2009 (10) TMI 483 - HC - Income Tax

Penalty Concealment of Income - Whether the Tribunal was correct in deleting the penalty under section 271(1)(c) by holding that rectification entries were passed subsequently and the goods were taxed during the assessment year 1997-98 in the hands of M/s. Rajesh Industries which is contrary to the facts of the case ; since the assessee and M/s. Rajesh Industries did not file revised returns subsequent to rectification of account entries and consequently recorded a perverse finding ? Held that A perusal of the impugned order passed by the Tribunal clearly shows that the Tribunal has proceeded mainly on the basis that it was necessary to prove that there was a mala fide intention on the part of the assessee for imposing penalty. The said reasoning cannot be sustained in view of the decision of the hon ble Supreme Court in Union of India v. Dharamendra Textile Processors 2008 -TMI - 31520 - SUPREME COURT -substantial question of law passed in favour of the Revenue

Summary

Issues:
- Appeal against order setting aside penalty under section 271(1)(c) of the Income-tax Act, 1961.
- Interpretation of provisions pertaining to imposition of mandatory penalty.
- Assessment of mala fide intention in suppressing income.
- Consideration of explanations under section 271(1)(c).
- Judicial review of Tribunal's decision.

Analysis:
1. The appeal was filed by the Revenue against the order of the Income-tax Appellate Tribunal setting aside the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. The Tribunal allowed the appeal by the assessee, holding that there was no mala fide intention in suppressing income, citing the necessity of mens rea as per the decision in Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277.

2. The assessee, a partnership firm, had shown a sale of Rs. 4,00,000 to M/s. Rajesh Industries in their returns for the year 1997-98. However, the goods were not reflected in the closing stock of M/s. Rajesh Industries. The assessment order treated the sale as bogus, leading to a penalty under section 271(1)(c). The Tribunal, considering the absence of mala fide intention, set aside the penalty based on the Supreme Court's ruling on mens rea.

3. The Revenue argued that the Tribunal's order was arbitrary as it did not find the explanation provided by the assessee falling within the Explanations listed in section 271(1)(c). Referring to the Dharamendra Textile Processors case, the Revenue contended that mens rea was not a necessary element for imposing mandatory penalties. The High Court scrutinized the Tribunal's order, noting the absence of a finding on the explanation's compliance with the Explanations under the section.

4. The High Court found the Tribunal's decision lacking in proper assessment of the explanations provided by the assessee and the absence of a conclusive finding on the matter. Emphasizing the need for a thorough examination of the Explanations under section 271(1)(c), the Court deemed the Tribunal's decision as arbitrary and unsustainable. Consequently, the High Court ruled in favor of the Revenue, setting aside the Tribunal's order and remitting the case for fresh consideration in accordance with the law.

5. The High Court, unable to delve into factual matters, directed the Tribunal to reevaluate the case based on the Explanations provided under section 271(1)(c) and to ensure a comprehensive review before making a final decision on the penalty imposed. The Court's decision highlighted the importance of proper assessment and compliance with statutory provisions in matters concerning penalty imposition under the Income-tax Act, 1961.