2005 (8) TMI 307 - AT - Income Tax

Penalty levied u/s 271(1)(c) - For Concealment Of Income - HELD THAT - The very fact that the income returned in response to notice u/s 148 was assessed on protective basis shows that on the date of filing revised return, the assessing officer has not detected concealment of income of assessee. The returns of income were filed by the assessee voluntarily and co-operated with the Assessing Officer in all respects in completion of assessment. Section 271(1)(c) of the Act gives discretion to the assessing officer to exonerate an assessee from levy of penalty, even in a case where the assessee concealed income or furnished incorrect particulars of income. No doubt mere filing of revised return will not automatically protect an assessee from levy of penalty but, in a given case, where an assessee comes forward with clean breast though after detection, and files returns of income offering additional income and expresses remorse for his past conduct unhesitantly, the assessing officer may have to exercise the, discretion in favour of such assessee as otherwise the expression 'may' in section 271(1)(c) remains a dead letter if it is understood that in a case of admitted concealment penalty is automatic. At least in some exceptional cases, discretion vested in the officer should be used to drop proceedings. In our considered view, the case before us is a more befitting case to exercise such discretion, particularly in view of the fact that at the time of filing revised returns, the Assessing Officer has not made up his mind to add the income in assessee's hand but assessee voluntarily offered it to tax and thus it cannot be said to be a case of declaring the income after detection by department. However, considering the peculiar circumstances of the case we deem it a fit case for cancelling the penalty and we direct the Assessing Officer accordingly. In the result, the appeals filed by the assessee are allowed.

Summary

Issues Involved:
1. Legitimacy of the penalty levied under section 271(1)(c) of the Income Tax Act.
2. Validity of the revised returns filed by the assessee.
3. Discretionary power of the Assessing Officer in levying penalties.

Detailed Analysis:

1. Legitimacy of the Penalty Levied under Section 271(1)(c) of the Income Tax Act:
The appeals were filed by the assessee for the assessment years 1990-91 and 1991-92 against the penalty levied by the Assessing Officer under section 271(1)(c) of the Income Tax Act, which was confirmed by the CIT (Appeals). The penalty was based on the discovery of a benami Savings Bank account operated by the assessee, which led to the reopening of assessments and subsequent declaration of peak unexplained credits by the assessee. The Assessing Officer initiated penalty proceedings, asserting that the revised returns were filed only after detailed investigation and thus could not be considered voluntary. The CIT (Appeals) upheld this view, stating that the assessee had wilfully furnished inaccurate particulars of income and failed to prove the bona fides of his explanation.

2. Validity of the Revised Returns Filed by the Assessee:
The assessee declared additional income in revised returns filed in response to a notice under section 148 of the Act, admitting the transactions in the benami bank account. The assessee contended that the peak credits were offered to purchase peace with the Department and that the returns were filed voluntarily before the Assessing Officer could decide on the taxability of the credits. The assessee's counsel argued that the penalty should not be levied merely because the addition was agreed to and cited several judicial precedents to support this contention.

3. Discretionary Power of the Assessing Officer in Levying Penalties:
The Tribunal examined whether the penalty under section 271(1)(c) is automatic even if the assessee corrects his mistake. It was noted that the Assessing Officer has discretionary power under section 271(1)(c) to levy or not levy a penalty. The Tribunal observed that the assessee had voluntarily filed revised returns and cooperated with the Assessing Officer. The Tribunal emphasized that the Assessing Officer should exercise discretion judicially and consider the circumstances in which the revised returns were filed. The Tribunal referred to the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa, which held that penalty should not be imposed merely because it is lawful to do so, and the discretion should be exercised judicially.

Conclusion:
The Tribunal concluded that the case was fit for cancelling the penalty, particularly since the revised returns were filed voluntarily and the Assessing Officer had not made up his mind to add the income in the assessee's hands at the time of filing. The Tribunal directed the Assessing Officer to cancel the penalty, allowing the appeals filed by the assessee.