2004 (12) TMI 325 - AT - Income Tax

Summary

Issues Involved:
1. Preliminary legal ground regarding the AO's satisfaction on concealment of income.
2. Justification of the penalty cancellation by CIT(A).
3. Bona fide belief and revised return submission by the assessee.
4. Burden of proof under Explanation to Section 271(1)(c).
5. Consistency in penalty imposition across assessment years.

Issue-wise Detailed Analysis:

1. Preliminary Legal Ground:
The assessee's counsel argued that the AO did not record his satisfaction regarding the concealment of income in the assessment order, making the penalty order unsustainable. The counsel relied on several case laws to support this contention. However, the Departmental Representative countered that the AO had communicated his satisfaction, citing the case of K.P. Madhusudanan vs. CIT. The Tribunal found that the AO had indeed applied his mind and reached a definite conclusion for initiating penalty proceedings, thus rejecting the preliminary legal ground raised by the assessee.

2. Justification of Penalty Cancellation:
The Department argued that the assessee wrongly claimed a deduction under Section 80P(2)(a)(iii), which was not allowable, and thus the penalty should not have been canceled. The assessee's counsel countered that the claim was based on the CIT(A)'s order for the assessment year 1992-93, which had held the entire income exempt. The Tribunal noted that the issue of exemption under Section 80P(2)(a)(iii) was a disputed one and that the assessee had a bona fide belief in the claim based on the CIT(A)'s order. The Tribunal upheld the CIT(A)'s decision to cancel the penalty, stating that the assessee's claim was made in good faith and was not a deliberate attempt to conceal income.

3. Bona Fide Belief and Revised Return Submission:
The assessee argued that the original return was filed under a bona fide belief that the entire income was exempt, based on the CIT(A)'s order. Upon realizing the mistake during the assessment proceedings, the assessee promptly filed a revised return. The Tribunal found that the assessee had disclosed all material facts and that the revised return was filed in good faith. The Tribunal concluded that the assessee's claim was not false or made with a deliberate intention to evade tax.

4. Burden of Proof under Explanation to Section 271(1)(c):
The assessee argued that the burden of proof shifted to the Department under the Explanation to Section 271(1)(c) and that the Department failed to prove the falsity of the explanation offered by the assessee. The Tribunal agreed with the assessee, noting that the Department had not provided any evidence to prove that the assessee's explanation was false. The Tribunal cited several case laws to support this view, emphasizing that a debatable claim could not be treated as false or mala fide.

5. Consistency in Penalty Imposition Across Assessment Years:
The Tribunal noted that no penalty was imposed by the Revenue in other years, even though the exemption was claimed in four years. The Tribunal emphasized the importance of consistency and found that the Department was not justified in imposing a penalty for the assessment year 1995-96 when no penalties were imposed in other years for similar claims.

Conclusion:
The Tribunal upheld the CIT(A)'s order canceling the penalty of Rs. 40 lakhs imposed under Section 271(1)(c) of the IT Act, finding that the assessee's claim was made in good faith based on a bona fide belief and that the Department failed to prove any deliberate concealment of income. The appeal filed by the Revenue was dismissed.