2000 (6) TMI 136 - AT - Income Tax

Summary

Issues:
- Appeal against cancellation of penalties under section 271(1)(c) for assessment years 1986-87 and 1989-90 by CIT (Appeals).

Analysis:
1. Assessment Year 1986-87:
- The assessee filed a return declaring income, including share income from a firm. Subsequently, incriminating documents revealed unaccounted income, leading to re-assessment and penalty proceedings under section 271(1)(c).
- The Assessing Officer initiated penalty, contending that the penalty is imposable under section 271(1)(c) based on a decision of the Madhya Pradesh High Court.
- The CIT (Appeals) favored the assessee, citing decisions holding that partners with sole income from the firm cannot be penalized along with the firm.
- The CIT (Appeals) emphasized that penalty on partners can only be imposed if they are guilty of contumacious conduct, independent of assessment proceedings.
- The Tribunal upheld the CIT (Appeals) decision, considering the lack of evidence attributing the modus operandi to the appellant and the firm's penalty proceedings still pending.

2. Legal Position on Imposing Penalties:
- The Revenue argued that penalties can be imposed on both the firm and its partners, referencing decisions from various High Courts.
- The Tribunal discussed case laws from different High Courts, emphasizing the need for reasonable cause for imposing penalties and the partner's involvement in the firm's affairs.
- The Tribunal highlighted the decision of the Punjab & Haryana High Court, upheld by the Supreme Court, stating that if a penalty is levied on the firm, partners cannot be penalized for the same default.
- The Tribunal concluded that the appellant's lack of involvement in the firm's affairs, coupled with the surrender made under Explanation 5, justified the cancellation of penalties by the CIT (Appeals).

3. Final Decision:
- The Tribunal dismissed the revenue's appeals, supporting the CIT (Appeals) decision to cancel the penalties under section 271(1)(c) for the assessment year 1986-87. The analysis considered the lack of evidence attributing the wrongdoing to the appellant and the legal position on imposing penalties on partners and firms. The judgment reiterated the importance of reasonable cause and individual culpability in penalty proceedings.