2005 (12) TMI 224 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of penalty imposed under section 271(1)(c) of the Income-tax Act, 1961.
2. Validity of surrender of income by the assessee and whether it was voluntary.
3. Examination of evidence and statements from third parties regarding the credits in the books of the assessee.
4. Determination of whether the penalty under section 271(1)(c) was justified.

Detailed Analysis:

1. Deletion of Penalty Imposed Under Section 271(1)(c):
The Revenue challenged the deletion of penalty amounting to Rs. 4,03,600 imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income-tax Act, 1961. The AO had imposed this penalty based on the assessee's failure to furnish accurate particulars of income and the concealment of taxable income. The CIT(A) had cancelled the penalty, leading to the Revenue's appeal.

2. Validity of Surrender of Income by the Assessee:
The assessee, engaged in the business of publication and sale of books, filed a return declaring an income of Rs. 52,110. During the assessment, discrepancies were found in the gross profit (g.p.) rate and the details of purchases, sales, and production. The AO found that the g.p. rate for eleven months was approximately 30%, whereas the annual rate was only 14.05%. The assessee could not provide satisfactory explanations and ultimately offered an additional amount of Rs. 3 lakhs for taxation, citing gross negligence by his accountant. The AO added this amount to the income of the assessee.

Further, the AO found discrepancies in the debit entries related to M/s. S.U. Book Binding House and M/s. K.R. Book Binding House, and a credit entry in the name of M/s. G.K. Fine Art Press. Upon investigation, it was revealed that these entries were fabricated, and the parties involved confirmed that the entries were incorrect. The assessee then surrendered an additional amount of Rs. 4,50,679, stating it was to avoid litigation and confrontation.

3. Examination of Evidence and Statements from Third Parties:
The AO summoned the concerned parties, including Shri Salauddin, proprietor of M/s. K.R. Book Binding House, and his wife, proprietor of M/s. S.U. Book Binding House. After thorough investigation and recording of statements, it was found that the entries were bogus. The AO provided the assessee with an opportunity to cross-examine the witnesses, which the assessee waived, leading to the surrender of the disputed amount.

4. Determination of Whether the Penalty Under Section 271(1)(c) Was Justified:
The AO initiated penalty proceedings, concluding that the surrender was not voluntary but made to avoid furnishing explanations for the discrepancies. The CIT(A) cancelled the penalty, suggesting there might have been an understanding between the AO and the assessee regarding non-initiation of penalty proceedings.

Upon appeal, the Tribunal examined the entire material on record. It was found that the surrender of Rs. 3 lakhs was primarily based on the assessee's inability to maintain proper details due to an inexperienced accountant. The Tribunal agreed with the CIT(A) in cancelling the penalty for this amount, as no specific concealment was found by the AO.

For the amount of Rs. 4,50,679, the Tribunal noted that the AO conducted a detailed investigation, providing full opportunity to the assessee to substantiate the entries. The statements from the concerned parties and the evidence collected proved the entries were fabricated. The Tribunal concluded that the assessee deliberately furnished incorrect particulars and that the surrender was not voluntary but made under pressure from the AO's effective measures. Thus, the penalty for this amount was justified.

Separate Judgment by the Accountant Member:
The Accountant Member disagreed with the Judicial Member, stating that the mistake in the ledger was due to the accountant's error and not intentional. The expenses were supported by bills and confirmations from the parties. The Assessing Officer had accepted the expenses while estimating the profit, and the penalty on this count should be deleted. The Accountant Member emphasized that the assessee's surrender was to avoid business loss and maintain relations with the parties, suggesting no concealment of income.

Third Member's Order:
The Third Member, Vimal Gandhi, examined the case and concluded that no understanding between the AO and the assessee regarding non-initiation of penalty was established. The Third Member upheld the penalty for the amounts related to M/s. S.U. Book Binding House and M/s. K.R. Book Binding House, as the assessee failed to discharge the burden under Explanation 1 to section 271(1)(c). However, the penalty for the amount related to M/s. G.K. Fine Art Press was not justified due to the lack of conclusive evidence against the assessee.

Conclusion:
The Tribunal, by majority opinion, restored the penalty imposed by the AO for the amounts related to M/s. S.U. Book Binding House and M/s. K.R. Book Binding House, while cancelling the penalty for the amount related to M/s. G.K. Fine Art Press. The Revenue's appeal was partly allowed.