasked with determining whether the penalty was justified.

2. The assessee contended that the toria did not belong to him but to the four persons who entrusted them to him for sale. The assessee provided sworn statements and evidence of market practices to support this claim. The ITAT noted that while the explanation provided by the assessee was deemed unsatisfactory by the lower authorities, it did not amount to concealment of income under section 271(1)(c). The ITAT upheld the principle established in the case of Anwar Ali by the Supreme Court, emphasizing that the burden of proving concealment rested with the revenue, which it failed to establish in this case.

3. The Departmental Representative argued that the assessee failed to account satisfactorily for the source of the toria, justifying the concealment penalty. However, the ITAT found merit in the assessee's contentions, highlighting that the mere unsatisfactory nature of the explanation did not automatically lead to a finding of concealment. The ITAT emphasized that the findings supporting the addition to the income were not sufficient to prove concealment under section 271(1)(c) and that the burden of proof remained with the assessing authorities.

4. The judgment also addressed the issue of interpolation in the books of accounts. The Departmental Representative relied on this finding to support the concealment penalty. However, the ITAT scrutinized the entries and concluded that there was insufficient evidence to uphold the charge of concealment based on alleged interpolations. The ITAT emphasized that the burden of proving concealment rested with the Income Tax Officer, and in the absence of compelling evidence, the penalty could not be sustained. Consequently, the ITAT allowed the appeal filed by the assessee and canceled the penalty of Rs. 36,352 levied by the Income-tax Appellate Tribunal.