1992 (4) TMI 86 - AT - Income Tax

Summary

Issues:
Assessee's penalty appeal against the order of the Dy. CIT(A) confirming the penalty imposed by the ITO under s. 271(1)(c) for asst. yr. 1983-84.

Analysis:
1. The assessee, a registered firm in retail cloth business, filed an income tax return for asst. yr. 1983-84 declaring an income of Rs. 9,010. A cash credit of Rs. 7,000 was found in the firm's day book, not ledgerised, and in pencil. The ITO added this amount as 'income from undisclosed sources' under s. 68. Penalty proceedings under s. 271(1)(c) were initiated, and a penalty of Rs. 1,297 was imposed by the ITO.

2. The Dy. CIT(A) dismissed the appeal, leading to the second appeal before the Tribunal. The Tribunal heard arguments from both sides and noted that the cash credit was shown in the balance sheet filed with the income tax return. The Tribunal found discrepancies in the ITO's reasoning and lack of discussion on the genuineness of the cash credit. The Tribunal emphasized the importance of establishing the identity of the creditor, creditworthiness, and truth of the transaction. Smt. B. Sita Mahalaxmi's explanation about the source of the cash credit was considered. The Tribunal highlighted the lack of conclusive evidence from the Department to prove the cash credit as concealed income.

3. The Tribunal observed that the Department failed to produce the cash flow statement filed under s. 132(11) and questioned the authenticity of the statement. The Tribunal noted that the Department's arguments lacked substantial evidence to prove the cash credit as concealed income. The Tribunal cited the Hon'ble Supreme Court's decision emphasizing the need for the Revenue to prove the mens rea of a quasi-criminal offense. The Tribunal concluded that the Department did not establish the cash credit as concealed income and that the explanation provided by the assessee was not proven false.

4. The Tribunal considered case laws cited by the assessee to support the argument that no adverse inference can be drawn due to the lack of appeal in quantum proceedings, especially for a small tax amount. The Tribunal accepted this argument and held that the penalty imposed was unsustainable. Consequently, the Tribunal allowed the appeal and canceled the penalty.

In conclusion, the Tribunal found that the penalty imposed under s. 271(1)(c) was not justified due to insufficient evidence provided by the Department to establish the cash credit as concealed income. The Tribunal emphasized the importance of thorough examination and conclusive proof in penalty proceedings, ultimately ruling in favor of the assessee and canceling the penalty.