1992 (1) TMI 160 - AT - Income Tax

Summary

Issues Involved:
1. Justification of penalty under Section 271(1)(c) of the Income-tax Act, 1961 for concealment of income.
2. Validity of the estimation of income by the Income-tax Officer (ITO).
3. Consideration of the explanation provided by the assessee regarding the discrepancies in the income declared.

Issue-wise Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The primary issue in this case was whether the penalty of Rs. 10,214 levied under Section 271(1)(c) of the Income-tax Act, 1961, for concealment of income or furnishing inaccurate particulars thereof, was justified. Initially, the assessee filed a return declaring nil income, which was later revised to Rs. 40,400 and subsequently to Rs. 18,400. The ITO estimated the income at Rs. 42,000 due to the absence of books of accounts, leading to an addition of Rs. 23,600. The ITO imposed a penalty of Rs. 10,214, stating, "The assessee has furnished inaccurate particulars of income to the extent of Rs. 23,600 and the penalty provisions under section 271(1)(c) are attracted in this case."

The assessee argued that the income was returned on an estimate basis and was subsequently revised by applying various net profit rates of the last five years on the sales. The AAC upheld the penalty, stating that the assessee had furnished inaccurate particulars of income and that penalty under Section 271(1)(c) was attracted even if the income was determined by estimate.

2. Validity of the Estimation of Income by the Income-tax Officer (ITO):
The ITO estimated the income at Rs. 42,000 based on the purchase and sale vouchers produced by the assessee, which did not allow for verification of the declared income. The assessee's turnover was shown at Rs. 25,05,970, indicating that maximum business was conducted during the year under consideration. The penalty proceedings were initiated with reference to the concealment of Rs. 23,600. The AAC upheld the ITO's estimation, stating, "The appellant had been maintaining books of accounts for the period and these were not produced before the ITO on the plea that they were with one of the partners who was not co-operating."

3. Consideration of the Explanation Provided by the Assessee:
The assessee contended that there was no deliberate concealment of income or particulars thereof. The explanation provided by the assessee was that the income was returned on an estimate basis due to disputes among the partners, which led to the non-production of books of accounts. The AAC and the ITO did not find this explanation satisfactory, leading to the imposition and confirmation of the penalty.

Separate Judgments Delivered by the Judges:

Judgment by Judicial Member:
The Judicial Member upheld the penalty, stating that the assessee was guilty of fraud or gross or willful negligence. The judgment emphasized that the assessee was playing a "hide and seek game" with the department by reflecting different incomes on various occasions. The burden was on the assessee to prove that the figure returned was correct, genuine, and bona fide, which the assessee failed to do.

Judgment by Accountant Member:
The Accountant Member disagreed with the imposition of the penalty, stating that the explanation offered by the assessee was not found to be false and that the penalty was unjust and uncalled for. The judgment highlighted that the assessee had provided an affidavit and other relevant material to substantiate the explanation, which was not disputed. The Accountant Member concluded that the penalty should be canceled.

Third Member's Opinion:
The Third Member, agreeing with the Accountant Member, held that the levy of penalty was unjust and uncalled for. The explanation offered by the assessee was not found to be false, and the difference between the income returned and the income estimated could not be regarded as concealed income. The Third Member emphasized that the explanation must be found to be false before the penal provisions of Section 271(1)(c) are applicable.

Conclusion:
The appeal was ultimately decided in favor of the assessee, with the majority opinion concluding that the penalty of Rs. 10,214 levied under Section 271(1)(c) was not justified. The explanation provided by the assessee was not found to be false, and the estimation of income by the ITO did not conclusively prove concealment of income. The appeal was allowed, and the penalty was canceled.