1991 (7) TMI 148 - AT - Income Tax

Issues Involved:
1. Discrepancies in the books of account.
2. Levy of penalty under Section 271(1)(c) for alleged concealment of income.
3. Validity of the explanation provided by the assessee for discrepancies.
4. Applicability of judicial precedents and legal principles regarding penalty for concealment.

Detailed Analysis:

1. Discrepancies in the Books of Account:
The Income Tax Officer (ITO) identified discrepancies in the assessee's books of account during the assessment proceedings for the assessment year (AY) 1982-83, noting that the sale figures reported by the assessee did not match the credits in the bank passbook. Similar discrepancies were found for AYs 1980-81 and 1981-82. The ITO issued notices under Section 148 for these years, and the returns filed in response were accepted. For AYs 1982-83 and 1983-84, assessments were completed on an agreed basis.

2. Levy of Penalty under Section 271(1)(c) for Alleged Concealment of Income:
The ITO considered certain amounts as concealed income and issued show-cause notices under Section 274 read with Section 271(1)(c). The explanation provided by the assessee was rejected, and penalties were levied for conscious concealment of income. The penalties were as follows: Rs. 7,500 for AY 1980-81, Rs. 1,00,000 for AY 1981-82, Rs. 1,00,000 for AY 1982-83, and Rs. 40,000 for AY 1983-84.

3. Validity of the Explanation Provided by the Assessee for Discrepancies:
The Commissioner of Income Tax (Appeals) [CIT(A)] examined the assessment and penalty orders and the explanation provided by the assessee. The CIT(A) found that the discrepancies were due to the accountant's inability to correctly close and adjust the books of account, possibly due to illness or old age. The CIT(A) noted that the partners were either abroad or not actively involved in the business, and accepted the explanation that the partners were unaware of the discrepancies. The CIT(A) also referred to judicial precedents, including the case of Thakasi Satyanarayana vs. State of AP, to support the finding that the ITO had not proven conscious concealment by the assessee.

4. Applicability of Judicial Precedents and Legal Principles Regarding Penalty for Concealment:
The Revenue argued that the CIT(A) erred in deleting the penalties, contending that the ITO had proven concealment and that the assessee had admitted to higher income in revised returns. The Revenue cited decisions from various High Courts, including the Kerala High Court in CIT vs. K. Mahim and the Calcutta High Court in Kumar Jagadish Chandra Sinha vs. CIT, to argue that revised returns do not exonerate an assessee from penalty.

The assessee's counsel argued that the findings in assessment proceedings are not conclusive for penalty purposes and that the discrepancies were due to bona fide mistakes by the accountant. The counsel cited decisions from various courts, including the Andhra Pradesh High Court in CIT vs. B. China Krishnamurthy, to argue that the burden of proving conscious concealment lies with the Revenue.

The Tribunal noted that penalty proceedings are separate from assessment proceedings and that mere findings in assessment orders are insufficient for levying penalties. The Tribunal referred to several judicial decisions, including CIT vs. Kadri Mills Coimbatore Ltd., CIT vs. Goswami Smt. Chandralata Bahuji, and CIT vs. V.L. Balakrishanan, to support the view that conscious concealment must be proven for penalty under Section 271(1)(c).

The Tribunal also referred to the Supreme Court's decision in Sir Shadilal Sugar & General Mills Ltd. vs. CIT, which held that mere agreement to additions does not imply concealed income. The Tribunal concluded that the assessee's case involved bona fide mistakes and that the CIT(A) was justified in canceling the penalty orders.

Conclusion:
The Tribunal upheld the CIT(A)'s orders, finding that the ITO's penalty orders were based solely on assessment findings and lacked evidence of conscious concealment. The Tribunal dismissed the Revenue's appeals, affirming that the penalties under Section 271(1)(c) were not justified.

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