2003 (1) TMI 272 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of penalty u/s 271(1)(c) of the I.T. Act.
2. Furnishing inaccurate particulars of income and concealment of income.
3. Assessee's claim of surrendering loss to avoid litigation and purchase peace.

Issue 1: Confirmation of Penalty u/s 271(1)(c)
The assessee appealed against the CIT(A)'s order confirming the penalty imposed by the AO u/s 271(1)(c) amounting to Rs. 14,45,240. The AO completed the assessment at nil income after the assessee offered to surrender the loss claimed at Rs. 36,80,600. The AO initiated penalty proceedings u/s 271(1)(c) on the grounds that the assessee surrendered the loss only after deep investigation and had no explanation for the loss, thus furnishing inaccurate particulars and concealing income.

Issue 2: Furnishing Inaccurate Particulars of Income and Concealment of Income
The CIT(A) upheld the penalty, stating that the loss claimed could not be substantiated, the explanation was general, and no stock register was maintained. The CIT(A) concluded that the assessee furnished inaccurate particulars and concealed income, justifying the penalty under Explanation 1 to section 271(1)(c). The assessee argued that the surrender was to avoid litigation and purchase peace, but the CIT(A) found this argument unacceptable.

Issue 3: Assessee's Claim of Surrendering Loss to Avoid Litigation and Purchase Peace
The assessee contended that the surrender was made on an agreed basis to avoid further litigation and purchase peace. The assessee provided detailed reasons for the loss, including global market slump, increased costs, and defective fabrics. The AO did not find any specific defects in the books of account or evidence of fraudulent claims. The assessee's explanation was supported by affidavits and remand reports, which did not contradict the assessee's claims.

Separate Judgement by Judges:
The Judicial Member upheld the penalty, emphasizing that the loss claimed was not substantiated and the explanation was general. The Accountant Member dissented, stating that the assessee provided detailed reasons for the loss, and the AO did not find any defects in the books of account. The Accountant Member concluded that the penalty was not justified as the assessee acted in good faith and provided all necessary details.

Third Member Decision:
The Third Member concurred with the Accountant Member, stating that the case of concealment or furnishing inaccurate particulars was not established. The Third Member emphasized that the assessee provided detailed explanations, and the AO did not find any specific defects or fraudulent claims. The penalty was canceled, and the appeal was allowed.