1992 (5) TMI 53 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the IT Act, 1961.
2. Adequate opportunity for cross-examination.
3. Bona fide belief regarding the subsistence of the agreement.
4. Validity of the agreement and the corresponding liability.

Issue-Wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c) of the IT Act, 1961:

The appeal was directed against the CIT(A)'s order confirming the penalty under Section 271(1)(c) for the assessment year 1981-82. The assessee contended that the CIT(A) failed to appreciate the grounds and contentions urged and did not properly consider the evidence, particularly the agreement dated 10th July 1971 with M/s Aluminium Industries Ltd. (ALIND). The ITO disallowed part of the claimed amount for technical and quality control fees, leading to the initiation of penalty proceedings under Section 271(1)(c). The ITO justified the penalty on the grounds that the agreement ceased in 1977, and there were no further transactions, indicating concealment of income. The CIT(A) upheld the penalty, observing that the agreement was only for five years and the continued claim was deliberate suppression of income.

2. Adequate Opportunity for Cross-Examination:

The assessee argued that the CIT(A) did not appreciate that no adequate opportunity was granted to cross-examine the officials of ALIND, whose statements were relied upon by the Revenue. The Tribunal noted that the Department should have provided an opportunity to the assessee to confront ALIND's interpretation of the agreement before finalizing the penalty. The non-affording of this opportunity was deemed a violation of natural justice.

3. Bona Fide Belief Regarding the Subsistence of the Agreement:

The assessee contended that it believed the agreement was still in force, as there was no written termination by either party. The Department's inconsistent stand, accepting the quality control fee but not the technical services fee, was highlighted. The Tribunal observed that the agreement's Clause 14 allowed termination only after five years with six months' notice, supporting the assessee's belief that the agreement continued. The Tribunal concluded that the assessee's interpretation was a possible and bona fide one, negating the basis for penalty.

4. Validity of the Agreement and the Corresponding Liability:

The Tribunal examined the agreement and noted that Clause 14 required six months' notice for termination after the initial five-year period. The Tribunal found that the agreement continued until the notice in December 1985, making the assessee's claims for technical and quality control fees valid. The Tribunal emphasized that the difference in interpretation did not constitute deliberate concealment or furnishing of inaccurate particulars. The Tribunal also noted that the Department did not dispute the debited amount but only the corresponding account in ALIND's records, further supporting the assessee's bona fide belief.

Conclusion:

The Tribunal concluded that the penalty under Section 271(1)(c) was not justified due to the bona fide belief in the agreement's subsistence, the violation of natural justice by not allowing cross-examination, and the genuine interpretation of the agreement. The appeal was allowed, and the penalty order was canceled.