2006 (9) TMI 223 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of penalty levied u/s 271(1)(c) of the IT Act, 1961.
2. Applicability of the judgment in the case of CIT vs. Prithipal Singh & Co. post amendment to s. 271(1)(c) by the Direct-tax Laws (Amendment) Act of 1975.

Summary:

1. Deletion of Penalty Levied u/s 271(1)(c) of the IT Act, 1961:

The Revenue appealed against the CIT(A)'s order deleting a penalty of Rs. 11,05,712 imposed u/s 271(1)(c) for the assessment year 2001-02. The AO had imposed the penalty on the grounds that the assessee had concealed income by not deducting TDS on web hosting charges and software payments made in foreign currency, and by claiming deferred revenue expenditure. The CIT(A) deleted the penalty, observing no concealment of income and relying on the Supreme Court's decision in Prithipal Singh & Co., which held that no penalty could be levied where there is no tax determined to be payable.

The Tribunal noted that the disallowance of Rs. 9,25,568 was due to non-deduction of TDS u/s 195, and the addition of Rs. 18,70,164 was based on judicial pronouncements regarding deferred revenue expenditure. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings and that the burden of proof lies on the assessee to offer a bona fide explanation. The Tribunal found that the assessee had furnished all particulars relating to the impugned expenditure and that there was no conscious or intentional act to conceal income. The Tribunal also noted that the AO had not recorded satisfaction that the assessee had concealed or furnished inaccurate particulars of income, which is a mandatory requirement for imposing penalty u/s 271(1)(c).

2. Applicability of the Judgment in the Case of CIT vs. Prithipal Singh & Co.:

The Tribunal agreed with the Revenue's contention that the judgment in Prithipal Singh & Co. was not applicable to the assessment year 2001-02, as the amendment to s. 271(1)(c) by the Direct-tax Laws (Amendment) Act of 1975 was in effect. The Tribunal noted that the expression "the amount of tax sought to be evaded" refers to the tax that would have been chargeable on the concealed income had such concealed income been the total income, and not the actual tax payable. The Tribunal held that the liability for penalty arises if any person has concealed the particulars of his income or furnished inaccurate particulars of such income, irrespective of whether the total income assessed is positive or negative.

The Tribunal concluded that the decision in Prithipal Singh & Co. was not applicable to cases arising after 1st April, 1976, when Explanation 4 to s. 271(1) took effect. The Tribunal also held that the expression "in addition to any tax payable" does not mean that there must be a tax payable before a penalty can be levied, but rather that the penalty amount will be over and above any tax that may be payable.

In the result, the Tribunal allowed the Revenue's appeal in part, holding that the CIT(A) was not justified in deleting the penalty imposed on the plea of assessed loss, but also held that on merits, the penalty was not imposable u/s 271(1)(c).