2002 (11) TMI 291 - AT - Income Tax

Summary

Issues Involved:
1. Genuineness of loan transactions.
2. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act.
3. The role of the assessee's voluntary disclosure in penalty proceedings.
4. The applicability of Explanation 1 to Section 271(1)(c) in penalty cases.

Issue-wise Detailed Analysis:

1. Genuineness of Loan Transactions:
The assessee, engaged in the coal business, had shown certain loan transactions in the assessment year 1997-98. The Assessing Officer (AO) doubted the genuineness of these loans and the interest claimed on them. The AO recorded a statement from one creditor, who revealed that the money was given by the assessee himself and returned in the form of a cheque, indicating a lack of genuine loan transactions. Other creditors, being relatives of this creditor, followed a similar modus operandi. One creditor, M/s Zubi Investment, could not be traced. Despite the assessee submitting confirmation letters from the creditors and asserting the transactions were genuine, the AO added the loan amounts to the assessee's income under Section 68 of the Income Tax Act.

2. Validity of Penalty Proceedings under Section 271(1)(c):
The AO initiated penalty proceedings under Section 271(1)(c) for concealment of income. The assessee contended that the disclosure of the loan amounts as income was voluntary and aimed at maintaining peace with the Department, asserting that no penalty should be imposed. The AO, however, rejected this explanation, relying on the assessment findings and the decisions of the Kerala High Court in Calicut Trading Co. vs. CIT and the Madras High Court in CIT vs. Krishna & Co., concluding that the disclosure was not voluntary but a result of positive detection by the Department.

3. The Role of the Assessee's Voluntary Disclosure in Penalty Proceedings:
The assessee argued that the disclosure was made voluntarily to avoid prolonged litigation and was not an admission of concealment. The CIT(A) accepted this argument, noting that the creditors were regular taxpayers and the interest on loans was assessed in their hands. The CIT(A) found the disclosure was made to buy peace and avoid litigation, thus deleting the penalty. However, the Tribunal noted that the AO had given the assessee an opportunity to cross-examine the creditor, which the assessee declined, indicating the disclosure was not entirely voluntary but influenced by the creditor's statement.

4. The Applicability of Explanation 1 to Section 271(1)(c) in Penalty Cases:
Explanation 1 to Section 271(1)(c) places the initial burden of proof on the assessee to show that the explanation offered is bona fide. The Tribunal emphasized that the AO is not bound by any promise to waive penalties and that there can be no estoppel against the statute. The Tribunal found that the assessee's failure to cross-examine the creditor and the subsequent offer to treat the loans as income indicated the explanation was not bona fide. The Tribunal referred to the Kerala High Court's decision in CIT vs. D.K.B. & Co. and the Gujarat High Court's decision in National Textiles vs. CIT, which highlighted that mere assessment of an amount as income does not automatically justify penalty unless there is evidence of conscious concealment or furnishing of inaccurate particulars.

Conclusion:
The Tribunal concluded that the assessee failed to substantiate the explanation that the loan transactions were genuine. The circumstances indicated that the disclosure was made after positive detection by the Department, and the explanation offered was not bona fide. The Tribunal reversed the CIT(A)'s order and restored the AO's order, thereby upholding the penalty imposed under Section 271(1)(c).

Result:
The appeal of the Revenue was allowed, and the penalty imposed by the AO was upheld.