1993 (2) TMI 172 - AT - Income Tax

Summary

Issues:
- Appeal against penalty under section 271(1)(c) of the Income-tax Act, 1961
- Assessment of unrecorded purchases in the case of a photo studio business
- Bona fide explanation for unrecorded purchases
- Application of Explanation to section 271(1)(c) for concealment penalty
- Quantum of penalty imposed and its justification

Analysis:
1. The appeal was filed against the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, by the Assessing Officer, which was confirmed by the CIT(A). The penalty amount in question was Rs. 32,489, related to unrecorded purchases made by a registered firm engaged in a photo studio business for the assessment year 1976-77.

2. The unrecorded purchases were discovered during a search and seizure operation, where purchases totaling Rs. 40,904 were made between specific dates but only Rs. 8,415 were accounted for. The remaining Rs. 32,489 was deemed unexplained and unrecorded, leading to a re-opening of the assessment.

3. The Assessing Officer, after considering the explanation provided by the assessee, invoked the Explanation to section 271(1)(c) due to a significant difference between the income returned and assessed. The Assessing Officer concluded that the concealment of income was established, leading to the imposition of a penalty of Rs. 36,000, approved by the IAC.

4. The assessee contended that while the unrecorded purchases were valid for tax purposes, they should not attract a concealment penalty. The argument was based on the assertion that the purchases were eventually accounted for, albeit without proper documentation due to the actions of the accountant responsible for the purchases.

5. The Tribunal, however, upheld the penalty, citing the lack of evidence supporting the explanation provided by the assessee. The Tribunal referred to a previous judgment establishing that unexplained investments could be deemed as income, shifting the burden of proof to the assessee, who failed to provide a satisfactory explanation for the unrecorded purchases.

6. During the appeal, the assessee sought to set off a portion of the penalty against an addition made to the trading account, arguing that the quantum of the penalty was excessive. The departmental representative supported the penalty but agreed that a reduced amount of Rs. 23,305 would be more appropriate.

7. The Tribunal, after considering all submissions and previous orders, concluded that the explanation offered by the assessee was not bona fide and was contrary to normal business practices. Therefore, the penalty under section 271(1)(c) was deemed justified based on the concealed particulars of income, although the penalty amount was reduced to Rs. 23,305 as calculated by the assessee.

8. In the final judgment, the Tribunal allowed the appeal in part, reducing the penalty amount to Rs. 23,305, considering the tax sought to be evaded and the circumstances of the case.