1991 (3) TMI 187 - AT - Income Tax

Summary

Issues Involved:
1. Legality of penalties levied u/s 271(1)(c) for Assessment Years 1979-80, 1980-81, and 1982-83.
2. Application of Explanation 1 to section 271(1)(c).
3. Validity of the assessee's explanation and whether it was bona fide.
4. Relevance of capitalisation of surrendered income in determining concealment.

Summary:

Issue 1: Legality of penalties levied u/s 271(1)(c) for Assessment Years 1979-80, 1980-81, and 1982-83
The appeals concern penalties confirmed by the CIT(A) for the assessment years 1979-80, 1980-81, and 1982-83. The penalties were based on alleged concealment of income, including unproved hundi borrowings, unproved donations, unaccounted professional receipts, and inflation of expenses.

Issue 2: Application of Explanation 1 to section 271(1)(c)
The ITO applied Explanation 1 to section 271(1)(c), arguing that the assessee's failure to substantiate loans and donations, coupled with the voluntary offer for taxation, indicated concealment. The CIT(A) upheld this view, stating that the difference between the returned and assessed income indicated concealed income.

Issue 3: Validity of the assessee's explanation and whether it was bona fide
The Tribunal examined whether the assessee's explanation was bona fide and whether all material facts were disclosed. It was found that the assessee had provided confirmation letters and PA/GIR numbers for the loans, and the surrender of income was to buy peace and avoid litigation, not an admission of concealment. The Tribunal held that the main provisions of section 271(1)(c) and Explanation 1 did not apply as the explanation was bona fide.

Issue 4: Relevance of capitalisation of surrendered income in determining concealment
The Tribunal noted that the capitalisation of Rs. 15 lakhs on 1-4-1983 was a paper entry and not relevant for determining concealment for the years under consideration. The Tribunal cited the Calcutta High Court's decision in Bhagwanji Bhawanbhai & Co. v. CIT, which held that capitalisation of an amount does not necessarily indicate concealed income.

Conclusion:
The penalties levied for the assessment years 1979-80, 1980-81, and 1982-83 were cancelled. The Tribunal held that the assessee's explanation was bona fide, and the capitalisation of surrendered income was not relevant for determining concealment. The appeals were allowed.