2000 (4) TMI 191 - AT - Income Tax

Summary

Issues:
Levy of penalty under section 271(1)(c) for A.Y. 1982-83.

Analysis:
1. The assessee, a partnership firm, had a change in constitution in 1980, forming a new partnership firm for Consultancy in finance and management. The Assessing Officer included the income of the new firm in the assessee's income, leading to penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income.

2. The Assessing Officer alleged that the new firm was formed to defraud the revenue, citing various reasons such as filing returns in different wards, common premises, and expenses borne by the assessee firm. The Assessing Officer imposed a penalty based on the difference between returned and assessed income, invoking Explanation to Section 271(1)(c).

3. The CIT(A) upheld the penalty, stating that the new firm's registration was granted based on different facts, rejecting the assessee's explanations. The CIT(A) found mala fide intention in forming the new firm to avoid tax, confirming the Assessing Officer's findings.

4. On appeal, the assessee argued against the penalty, citing legal precedents and explanations such as different nature of business activities, reimbursement of expenses, and filing returns to avoid litigation. The assessee challenged the application of the Explanation under section 271(1)(c) by the Assessing Officer.

5. The Tribunal held that the Assessing Officer wrongly applied the non-existent Explanation, shifting the onus to the assessee. The burden to prove concealment lies on the revenue under the main provisions of section 271(1)(c) if the Explanation is not invoked. The Tribunal found no justification for the penalty under the main provisions.

6. The Tribunal analyzed the facts, noting the legitimate formation of the new firm, different business activities, and reimbursement of expenses. The Tribunal found no intention to defraud the revenue, especially since the new firm was accepted as genuine for subsequent years. The Tribunal quashed the penalty, ruling that the revenue failed to prove concealment.

7. The Tribunal emphasized that mere addition in assessment proceedings does not justify penalty, citing legal precedents. The validation of the new firm for subsequent years favored the assessee. Considering all facts, the Tribunal concluded that the revenue did not meet the burden of proving concealment, deleting the penalty imposed by the CIT(A).

8. Consequently, the appeal of the assessee was allowed, and the penalty under section 271(1)(c) for A.Y. 1982-83 was quashed.