2005 (7) TMI 45 - HC - Income Tax

Penalty Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the penalty under section 271(1)(c)? - question is answered in the negative i.e., in favour of the assessee and against the Revenue

Summary

Issues Involved:
1. Whether the Tribunal was right in upholding the penalty under section 271(1)(c)?
2. Whether the Tribunal was right in law in holding that it was necessary for the assessee to file cross-objection despite fully succeeding in appeal, and therefore, it cannot challenge the finding by the Commissioner of Income-tax (Appeals) of the assessee being guilty of concealment of income and/or furnishing inaccurate particulars?

Issue-wise Detailed Analysis:

1. Whether the Tribunal was right in upholding the penalty under section 271(1)(c)?

The court examined the facts surrounding the assessee, a co-operative society, which had received Rs. 68,332 from an insurance company after withdrawing from a Group Gratuity Insurance Scheme. The amount was directly credited to the gratuity fund account and not reflected in the profit and loss account, leading to its omission from the return of income. The Assessing Officer treated this amount as income under section 41(1) of the Act and levied a penalty under section 271(1)(c) for inaccurate particulars of income.

The Commissioner (Appeals) had canceled the penalty, stating that no individual member of the co-operative society would be personally interested in knowingly concealing income or furnishing inaccurate particulars. The Tribunal, however, reinstated the penalty, asserting that the assessee had concealed income and furnished inaccurate particulars, a decision challenged by the assessee.

The court referred to precedents, including National Textiles v. CIT and K.C. Builders v. Asst. CIT, emphasizing that for penalty under section 271(1)(c), there must be a conscious concealment or furnishing of inaccurate particulars. The court found that the assessee's explanation of a bona fide mistake was not disproven and there was no evidence of mens rea. The omission was attributed to oversight, not intentional concealment. Thus, the Tribunal's decision to uphold the penalty was incorrect.

2. Whether the Tribunal was right in law in holding that it was necessary for the assessee to file cross-objection despite fully succeeding in appeal, and therefore, it cannot challenge the finding by the Commissioner of Income-tax (Appeals) of the assessee being guilty of concealment of income and/or furnishing inaccurate particulars?

The court addressed the Tribunal's error in concluding that the assessee needed to file a cross-objection to challenge adverse findings by the Commissioner (Appeals). The Tribunal overlooked that the assessee had succeeded before the Commissioner (Appeals), who had deleted the penalty. According to section 253 of the Act and rule 27 of the Tribunal Rules, a respondent can support the order appealed against on any grounds decided against them without filing a cross-objection.

The court clarified that the failure to file a cross-objection does not imply acceptance of adverse findings. The Tribunal's inference that the findings of the Commissioner (Appeals) remained unchallenged due to the lack of a cross-objection was incorrect. The court emphasized that rule 27 allows a respondent to challenge adverse findings even without a cross-objection, ensuring the right to support the order on any grounds.

Conclusion:

The court answered both questions in favor of the assessee and against the Revenue. The Tribunal's decision to uphold the penalty under section 271(1)(c) was incorrect, as the omission was due to a bona fide mistake without mens rea. Additionally, the Tribunal erred in holding that the assessee needed to file a cross-objection to challenge adverse findings, as rule 27 of the Tribunal Rules allows supporting the order on any grounds without a cross-objection. The reference was disposed of accordingly, with no order as to costs.