1977 (11) TMI 90 - AT - Income Tax

Summary

Issues:
Penalty under section 271(1)(c) of the IT Act, 1961 for concealing income and inaccurate particulars thereof.

Analysis:
The appeal was filed by the Department against the cancellation of a penalty of Rs. 18,500 imposed by the ITO on the assessee under section 271(1)(c) of the IT Act, 1961. The assessee, a foodgrain wholesale business, declared income at Rs. 5,500 for the assessment year 1971-72. The ITO enhanced the income to Rs. 25,463 due to incomplete accounts. The AAC later estimated the income at Rs. 19,963. Penalty proceedings were initiated for concealing income and inaccurate particulars. The assessee argued that it was a mere estimate and no penalty should be levied. The ITO imposed the penalty, but the AAC canceled it, citing lack of discussion on the facts by the ITO and failure to establish the default of the appellant. The AAC referred to case law and held that the penalty was unjustified, shifting the onus to the ITO to prove wilful neglect or fraud, which was not done. The AAC found merit in the arguments and cited a case from the Patna High Court, holding that the penalty was bad in law and deserved to be quashed.

The Department appealed the AAC's order. The ITAT, after reviewing the record and hearing both parties, found no substance in the appeal. The ITAT noted that the ITO did not specifically find that the assessee concealed income or provided inaccurate particulars, nor did he discuss the assessee's explanation. The ITO imposed the penalty solely because the estimated income exceeded the declared income, which the ITAT deemed insufficient grounds for penalization. The ITAT rejected the Department's argument that the Explanation to section 271(1)(c) applied, as the ITO did not rely on it, and there was no evidence of dishonest or fraudulent intent by the assessee. The ITAT emphasized that the income enhancement was based on an estimate, and differences in estimates were common. Citing a case from the Allahabad High Court, the ITAT concluded that the penalty was not warranted, affirming the AAC's decision to cancel it. The appeal was ultimately dismissed.