1989 (10) TMI 96 - AT - Income Tax

Summary

Issues Involved:

1. Imposition of penalty under section 271(1)(c) for alleged concealment of income.
2. Validity of assessment order and reassessment proceedings.
3. Justification of the CIT(A)'s decision to cancel the penalty.
4. Applicability of legal precedents and principles to the facts of the case.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) for Alleged Concealment of Income:

The primary issue revolves around the imposition of a penalty of Rs. 32,208 by the ITO under section 271(1)(c) for alleged concealment of income. The ITO's findings indicated that the assessee showed cash receipts of Rs. 24,402 from M/s. Biswas Bros. on 15-3-1977, which were disclosed as cash sales. However, upon verification, the ITO obtained information from the ITO, Agartala, that M/s. Biswas Bros. denied making such a cash payment. Despite repeated opportunities, the assessee failed to produce evidence supporting the cash sales claim. The ITO inferred that the assessee attempted to convert a credit sale into a cash sale to introduce secret funds into the books, thus attracting the provisions of section 271(1)(c). The ITO concluded that the assessee furnished inaccurate particulars, leading to the imposition of the penalty.

2. Validity of Assessment Order and Reassessment Proceedings:

The reassessment proceedings were initiated under section 147(a) based on information received from the ITO, Agartala. The initial assessment was completed with a total income of Rs. 4,59,780, which was later reassessed to Rs. 4,83,670. The assessee contended that the proceedings were improper and unlawful, arguing that the cash sale was treated as concealed income without properly appreciating the account book entries. The assessee maintained that the sale to M/s. Biswas Bros. was duly accounted for and that the penal proceedings were unjustified. However, the ITO found that the entries in the books were incorrect and false, leading to the reassessment and penalty imposition.

3. Justification of the CIT(A)'s Decision to Cancel the Penalty:

The CIT(A) cancelled the penalty, noting that the goods worth Rs. 24,250 were despatched by M/s. Biswas Bros. as both consignor and consignee, which supported the assessee's claim of cash sales. The CIT(A) relied on the decisions of the Hon'ble Bombay High Court in CIT v. Balraj Sahani and the Hon'ble Gauhati High Court in CIT v. Gajanand Shyamlal, concluding that the penalty was unjustified. However, upon appeal, it was argued that the CIT(A) wrongly cancelled the penalty without considering the materials and legal principles involved. The revenue contended that the facts and circumstances of the cited cases were different from the present case.

4. Applicability of Legal Precedents and Principles to the Facts of the Case:

The assessee's counsel argued that agreeing to make an addition does not tantamount to concealment and does not attract penal provisions. Reliance was placed on various High Court decisions, including Gumani Ram Siri Ram v. CIT and CIT v. Narang & Co., which held that penalty cannot be imposed merely because cash deposits were surrendered unless there was material evidence of concealment. However, the facts of the present case were distinguishable. The assessee's surrender of the amount was not voluntary or bona fide but was made after being cornered by the ITO. The ITO had repeatedly asked the assessee to produce evidence, which the assessee failed to do. The Tribunal found that the assessee did not surrender the amount on any understanding with the ITO and that the surrender was made when the assessee was in a tight position.

Conclusion:

The Tribunal concluded that the CIT(A) erred in applying the ratio of the decision in Gajanand Shyamlal's case, as the facts of the present case were different. The Tribunal emphasized that the penalty provisions do not depend on the consent of the assessee and that the ITO had no jurisdiction to enter into a contract with the assessee regarding penalty imposition. The Tribunal found that the assessee failed to substantiate its explanation and that the penalty order was properly passed by the ITO. Consequently, the order of the CIT(A) was reversed, and the ITO's penalty order was restored. The appeal by the revenue was allowed.