1978 (6) TMI 61 - AT - Income Tax

Summary

Issues:
1. Levy of penalty under section 271(1)(c) of the IT Act, 1961.
2. Source of credits in the name of minors.
3. Addition of income from truck hire account.
4. Jurisdiction to levy penalty under section 274(2) of the IT Act, 1961.

Analysis:

1. The appellant, a firm with minor partners, contested the penalty imposed under section 271(1)(c) of the IT Act, 1961. The dispute arose from credits of Rs. 5,000 each to the minor partners' accounts, attributed to birthday and festival gifts. The Income Tax Officer (ITO) rejected this explanation, adding Rs. 20,000 to the firm's income. The Appellate Tribunal confirmed the addition under section 68 but questioned the justification for penalty imposition.

2. Regarding the income from the truck hire account, discrepancies led to an addition of Rs. 18,800 by the ITO. The Appellate Authority and Tribunal successively reduced this to Rs. 5,000. However, the Inspecting Assistant Commissioner upheld the penalty, citing manipulation in the firm's cash book and insufficient cash reserves.

3. The jurisdictional issue concerning the penalty imposition was raised by the appellant, arguing that section 274(2) had been deleted before the penalty order. Following precedent, the Tribunal dismissed this argument, affirming the IAC's authority despite the statutory change.

4. On the merits, the Tribunal scrutinized the additions and found the truck income estimation lacking concrete evidence of concealment. The minor partners' credits, attributed to the guardian, were deemed inconclusive for penalty imposition. The Tribunal emphasized the absence of proof indicating the firm's concealed income, as required for penalty under section 271(1)(c).

5. The Tribunal highlighted the Supreme Court's precedent in CIT vs. Anwar Ali, emphasizing the Revenue's onus to establish concealed income for penalty imposition. Despite the firm's explanation being rejected under section 68, the Tribunal concluded that the penalty was unwarranted due to the lack of evidence demonstrating fraud or wilful neglect in income reporting.

6. Ultimately, the Tribunal allowed the appeal, canceling the penalty on the grounds that the minor partners' credits did not represent the firm's income and lacked evidence of concealment. The Tribunal reasoned that the mere application of section 68 did not suffice to justify penalty imposition, emphasizing the absence of fraud or wilful neglect in the firm's reporting.