2003 (1) TMI 290 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the penalty under section 271(1)(c) of the Income Tax Act.
2. Proper assessment year for the unexplained investment and cash credits.
3. Voluntariness and timing of the revised returns filed by the assessee.
4. Applicability of legal precedents in determining the penalty.

Issue-wise Detailed Analysis:

1. Validity of the penalty under section 271(1)(c) of the Income Tax Act:
The Revenue's appeal challenged the deletion of the penalty of Rs. 1,38,540 imposed by the AO under section 271(1)(c). The Assessing Officer (AO) argued that the assessee failed to satisfactorily explain the source and nature of the amount, thereby justifying the penalty. The AO relied on the decision reported in 53 ITR 263 and observed that the assessee had concealed its real income and furnished inaccurate particulars. However, the CIT(A) concluded that the additional income was offered voluntarily by the assessee before any notice was issued, and there was no material on record to indicate that the impugned amount belonged to the assessee.

2. Proper assessment year for the unexplained investment and cash credits:
The CIT(A) noted that the AO did not clarify whether the additional income was treated as unexplained investment or cash credits. If it was unexplained investment, the income should have been assessed in the assessment year 1984-85, and if it was cash credits, it should have been assessed in the assessment year 1986-87. The CIT(A) cited several legal precedents, including the Supreme Court's decision in Sir Shadilal Sugar and General Mills Ltd. v. CIT and the Bombay High Court's decision in Jainarayan Babulal v. CIT, to support the conclusion that the income could not be legally assessed in the year under consideration.

3. Voluntariness and timing of the revised returns filed by the assessee:
The AO argued that the revised returns were filed only after the assessment proceedings for the assessment year 1986-87 were taken up for scrutiny, implying that the returns were not voluntary. However, the assessee contended that the returns were filed to avoid litigation and lengthy assessment procedures. The CIT(A) accepted the assessee's explanation, noting that the returns were filed voluntarily before the issue of any notice and that the assessee had paid the taxes before any proceedings could be started.

4. Applicability of legal precedents in determining the penalty:
The CIT(A) relied on various legal precedents to conclude that the penalty could not be sustained. The Supreme Court in Sir Shadilal Sugar and General Mills Ltd. v. CIT held that agreeing to an addition does not necessarily imply concealed income. The Bombay High Court in Jainarayan Babulal v. CIT held that the question of the year of assessability could be raised in penalty proceedings. The Kerala High Court in CIT v. George and Bros. held that mere surrender of income cannot be the sole basis for penalty. The CIT(A) concluded that the original and first revised returns could not be considered false, and therefore, the penalty was not justified.

Separate Judgments Delivered:
The Judicial Member and the Accountant Member had differing opinions on the case. The Judicial Member believed that the penalty was justified, arguing that the assessee's actions indicated an intention to conceal income. The Accountant Member, however, held that the penalty was not justified, emphasizing that the income could not be legally assessed in the year under consideration and that the revised returns were filed voluntarily. The Third Member, concurring with the Accountant Member, concluded that the order of the CIT(A) cancelling the penalty was justified.