1978 (7) TMI 177 - AT - Income Tax

Summary

Issues Involved:

1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Genuineness of cash credits.
3. Alleged oral understanding between the assessee and the Income Tax Officer (ITO) regarding non-levy of penalty.
4. Burden of proof under Explanation to Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:

The primary issue in this case was whether the penalty of Rs. 24,000 imposed by the Income Tax Officer (ITO) under Section 271(1)(c) for the assessment year 1972-73 was justified. The ITO initiated penalty proceedings for concealment of income after adding the sum of Rs. 24,000 as income from "other sources" due to unverified cash credits. The assessee contended that the penalty was unwarranted as the credits represented genuine borrowals from Maddipati Durga Rao, who later refused to confirm the transactions.

2. Genuineness of Cash Credits:

The ITO noticed two cash credits of Rs. 11,000 and Rs. 13,000 on 1st April 1971 and 14th May 1971, respectively. The assessee claimed these were borrowals from Maddipati Durga Rao. However, when asked to prove the genuineness, the creditor refused to confirm the transactions, leading the assessee to surrender the amount for assessment. The ITO, after contacting Durga Rao, concluded that the assessee had consciously concealed the particulars of its income or deliberately furnished inaccurate particulars, thus imposing the penalty.

3. Alleged Oral Understanding Between the Assessee and the ITO Regarding Non-levy of Penalty:

The assessee argued that the surrender of the cash credits was made under a bona fide belief, based on an oral understanding with the ITO, that no penalty would be levied. The Appellate Assistant Commissioner (AAC) considered this possibility and inferred that such an understanding might have existed. The assessee reiterated this belief in its letter dated 22nd August 1973 and in the reply to the show-cause notice dated 18th February 1974. The AAC accepted that such an inference was reasonable from the case facts.

4. Burden of Proof Under Explanation to Section 271(1)(c):

The AAC upheld the penalty based on the Explanation to Section 271(1)(c), which shifts the burden of proof to the assessee to show that there was no concealment of income. The AAC noted the lack of documentary evidence for the cash credits and the adverse cash position in the assessee's day-books without these credits. The ITO's enquiries revealed that the creditor denied advancing any money, leading the AAC to conclude that the assessee failed to discharge the burden of proof.

Final Judgment:

Upon appeal, it was held that the penalty was not justified. The Tribunal noted that the assessee had consistently pleaded the surrender was made under a bona fide belief that no penalty would be levied. The Tribunal found that the Department should not have initiated penalty proceedings after accepting the surrender of income. The Tribunal also observed that the statement from Durga Rao, taken behind the assessee's back, could not be used against the assessee in penalty proceedings, which are quasi-criminal in nature. The Tribunal concluded that the assessee had discharged the burden of proof under the Explanation to Section 271(1)(c) and cancelled the penalty, allowing the appeal.