1998 (8) TMI 126 - AT - Income Tax

Summary

Issues Involved:
1. Cancellation of penalty under Section 271(1)(c) of the Income Tax Act.
2. Validity of the revised return filed by the assessee.
3. Detection of bogus purchases by the Assessing Officer (AO).
4. Voluntariness of the income disclosure by the assessee.
5. Legal precedents and their applicability.

Issue-wise Detailed Analysis:

1. Cancellation of Penalty under Section 271(1)(c):
The primary issue raised by the Revenue is the cancellation of the penalty amounting to Rs. 1,81,650 under Section 271(1)(c) by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Revenue contends that the assessee admitted to bogus purchases amounting to Rs. 3,46,000 during the assessment proceedings, which justifies the imposition of the penalty.

2. Validity of the Revised Return:
The Revenue argues that the revised return filed on January 10, 1990, cannot be considered valid under Section 139(5) of the Income Tax Act, 1961. This section allows for a revised return if any omission or wrong statement is discovered in the original return, but it does not permit the disclosure of concealed income. The Revenue asserts that the revised return was filed after the AO's detection of bogus purchases, thus invalidating it as a voluntary disclosure.

3. Detection of Bogus Purchases by the AO:
The AO's investigation on January 10, 1990, revealed certain unverifiable expenses, leading to the suspicion of bogus purchases. Statements from various parties, including Shri Ashok Kumar and Shri Pratap Sachdeva, confirmed that the firms in question either did not exist or had no business dealings with the assessee. This evidence led the AO to conclude that the purchases were indeed bogus, prompting further action and communication with the assessee.

4. Voluntariness of the Income Disclosure by the Assessee:
The assessee's counsel argues that the disclosure of Rs. 3,46,000 was voluntary and made in good faith through a revised return on January 10, 1990. The AO's letter dated January 17, 1990, acknowledges the voluntary nature of this disclosure. The assessee contends that the revised return was filed before any conclusive detection of bogus purchases by the AO, thus negating the grounds for penalty under Section 271(1)(c).

5. Legal Precedents and Their Applicability:
Both parties cited various judgments to support their arguments. The Revenue relied on cases such as Sunanda Ram Deka vs. CIT and K.M. Bhatia (Quarry) vs. CIT, which uphold the imposition of penalties when additional income is disclosed after detection by the AO. Conversely, the assessee cited judgments like Bombay Cloth Syndicate vs. CIT and CIT vs. Sri Rajaram Cloth Stores, which support the view that voluntary disclosure before detection should not attract penalties.

Tribunal's Findings:
The Tribunal carefully considered the submissions and evidence presented. It concluded that the AO had not conclusively detected the bogus purchases on January 10, 1990, but merely suspected them and initiated further investigations. The revised return filed by the assessee on the same day was seen as a proactive step to disclose additional income before any formal detection by the AO.

The Tribunal emphasized that the AO's subsequent letter dated January 17, 1990, treated the disclosure as voluntary. Additionally, the CIT(A)'s findings in the quantum appeal confirmed that the revised return was considered and no further additions were made beyond the voluntarily disclosed amount.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to cancel the penalty under Section 271(1)(c), concluding that the disclosure of Rs. 3,46,000 was voluntary and made before any formal detection by the AO. The Revenue's appeal was dismissed, affirming that no penalty was justifiable in this case.