2003 (1) TMI 244 - AT - Income Tax

Summary

Issues:
Appeal against deletion of penalty under s. 271(1)(c) of the Act for asst. yr. 1990-91.

Analysis:
1. The assessee filed the return of income for asst. yr. 1990-91, initially declaring income of Rs. 57,500, mentioning certain purchases made on credit basis. The return was revised later to declare additional income of Rs. 1,10,000, with the AO making an ad hoc addition of Rs. 50,000. Penalty proceedings were initiated under s. 271(1)(c) but were dropped. The AO re-initiated penalty proceedings based on Expln. 2 to s. 271(1)(c) due to the unaccounted additional income.

2. The CIT(A) cancelled the penalty levy, emphasizing that the additional income was voluntarily declared and assessed as the appellant's own income, not representing an addition to total income. The Explanation 2 to s. 271(1)(c) was analyzed, concluding that since the amount was not added or deducted in previous years, no penalty could be levied. The CIT(A) granted relief of Rs. 59,400 to the appellant.

3. The Revenue appealed the decision, relying on Expln. 2 to s. 271(1)(c) to justify the penalty. The Explanation presumes concealment of income or furnishing inaccurate particulars, applicable where tangible or intangible additions lack sufficient proof for penalty imposition. However, in this case, as the appellant acknowledged the unaccounted income voluntarily, the Explanation did not apply, and the penalty was rightly cancelled.

4. The Explanation did not fit the circumstances as the unaccounted income was disclosed by the assessee, accepted by the AO, and the penalty proceedings were dropped on merit initially. The mere crediting of the amount later did not warrant penalty imposition, as the income was voluntarily surrendered and acknowledged. The Explanation did not provide grounds to revive penalty proceedings after being dropped. The CIT(A)'s decision to cancel the penalty was upheld, dismissing both the appeal and cross-objection.

In conclusion, the judgment delves into the application of Expln. 2 to s. 271(1)(c) in penalty proceedings, emphasizing the voluntary disclosure of unaccounted income and the lack of grounds for penalty imposition. The decision highlights the importance of assessing the specific circumstances and evidence before levying penalties under tax laws.