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Issues Involved:
1. Legality of the penalty imposed under section 271(1)(c) of the Income-tax Act. 2. Validity and voluntariness of the statement recorded under section 132(4). 3. Requirement for independent inquiry and evidence to establish concealment of income. 4. Applicability of principles of natural justice and fairness in penalty proceedings. Detailed Analysis: 1. Legality of the Penalty Imposed under Section 271(1)(c) of the Income-tax Act: The assessee appealed against the penalty of Rs. 2,60,000 imposed under section 271(1)(c) of the Income-tax Act for the assessment year 1988-89. The penalty was initially confirmed by the Commissioner of Income-tax. The Tribunal found that the penalty was based solely on the statement of a partner recorded under section 132(4) during a search operation, which the assessee claimed was given under duress and threat. The Tribunal highlighted that mere admission of income does not establish guilt of concealment, and the penalty proceedings require independent inquiry and evidence to establish concealment of income. The Tribunal concluded that the Assessing Officer (A.O.) failed to establish the guilt of concealment and thus reversed the penalty order. 2. Validity and Voluntariness of the Statement Recorded under Section 132(4): During the search and seizure operations on 24-9-1987, a partner of the assessee-firm made a statement under oath, declaring an undisclosed income of Rs. 5 lacs for the assessment year 1988-89. The assessee argued that the statement was involuntary and extracted under threat of arrest by the police. The Tribunal noted that the assessee failed to discharge the onus of proving that the statement was given under duress. However, the Tribunal emphasized that the statement alone, without corroborative evidence, cannot justify the imposition of penalty for concealment of income. 3. Requirement for Independent Inquiry and Evidence to Establish Concealment of Income: The Tribunal pointed out that the A.O. did not conduct any independent inquiry to establish whether there was actual concealment of income by the assessee-firm. The penalty order was based solely on the statement recorded under section 132(4). The Tribunal reiterated that the act of concealing income is a conscious positive act that must be established by the revenue through cogent material and evidence. The Tribunal found that the A.O. failed to provide any independent finding or valid inquiry to support the penalty, and thus, the penalty could not be upheld. 4. Applicability of Principles of Natural Justice and Fairness in Penalty Proceedings: The Tribunal emphasized the importance of natural justice and fairness in penalty proceedings. It referred to the Full Bench decision of the Patna High Court in the case of CWT v. Jagdish Prasad Choudhary, which held that an oral hearing must be offered to the assessee before imposing a penalty. The Tribunal found that the A.O. did not give a reasonable opportunity of hearing to the assessee, as the explanation provided by the assessee regarding the involuntary nature of the statement was not adequately examined. The Tribunal concluded that the penalty proceedings were unfair and arbitrary, violating the principles of natural justice. Conclusion: The Tribunal, after considering the arguments and evidence, concluded that the penalty imposed under section 271(1)(c) was not justified. The Tribunal reversed the impugned order of the Commissioner, canceled the penalty, and directed the A.O. to refund the penalty amount, if any, paid by the assessee-firm. The appeal was allowed in favor of the assessee.
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