2012 (10) TMI 514 - HC - Income Tax

Penalty u/s 271(1)(c) - ITAT deleted the levy - Held that - The findings of the Tribunal on the assessment was not on the ground of treating the claim as not bona fide. The assessment on the consumption of bottles made on the ground of alleged non-existence of two firms was rejected by the Tribunal by rendering a finding that the suppliers were very much in existence. On the 2% addition made to the bottles sent direct to the factory without entering into the books of accounts and on the price difference, the Tribunal ultimately sustained the addition to the extent of 25%. Going by the quantum appeal order agreeing with the assessee s contention that the additions made were not in respect of lack of bona fides, but on the circumstances stated in the order of the Tribunal. The absence of due care does not mean that the assessee was guilty of furnishing inaccurate particulars to conceal his income - the computation error based on the tax audit report was only an inadvertence; this would not raise a presumption against the assessee that the explanation was lacking in bona fides. As the assessee gave an explanation on each of the four heads, which was accepted by the CIT(A) & for inland flight charges the assessee had explained the circumstances under which the provision was sustained and further proof was produced before the CIT (Appeals) - no hesitation in confirming the order of the Tribunal, thereby rejecting the Revenue s appeal - in favour of assessee.

Summary

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act for the assessment year 1991-92.
2. Applicability of the explanation to Section 271(1)(c) of the Income Tax Act, warranting the levy of penalty.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Levied Under Section 271(1)(c) of the Income Tax Act:

The Revenue appealed against the order of the Income Tax Appellate Tribunal (ITAT) regarding the deletion of penalty for the assessment year 1991-92. The Tribunal had confirmed the addition under Section 461 in the quantum appeal, which included:
- Inland Flight charges: Rs. 2,00,000/-
- Addition on the ground that no goods have been received: Rs. 3,70,231/-
- Addition of difference in rate of Purchase: Rs. 10,38,767/-
- Excess provision made towards sales tax, added u/s. 43B: Rs. 18,69,787/-
Total: Rs. 34,78,785/-

The Tribunal's order was not challenged further and attained finality. The Assessing Authority invoked penalty proceedings under Section 271(1)(c), alleging concealment of income. The assessee argued that the addition of Rs. 2,00,000/- for inland flight charges was due to the absence of connecting documents, not the expenditure's genuineness. For the inflation in purchases, the Tribunal found the suppliers existed, and the addition was made due to a lack of accounts for the bottles sent to the factory. The assessee contended that the addition based on the estimated difference in purchase rates should not attract penalty.

The Commissioner of Income Tax (Appeals) accepted the assessee's explanations, noting that the inland flight charges were substantiated with bank accounts and certificates from the Airports Authority of India. The Commissioner also found that the suppliers existed and the inflation in purchase price could not be inferred merely from comparable cases. Regarding the Section 43B disallowance, it was an inadvertent omission based on the tax audit report.

The Tribunal, agreeing with the Commissioner, found no mala fide intention or consciousness to misguide the Assessing Officer. The Tribunal upheld the deletion of the penalty, concluding that the assessee had no intention to misguide the Assessing Officer regarding the claim.

2. Applicability of the Explanation to Section 271(1)(c) of the Income Tax Act:

The Revenue argued that the Tribunal misdirected itself by canceling the penalty without considering the explanation to Section 271(1)(c), which does not require mens rea for penalty. The Revenue cited the decision in M/s. K.P. Madhusudhanan Vs. Commissioner of Income Tax, Cochin, where the Supreme Court held that the absence of a reference to the explanation in the notice does not invalidate penalty proceedings.

The Tribunal found that the additions were not due to a lack of bona fides but were based on the circumstances and explanations provided by the assessee. The Tribunal noted that the suppliers existed, and the addition for bottles sent directly to the factory was only 2% of the total consumption. The Tribunal modified the rate of bottles from Paise 69.70 to Rs. 1.25 per bottle, considering the overall circumstances.

Regarding the Section 43B addition, the Tribunal pointed out that the mistake was based on the tax audit report and was inadvertent. The Tribunal concluded that the absence of due care does not imply the assessee furnished inaccurate particulars to conceal income.

The High Court, agreeing with the Tribunal, found no justifiable ground to disturb the Tribunal's order. The Court noted that the additions were not due to a lack of bona fides but were based on the explanations provided by the assessee. The Court dismissed the Revenue's appeal, confirming the Tribunal's order and rejecting the Revenue's claim.

Conclusion:

The High Court dismissed the appeal, confirming the Tribunal's order that there was no ground for levying penalty under Section 271(1)(c) of the Income Tax Act. The Court found that the additions were not due to a lack of bona fides but were based on the circumstances and explanations provided by the assessee. The Court upheld the deletion of the penalty, concluding that the assessee had no intention to misguide the Assessing Officer.