2008 (11) TMI 303 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - huge difference in the rate of sale of the flat - addition made during the course of assessment which were confirmed by the appellate authority - HELD THAT - There may be a possibility that the rate of two flats are merged and recorded. In these facts and circumstances we are of the view that the possibility of a wrong entry cannot be ruled out in the present case. Therefore we hold that the Department has failed to prove the concealment on the part of the assessee without any iota of doubt. As per the latest judgment of the Supreme Court in the case of Union of India vs. Dharmendra Textile Processors 2007 (7) TMI 307 - SUPREME COURT though the liability may be a civil liability but cannot be equated with other liability of the payment of tax in the Act. Therefore for attracting the penalty provision a strict proof is required and onus to prove the same is on the Department. Since the Department has failed to establish the same and discharge its onus ultimately we find that the penalty imposed by the Department is not warranted and justified in the facts and circumstances of the case. Accordingly we delete the penalty. In the result the appeal filed by the assessee is allowed.

Summary

Issues:
1. Justification of penalty under section 271(1)(c) of the IT Act for concealed income.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT MADRAS-A was directed against the penalty order under section 271(1)(c) of the IT Act, 1961, for the assessment year 1996-97. The main issue in contention was whether the penalty imposed by the CIT(A) was justified in confirming the penalty levied under section 271(1)(c) of the Act. The case involved the assessee engaged in quarrying, trading in granites, and real estate dealings, with a search conducted in April 1995 and subsequent assessment completed in March 1999.

The assessee voluntarily disclosed income on behalf of the firm due to on-money received in the real estate business. The Assessing Officer (AO) made an addition towards on-money received on the sale of two flats, leading to a concealed income amount. The penalty was imposed by the AO based on the evaded tax amount, which was challenged by the assessee before the CIT(A) and subsequently before the Appellate Tribunal.

During the proceedings, the assessee contended that there was a mistake in the entries regarding the sale of flats, pointing out discrepancies in the recorded transaction details. The Departmental Representative argued that the addition of undisclosed income was based on seized material and the non-disclosure post-search operation indicated intentional concealment to evade tax. Reference was made to the Supreme Court judgment emphasizing civil liability under section 271(1)(c) without the necessity of proving wilful concealment.

The Tribunal, after considering the arguments and evidence, highlighted the requirement for the Department to establish a clear case of concealment to attract the penalty provision. Despite the confirmation of the addition, the Tribunal emphasized the need for a foolproof case to justify the penalty, stating that mere confirmation of the addition does not automatically warrant the penalty. In this case, discrepancies in the recorded rates of flats and the possibility of errors in entries led the Tribunal to conclude that the Department failed to prove concealment beyond doubt.

Ultimately, the Tribunal held that the penalty imposed was not justified in the circumstances, emphasizing the strict proof required to invoke the penalty provision. Citing the latest Supreme Court judgment, the Tribunal ruled in favor of the assessee, deleting the penalty and allowing the appeal.

In conclusion, the Tribunal's detailed analysis focused on the necessity of establishing concealment beyond doubt to impose a penalty under section 271(1)(c) of the IT Act, highlighting the importance of stringent proof and the onus on the Department to justify the penalty in cases of concealed income.