1989 (3) TMI 152 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Examination of the applicability of Explanation 1 to section 271(1)(c).
3. Whether the assessee concealed particulars of income or furnished inaccurate particulars under the main provisions of section 271(1)(c).

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The assessee, a Hindu Undivided Family (HUF), filed a return for the assessment year 1977-78 declaring a net loss of Rs. 12,272. However, during a search conducted on 16-7-1976, undisclosed account books were seized, revealing trading in ground-nut seeds and oil, with a loss of Rs. 1,09,011. The Income-tax Officer (ITO) found unexplained entries in the cash book amounting to Rs. 4,73,363. The ITO added Rs. 3,72,452 to the assessee's income after allowing the trading loss. Following discussions, the Income-tax Appellate Commissioner (IAC) directed the ITO to assess Rs. 3 lakhs as unexplained credits. The ITO imposed a penalty of Rs. 1,75,120 under section 271(1)(c) for concealment of income. The assessee's appeal against this penalty was dismissed by the Commissioner of Income-tax (Appeals) [CIT(A)], leading to the current appeal before the Tribunal.

2. Examination of the Applicability of Explanation 1 to Section 271(1)(c):
The departmental representative argued for the penalty under Explanation 1 to section 271(1)(c), which deems the amount added as concealed income if no satisfactory explanation is provided. The assessee's representative contended that since Explanation 1 was not invoked by the ITO or CIT(A), it could not be examined at this stage, relying on a Karnataka High Court decision. However, the Tribunal found that all relevant facts for examining the applicability of Explanation 1 were on record. The Tribunal noted that the Explanation creates a legal presumption of concealment if no explanation is offered or if the explanation is false or unsubstantiated. Since the assessee failed to offer any explanation and had surrendered the amount for addition, the Tribunal held that the proviso to Explanation 1, which provides relief if the explanation is bona fide and all material facts are disclosed, did not apply. Therefore, the Tribunal concluded that the case fell within the scope of Explanation 1, deeming the assessee to have concealed its income.

3. Concealment of Income under the Main Provisions of Section 271(1)(c):
The Tribunal also considered whether the assessee had concealed income under the main provisions of section 271(1)(c). The assessee argued that mere assessment of a certain sum did not justify penalty unless the department proved the amount represented concealed income. The Tribunal found that the assessee had indulged in undisclosed transactions, maintained secret books with code words, and failed to provide any explanation for the entries. The Tribunal cited the Delhi High Court decision in Durga Timber Works v. CIT, which upheld penalty imposition when the assessee admitted concealed income. The Tribunal concluded that the assessee had concealed income and furnished inaccurate particulars, making it liable for penalty under section 271(1)(c).

Conclusion:
The Tribunal dismissed the assessee's appeal, sustaining the penalty of Rs. 1,75,120 imposed by the ITO for concealment of income under section 271(1)(c). The Tribunal held that the case fell within the scope of Explanation 1 to section 271(1)(c) and also under the main provisions of the section, justifying the imposition of penalty.