1986 (12) TMI 106 - AT - Income Tax

Summary

Issues:
1. Appeal against cancellation of penalty under section 271(1)(C) of the Income Tax Act, 1961 for the assessment year 1979-80.

Detailed Analysis:

1. The appeal was filed by the revenue challenging the cancellation of penalty imposed by the Income Tax Officer (ITO) under section 271(1)(C) of the Income Tax Act, 1961. The ITO had imposed a penalty of Rs. 3,600 on the assessee for concealing income of Rs. 15,000. The ITO observed that the assessee failed to provide evidence regarding the source of income, including gifts received at the time of marriage and income from loans advanced to cultivators. The ld. Appellate Authority Commissioner (AAC) cancelled the penalty, stating that the concealment of income was not proven and that the appellant's explanation could not be substantiated.

2. The revenue contended that the AAC erred in law by cancelling the penalty despite confirming the addition of Rs. 15,000 as income from undisclosed sources in the quantum appeal. The revenue argued that the AAC did not consider the lack of evidence for the interest income and agricultural income claimed by the assessee. The revenue cited decisions of the Allahabad High Court to support the argument that the assessee failed to discharge the onus of proof by not providing additional evidence during the penalty proceedings.

3. The Tribunal noted that the explanation provided by the assessee regarding the source of income was not accepted by the lower authorities. The Tribunal emphasized that the AAC's decision to cancel the penalty was erroneous as the assessee failed to substantiate the explanation provided. Referring to Explanation 1B of section 271(1)(C), the Tribunal highlighted that the assessee must substantiate the explanation or demonstrate good faith in disclosing all material facts. The Tribunal concluded that the assessee did not exercise due care and attention in preserving evidence related to income sources, as evidenced by the lack of evidence presented.

4. The Tribunal referenced a decision of the Madras High Court to emphasize the significance of Explanation 1B in penalty proceedings. The Tribunal noted that the burden of proof shifts to the assessee if the explanation is found to be false or unsubstantiated. In this case, the Tribunal found that the assessee failed to substantiate the deposits made and did not act in good faith. Consequently, the Tribunal set aside the AAC's order and reinstated the penalty imposed by the ITO.

5. In conclusion, the Tribunal allowed the departmental appeal, upholding the penalty imposed by the ITO for concealing income. The Tribunal emphasized the importance of substantiating explanations and acting in good faith in income tax proceedings to avoid penalties for concealment of income.