1979 (1) TMI 172 - AT - Income Tax

Summary

Issues Involved:
1. Penalties under Section 271(1)(c) for concealment of income.
2. Determination of capital gains from the sale of machinery.
3. Validity of penalty notices.
4. Application of Explanation to Section 271(1)(c).

Detailed Analysis:

1. Penalties under Section 271(1)(c) for Concealment of Income:
The assessee, a limited company, faced penalties for the assessment years 1968-69 and 1970-71. The penalties were levied due to alleged concealment of income from the sale of machinery received from a dissolved partnership firm, M/s Bombay Tool & Dye. The assessee argued that the machinery was received as a part of loan recovery and not as capital gains, thus no income was concealed.

2. Determination of Capital Gains from the Sale of Machinery:
The assessee contended that the machinery received from M/s Bombay Tool & Dye was part of its stock in trade, as it was a moneylender. The Tribunal, however, did not accept this submission, holding that the suit filed by the assessee was for the dissolution of the partnership and rendition of accounts, not for loan recovery. Consequently, the machinery was considered a capital asset, and the gains from its sale were taxable as capital gains.

3. Validity of Penalty Notices:
The assessee argued that the penalty notices issued were invalid as they did not specify whether the penalties were for concealment of income or for furnishing inaccurate particulars. The Tribunal rejected this argument, citing that the notices were for concealment of income, which was clear from the context and the proceedings.

4. Application of Explanation to Section 271(1)(c):
The Tribunal considered whether the Explanation to Section 271(1)(c), which shifts the burden of proof to the assessee, was applicable. The Tribunal held that the Explanation could be invoked even if not explicitly mentioned by the IAC. The assessee needed to prove that there was no gross or willful neglect in not disclosing the income. The Tribunal found that the assessee had a bona fide belief that the machinery was part of loan recovery and not capital gains, thus discharging the onus of proof.

Conclusion:
The Tribunal concluded that no penalties under Section 271(1)(c) were exigible for the assessment years 1968-69 and 1970-71. The penalties were canceled, and the appeals were allowed. The Tribunal emphasized that the assessee's bona fide belief and the legal contentions raised did not constitute concealment of income or gross or willful neglect.