1987 (4) TMI 112 - AT - Income Tax

Summary

Issues Involved: Penalty under section 271(1)(c) of the Income-tax Act, concealment of income, disallowance of expenses, cash credits, closing stock, bad debts, and the effect of carry forward losses on penalty.

Detailed Analysis:

1. Penalty under section 271(1)(c) of the Income-tax Act:
The assessee-company appealed against the penalty imposed under section 271(1)(c) for the assessment year 1974-75. The penalty was upheld by the Commissioner of Income-tax (Appeals) and imposed by the Income-tax Officer for the alleged concealment of income.

2. Concealment of Income:
The Income-tax Officer identified a concealed income of Rs. 1,84,711, which included disallowances related to furnace oil expenses, previous year's expenses, fixed deposits and interest, closing stock, and bad debts. The penalty imposed was Rs. 1,06,670.

3. Disallowance of Expenses on Furnace Oil:
The Tribunal upheld the disallowance of Rs. 20,000 for Basti Unit and Rs. 24,436 for Walterganj Unit due to excessive consumption of furnace oil, which was not satisfactorily explained by the assessee. The Tribunal held that the assessee could not substantiate the heavy consumption or the entry made on the last day of the year, thus representing concealed income.

4. Previous Year's Expenses:
An addition of Rs. 10,897 was claimed by the assessee as previous year's expenses but was disallowed. The Tribunal found the explanation of the assessee regarding Rs. 15,699 to be bona fide but not for the balance. The Tribunal concluded that the addition of Rs. 10,897 should not be considered as concealed income for penalty purposes.

5. Cash Credits:
The Tribunal upheld the addition of Rs. 17,000 (plus interest) due to the absence of confirmation letters or affidavits for certain cash credits. The Tribunal held that the assessee failed to substantiate the genuineness of these credits, thus representing concealed income.

6. Closing Stock:
An addition of Rs. 13,260 for closing stock of lime-stones was agreed upon by the assessee provided it was taken as the opening stock in the next year. The Tribunal held that this addition did not represent concealed income as there was no intention to evade tax.

7. Bad Debts:
The Tribunal upheld the addition of Rs. 30,302 for bad debts, as the assessee failed to provide evidence to substantiate the claim. The Tribunal accepted the explanation for Rs. 58,126 as a bona fide mistake but not for the balance, thus representing concealed income.

8. Effect of Carry Forward Losses on Penalty:
The assessee argued that no penalty should be imposed as the ultimate income after adjusting carry forward losses was negative. The Tribunal rejected this argument, stating that penalty under section 271(1)(c) could be imposed even if the total income assessed was a figure of loss. The Tribunal relied on Explanation 4 to section 271(1)(c) and relevant case laws, holding that penalty is applicable where there is a finding of concealment, irrespective of the ultimate income being a loss.

Conclusion:
The Tribunal directed the Income-tax Officer to work out the quantum of penalty based on the concealed income found, which included disallowance out of expenses on furnace oil (Rs. 44,436), cash credits (Rs. 17,000 plus interest), and bad debts (Rs. 30,302), totaling Rs. 81,738. The appeal was allowed in part.