1991 (11) TMI 102 - AT - Income Tax

Summary

Issues Involved:
1. Penalties under section 271(1)(c) of the Income-tax Act, 1961 for alleged concealment of income.
2. Applicability of Explanation 1 to section 271(1)(c) of the Act.
3. Bona fide nature of the assessee's explanation and disclosure of all material facts.
4. Assessment of share capital as undisclosed income.

Detailed Analysis:

1. Penalties under section 271(1)(c) of the Income-tax Act, 1961 for alleged concealment of income:
The appellant, a company, faced penalties for the assessment years 1984-85 and 1985-86 under section 271(1)(c) for alleged concealment of income. The Income-tax Officer (ITO) imposed penalties of Rs. 2,36,486 and Rs. 2,85,920 respectively, asserting that the appellant deliberately attempted to evade tax. The penalties were upheld by the CIT(Appeals), leading to the appellant's further appeal to the Tribunal.

2. Applicability of Explanation 1 to section 271(1)(c) of the Act:
The Tribunal examined whether Explanation 1 to section 271(1)(c) applied. Explanation 1 deems income to be concealed if the assessee fails to offer an explanation or offers an explanation that is false or unsubstantiated. The Tribunal found that the assessee did offer an explanation, and there was no finding by the authorities that it was false. Therefore, clause (A) did not apply. The Tribunal also noted that the assessee was unable to substantiate its explanation as required by clause (B), but the explanation was bona fide and all material facts were disclosed.

3. Bona fide nature of the assessee's explanation and disclosure of all material facts:
The assessee argued that the additional income declared in the revised returns was to avoid litigation and was not an admission of concealment. The Tribunal agreed, noting the assessee's letters dated 8th February 1988, which explained the financial difficulties and the need to raise capital. The letters indicated that the revised returns were filed to buy peace and avoid further proceedings, and the assessee had disclosed all material facts. The Tribunal found the explanation bona fide and that the facts were fully disclosed.

4. Assessment of share capital as undisclosed income:
The Tribunal referred to the Delhi High Court's decision in CIT v. Stellar Investment Ltd., which held that even if the subscribers to the share capital were not genuine, the amount could not be regarded as undisclosed income of the company. The Tribunal noted that while the appellant had offered the amount for assessment, it could still argue that it was not concealed income. The Tribunal found that the amounts offered in the revised returns could not be held as income in respect of which particulars had been concealed.

Conclusion:
The Tribunal concluded that the penalties under section 271(1)(c) were not justified as the assessee's explanation was bona fide, and all material facts were disclosed. The penalties were canceled, and the appeals were allowed.