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2012 (7) TMI 658 - AT - Income TaxPenalty u/s 271(1)(c) - concealment of income - held that - just because assessee has an explanation- whatever be its worth and credibility, it does not cease to be a case in which concealment penalty can be levied. The explanation of the assessee has to be considered on merits and one has to take the call as to whether the explanation so given by the assessee can be treated as an acceptable explanation or not. Learned counsel for the assessee has also laid a lot of emphasis on the fact that the assessee s explanation has not been found false but then this plea overlooks the fact that when an assessee s explanation is found false , this case falls in category (A) of Explanation 1 to Section 271(1)(c) whereas the present case is in category (B) thereof and it covers a situation when assessee offers an explanation and not able to prove its bonafides. These two situations are mutually exclusive situation and just because conditions in part (A) of Explanation 1 are not satisfied, the revenue s case in (B) also does not come to an end. The plea of the assessee does not, therefore, merit acceptance. Penalty confirmed.
Issues Involved:
1. Justification of the CIT(A) in upholding the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961. Detailed Analysis: Issue 1: Justification of the CIT(A) in upholding the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 Background: The assessee, engaged in the stevedoring business, filed the original return of income on 25.11.2003, disclosing an income of Rs. 26,950. The return was processed under section 143(1) of the Act. The assessee claimed a deduction of Rs. 23,25,000 for expenses incurred on a voluntary retirement scheme (VRS). The Assessing Officer (AO) found this claim erroneous, as under section 35DDA of the Act, only one-fifth of the expenses incurred on VRS was deductible. Consequently, the AO reopened the assessment by issuing a notice under section 148 and imposed a penalty under section 271(1)(c) for concealment of income to the extent of Rs. 18,60,000. CIT(A) Decision: The assessee appealed to the CIT(A), arguing that the penalty under section 271(1)(c) should not apply because the income was declared in the return filed in response to the notice under section 148. The CIT(A) rejected this plea, stating it was "contrary to the legal meaning intended by the legislature." The CIT(A) also dismissed the assessee's claim that the deduction was based on expert advice and a bona fide mistake, noting that the assessee had applied section 35DDA in the preceding year. Tribunal's Split Verdict: The Tribunal's Division Bench delivered a split verdict on the issue. The Judicial Member concluded that the assessee acted in a bona fide manner, relying on expert advice, and rectified the error upon receiving the reassessment notice. The Judicial Member ordered the deletion of the penalty. Conversely, the Accountant Member held that the provisions of section 35DDA were clear and unambiguous, and the expert advice did not justify the deviation from the statutory mandate. The Accountant Member upheld the penalty, leading to the referral to a Third Member. Third Member's Analysis: Upon reviewing the case, the Third Member highlighted the following points: - Explanation 1 to Section 271(1)(c): The onus is on the assessee to prove that the explanation for the erroneous claim is bona fide. - Legal Precedents: The Third Member referred to the judgments in CIT v. Nathulal Agarwala & Sons (145 ITR 292) and CIT v. Mussadilal Ram Bharose (165 ITR 14), emphasizing that the explanation must be acceptable and reasonably valid. - Expert Advice: The Third Member found the expert advice from Vakharia & Associates lacked credibility as it did not address the provisions of section 35DDA, which were already followed by the assessee in previous years. - Case Law: The Third Member distinguished the present case from CIT v. Reliance Petroproducts Ltd (322 ITR 158), noting that the latter involved a difference of opinion, whereas the present case involved a clear statutory provision. Conclusion: The Third Member concluded that the explanation provided by the assessee was not bona fide and upheld the penalty. The matter was then referred back to the Division Bench, which, in accordance with the majority view, dismissed the appeal of the assessee. Final Order: The penalty under section 271(1)(c) was confirmed, and the appeal of the assessee was dismissed.
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