2005 (7) TMI 47 - HC - Income Tax

Penalty - Whether the Tribunal was justified in cancelling the penalty under section 271(1)(c) especially when the revised return was filed after the search operation when loose papers recovered indicated unrecorded transactions and unrecorded unexplained investment - assessee has not offered any explanation as to why sales recorded in the loose purchase were not entered in the books of account and income relating thereto has not been disclosed in the return. On the facts and circumstances of the case present is a clear case of concealment. If search would not have been made and loose purchase had not been detected the income would have escaped assessment. In our opinion on the facts of the case the assessee deliberately concealed the sales of cloth therefore was liable for penalty. For the reasons stated penalty levied by the first appellate authority is restored

Summary

Issues:
- Justification of canceling penalty under section 271(1)(c) for filing revised return after search operation with unrecorded transactions and unexplained investment.

Analysis:
The case involved the assessment year 1981-82 where the assessee, a partnership firm engaged in cloth sales and money lending, filed a return showing a loss but later filed a revised return after a search operation revealed unrecorded transactions. The loose papers found during the search indicated unrecorded sales and investments. The assessing authority imposed a penalty under section 271(1)(c), which was partially deleted by the Commissioner of Income-tax (Appeals) but completely removed by the Tribunal. The Tribunal emphasized that the voluntary disclosure of profits from the unrecorded sales showed the assessee's intention and conduct, especially since no notice under section 148 was issued. The Tribunal highlighted the distinction between quantum proceedings and penalty proceedings, emphasizing that the addition in the former does not automatically establish concealment for the latter. The Tribunal found no justification for the penalty based on the loose papers and canceled it.

The Revenue contended that the revised return was not voluntary as it only disclosed profits from the detected unrecorded sales after the search operation. The Revenue argued that the Tribunal's decision to delete the penalty was based on irrelevant considerations and incorrect facts, asserting that the concealment was evident from the unrecorded sales in the loose papers. The High Court disagreed with the Tribunal's reasoning, stating that the voluntary disclosure claim was unfounded as the unrecorded sales were only acknowledged after being caught during the search. The High Court found the case to be a clear instance of concealment, noting that the unrecorded sales would have escaped assessment if not detected. Therefore, the High Court concluded that the penalty imposed by the first appellate authority should be reinstated.

In conclusion, the High Court ruled in favor of the Revenue, upholding the penalty under section 271(1)(c) against the assessee for concealing sales of cloth discovered through unrecorded transactions during a search operation. The High Court found the Tribunal's decision to cancel the penalty based on voluntary disclosure to be erroneous, reinstating the penalty due to the deliberate concealment of income by the assessee.