2005 (7) TMI 344 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act.
2. Voluntariness of the assessee's disclosure of additional income.
3. Validity of the assessee's explanation for the source of income.
4. Assurance or immunity from penalty by the Income Tax Department.
5. Mens rea requirement for imposing penalty.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The assessee appealed against the CIT(A)'s order confirming the penalty of Rs. 1,51,940 imposed under section 271(1)(c) for the assessment year 1987-88. The AO initiated penalty proceedings after the assessee filed a return declaring additional income of Rs. 3,26,970 on 30th March 1989, following an investigation that revealed unaccounted demand drafts.

2. Voluntariness of the Assessee's Disclosure:
The assessee contended that the additional income was disclosed voluntarily to buy peace and avoid penalty and interest. However, the AO and CIT(A) held that the disclosure was not voluntary but made after the Department's investigation detected concealed transactions. The Tribunal agreed, noting that the additional income was declared only after the Department's enquiry and survey, indicating that the disclosure was not voluntary.

3. Validity of the Assessee's Explanation for the Source of Income:
The assessee claimed that the unexplained money used to purchase the demand drafts came from weavers for whom the assessee acted as a commission agent. This explanation was found unsubstantiated as the assessee could not provide names, addresses, or confirmations from the weavers. The Tribunal found the explanation to be implausible and unsupported by any evidence.

4. Assurance or Immunity from Penalty by the Income Tax Department:
The assessee argued that the additional income was declared based on an assurance from the Department that no penalty would be imposed. The Tribunal found no evidence of such an assurance. The assessee's self-serving letter to the ITO was not considered sufficient proof of any agreement from the Department.

5. Mens Rea Requirement for Imposing Penalty:
The CIT(A) and the Tribunal held that it is no longer necessary to establish mens rea (guilty mind) for imposing a penalty under section 271(1)(c). The Tribunal cited the Supreme Court's decision in K.P. Madhusudhanan vs. CIT, which upheld the validity of penalty imposition even when the assessee offered additional income after being unable to substantiate their explanation.

Conclusion:
The Tribunal upheld the CIT(A)'s order confirming the penalty under section 271(1)(c). It concluded that the assessee concealed income and furnished inaccurate particulars in the original return. The additional income declared on 30th March 1989 was not voluntary but a result of the Department's investigation. The assessee's explanation regarding the source of funds was found to be unsubstantiated and implausible. No valid assurance was given by the Department to exempt the assessee from penalty. The appeal filed by the assessee was dismissed.