1991 (4) TMI 181 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of loans as income from undisclosed sources.
2. Levy of penalties u/s 271(1)(c) for concealment of income.
3. Reasonable opportunity of being heard before the levy of penalty.
4. Applicability of Explanation 1 to section 271(1)(c).
5. Satisfaction of the Assessing Officer for the imposition of penalty.

Summary:

1. Treatment of Loans as Income from Undisclosed Sources:
The Assessing Officer (AO) treated part of the loans as genuine and the balance as income from undisclosed sources due to the financial position of the creditors and other circumstances. The AAC, Ambala, enhanced the income by treating the entire amount of loans as income from undisclosed sources. The Tribunal confirmed this, stating that the genuineness of the credits and advancement of money by the creditors was not proved.

2. Levy of Penalties u/s 271(1)(c) for Concealment of Income:
The AO imposed penalties u/s 271(1)(c) for concealment of income on all four assessees. The first appellate authority confirmed the penalties, primarily because the additions were upheld by the Tribunal.

3. Reasonable Opportunity of Being Heard Before the Levy of Penalty:
The assessees contended that they were not given a reasonable opportunity of being heard before the levy of penalty, as their request to keep the proceedings in abeyance until the disposal of the appeal by the Tribunal was not accepted by the AO.

4. Applicability of Explanation 1 to Section 271(1)(c):
The Tribunal analyzed whether Explanation 1 to section 271(1)(c) was applicable. It concluded that there was no material on record to prove that the explanation furnished by the assessees was false. The assessees had identified the creditors and established their financial capacity to advance the money. The Tribunal held that the explanation furnished by the assessees was bona fide, and the material facts were disclosed, making Explanation 1(B) inapplicable.

5. Satisfaction of the Assessing Officer for the Imposition of Penalty:
The Tribunal noted that the AO initiated penalty proceedings during the assessment, treating part of the advances as genuine and part as unexplained. The AAC enhanced the income, treating the entire advances as income. However, there was no satisfaction of the AO regarding the enhanced income. The Tribunal, following the decision of the Allahabad High Court in CIT v. Shadiram Balmukand, held that the AO was not competent to levy penalties for the enhanced income discovered by the AAC.

Conclusion:
The Tribunal allowed the appeals, canceling the penalties imposed u/s 271(1)(c) for all four assessees, as the explanation provided was bona fide and there was no material evidence of concealment of income.