2012 (6) TMI 677 - HC - Income Tax

Penalty under section 271(1)(c) of the Income-tax Act, 1961 concealment - assessee understated the cost of construction - total cost of construction was Rs.12,50,000, when he filed the returns Held that - Assessee admits the total cost of construction as being Rs.32,05,000 as determined by the appellate authority on the original side, the difference in the amount constitutes concealed income and the main provisions as contained in section 69B of the Act is attracted. In spite of the opportunities given to the assessee, when he did not avail of the opportunity and neither offered any explanation, the finding arrived at by the authorities imposing penalty cannot be found fault. In favour of the Revenue

Summary

Issues Involved:
1. Legality of penalty under section 271(1)(c) of the Income-tax Act.
2. Validity of penalty based on estimated cost of construction.
3. Justification of penalty when the assessment on undisclosed income is set aside by the Appellate Tribunal.

Issue-wise Detailed Analysis:

1. Legality of Penalty under Section 271(1)(c) of the Income-tax Act:
The court examined whether the imposition of penalty under section 271(1)(c) was proper without a finding regarding the satisfaction of the imposition of penalty on the differential costs as undisclosed income for the accounting year 1998-99. The assessee, a Hindu undivided family, disclosed a total income of Rs. 46,46,946, which included a long-term capital gain. The cost of construction for a three-storied building was shown as Rs. 12,50,000, supported by a valuation report from a chartered engineer. However, the Valuation Officer estimated the cost at Rs. 41,10,000, leading to a notice under section 69B. The assessee's subsequent valuation report admitted the cost at Rs. 23 lakhs, but failed to produce supporting ledgers or vouchers. The Assessing Officer accepted the cost at Rs. 41,10,000, which was later reduced to Rs. 32,05,000 by the appellate authority. The penalty proceedings were initiated based on this final order, which the assessee did not challenge. The court concluded that the penalty was justified as the assessee failed to substantiate his explanations and there was a clear case of income concealment.

2. Validity of Penalty Based on Estimated Cost of Construction:
The court addressed whether the penalty could be levied based on an estimated cost of construction. The assessee argued that penalty cannot be imposed merely on an estimate and cited apex court judgments. The court noted that the penalty was not based on the valuation report but on the final order of the appellate authority, which the assessee accepted. The initial valuation report was not substantiated with accounts, receipts, or vouchers. The court emphasized that the assessee's acceptance of the cost of construction at Rs. 32,05,000 indicated a deliberate attempt to suppress true facts, thus justifying the penalty.

3. Justification of Penalty When the Assessment on Undisclosed Income is Set Aside by the Appellate Tribunal:
The court considered whether the Appellate Tribunal was justified in affirming the penalty when the assessment on undisclosed income was set aside. The court observed that the assessee initially disclosed the cost of construction as Rs. 12,50,000, which was later increased to Rs. 23,22,000 and finally accepted at Rs. 32,05,000. The explanation provided by the assessee was not substantiated with evidence. The court found that the assessee's failure to produce supporting documents and the false claim of a loan from a relative indicated a deliberate concealment of income. The penalty was deemed appropriate as the assessee did not avail of the opportunity to support his explanations.

Conclusion:
The court dismissed the appeal, upholding the penalty imposed under section 271(1)(c) of the Income-tax Act. The substantial questions of law were answered in favor of the Revenue and against the assessee, with no costs awarded. The court emphasized that the penalty was justified due to the assessee's failure to substantiate his explanations and the deliberate concealment of income.