1973 (6) TMI 12 - HC - Income Tax

Penalty for concealment - assessee s explanation regarding the discrepancy in stock statement was rejected and the same was treated as his undisclosed income - Whether, on the facts and in the circumstances of the case, a penalty was legally imposable on the assessee under section 271(1)(c) read with section 274 of the Income-tax Act ? - held that, on the facts and in the circumstances of this case, a penalty could not be legally imposed on the assessee under section 271(1)(c) of the Act.

Issues Involved:
1. Imposition of penalty under section 271(1)(c) read with section 274 of the Income-tax Act, 1961.
2. Concealment of income or furnishing inaccurate particulars by the assessee.
3. Legal standards for imposing penalties under the Income-tax Act.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) read with Section 274 of the Income-tax Act, 1961:
The High Court required the Income-tax Appellate Tribunal to refer the question of whether a penalty was legally imposable on the assessee under section 271(1)(c) read with section 274 of the Income-tax Act. The Tribunal stated the case and referred the question to the court.

2. Concealment of Income or Furnishing Inaccurate Particulars by the Assessee:
The assessee, a registered firm engaged in the wholesale sugar business, was found to have pledged 1,491 bags of sugar with the Bank of Bihar for an overdraft, while the stock register showed only 1,210 bags, leading to a discrepancy of 281 bags. The assessee explained that it inflated the stock to obtain a larger overdraft. The Income-tax Officer added the value of 281 bags (Rs. 29,495) as income from undisclosed sources and initiated penalty proceedings under section 271(1)(c). The Inspecting Assistant Commissioner concluded that the assessee concealed income regarding 281 bags and imposed a penalty of Rs. 8,600. However, the Income-tax Appellate Tribunal found that the stock register was subject to checks by the supply department and accepted the assessee's contention that an imaginary stock was shown to the bank.

3. Legal Standards for Imposing Penalties under the Income-tax Act:
The court noted that the provision of law under section 271(1)(c) was identical to section 28(1)(c) of the Indian Income-tax Act, 1922, which required the department to show deliberate concealment or furnishing of inaccurate particulars by the assessee. The court emphasized that mere addition of income from undisclosed sources for assessment purposes does not automatically lead to penalty imposition. The department must provide additional evidence to prove deliberate concealment. The court referenced several decisions, including those of the Supreme Court, which established that the burden of proof lies on the department to show that the assessee deliberately concealed income or furnished inaccurate particulars.

The court observed that the Tribunal did not reject the assessee's explanation as untrue and found no evidence that the assessee pledged 1,491 bags. Even if the explanation was false, it did not prove deliberate concealment or furnishing of inaccurate particulars. The court cited the Supreme Court's decision in Commissioner of Income-tax v. Anwar Ali, which held that penalty proceedings are penal in nature and the department must establish deliberate concealment. The court concluded that the findings of the Tribunal indicated that the explanation of inflated stock was accepted, and even if false, it did not constitute deliberate concealment.

Conclusion:
The court held that, based on the findings of the Appellate Tribunal and the legal principles established by the Supreme Court, no penalty could be legally imposed on the assessee under section 271(1)(c) of the Act. The reference was answered against the department and in favor of the assessee, with costs awarded to the assessee.

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