1976 (10) TMI 70 - AT - Income Tax

Summary

Issues:
1. Justification of penalty levied under section 271(1)(c) of the Income Tax Act.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT MADRAS-D centered around the issue of whether the penalty imposed by the Income-tax Appellate Commissioner (IAC) of Rs. 1,00,850 under section 271(1)(c) of the Income Tax Act was warranted. The assessment year in question was 1970-71, during which certain additions were made to the assessee's assessment related to unexplained investments. The assessee had submitted a petition to the Commissioner of Income Tax (CIT) disclosing the investments and offering to be assessed on a spread-over basis. The quantum assessment had become final as the Appellate Assistant Commissioner (AAC) confirmed the additions, which the assessee did not appeal to the Tribunal.

The assessee, represented by a Chartered Accountant, contended that the investments were made through past savings, sale of jewelry, amounts from relatives abroad, and loan repayments. The assessee had voluntarily disclosed all investments and offered for assessment, which was not accepted by the department. The Chartered Accountant argued that the assessee had not concealed any particulars or furnished inaccurate information. The IAC, however, found the explanations for the sources of investments to be unbelievable and fraudulent, invoking the Explanation to section 271(1)(c) of the Act.

The IAC concluded that the penalty was justified based on the Explanation to section 271(1)(c), as the explanations offered by the assessee were deemed fraudulent and untrue. However, the Tribunal disagreed, noting that the main clause of section 271(1)(c) was not attracted as the assessee had filed a voluntary return with all necessary particulars. The Tribunal held that the assessee's failure to explain the sources of investments did not automatically imply that the unexplained investments constituted income for that assessment year.

The Tribunal further analyzed the invocation of the Explanation to section 271(1)(c), emphasizing that the onus was on the assessee to prove that the failure to report correct income did not result from fraud or neglect. Despite the difficulty in proving the sources of investments, the Tribunal found no evidence of fraud or neglect on the assessee's part. Consequently, the Tribunal ruled that the Explanation to section 271(1)(c) was not applicable in this case, leading to the cancellation of the penalty imposed by the IAC.

In conclusion, the Tribunal allowed the assessee's appeal, canceling the penalty of Rs. 1,00,850 levied under section 271(1)(c) of the Income Tax Act for the assessment year 1970-71.