1993 (10) TMI 114 - AT - Income Tax

Summary

Issues Involved:
1. Whether the CIT (Appeals) erred in law in entertaining the assessee's appeal against the initiation of penalty proceedings.
2. Whether the CIT (Appeals) erred in law in setting aside the assessment order passed by the Income-tax Officer.

Issue-wise Detailed Analysis:

1. Appeal Against Initiation of Penalty Proceedings:
The department contended that the CIT (Appeals) erred in law by entertaining the assessee's appeal against the initiation of penalty proceedings. The assessee, an unregistered firm, had initially claimed a Rs. 10,00,000 donation to Christian Medical College & Hospital, Vellore, which was allowed under section 35CCA based on receipts. Subsequently, it was discovered that the donation was fraudulent, encashed through a spurious bank account in Bombay. The department received a letter from the General Superintendent of Christian Medical College & Hospital confirming that they had no connection with the bank account in Bombay and that all donations were through their accounts in Vellore and Madras.

The department issued notices under sections 143(2) and 142(1) and concluded that the revised return filed by the assessee under the Amnesty Scheme was not voluntary and in good faith, as the department had already detected the fraudulent nature of the donation. The ITO initiated penalty proceedings under section 271(1)(c) for default.

The CIT (Appeals) set aside the AO's order, directing a fresh assessment while considering relevant public circulars, particularly Circular No. 451, dated 17-2-86, which stated that donations to bogus organizations could come under the Amnesty Scheme if the assessee declared the donation and paid tax thereon.

2. Setting Aside the Assessment Order:
The department argued that the CIT (Appeals) was wrong in setting aside the entire assessment order when the assessee had no grievance against the amount of income assessed or the tax determined. The CIT (Appeals) relied on Circular No. 451, which clarified that donations to bogus organizations could be declared under the Amnesty Scheme. However, the department contended that the circular did not apply as the concealment had been detected before the revised return was filed.

The Tribunal noted that the department had obtained irrefutable evidence of the fraudulent donation before the assessee filed the revised return. The Tribunal emphasized that for the Amnesty Scheme to apply, the disclosure must be made before the department detects the concealment. The Tribunal found that the assessee's disclosure was not voluntary or in good faith, as it was made after the department had already detected the fraud.

Conclusion:
The Tribunal concluded that the CIT (Appeals) erred in setting aside the assessment order and entertaining the appeal against the initiation of penalty proceedings. The department's appeal was allowed, and the order of the CIT (Appeals) was set aside. The Tribunal held that the assessee did not meet the conditions of the Amnesty Scheme, as the disclosure was not made before the detection of concealment by the department.