2013 (10) TMI 74 - HC - Income Tax

Whether Levy of penalty u/S 271(1)(c) of the Income Tax Act is automatic Held that - Explanation-1 to Section 271(1)(c). Section 1A deals with a case of assessee failing to offer an explanation or the explanation offered is found to be false. The present case do not fall under that provision - There is no finding recorded by the Assessing Authority or the lower appellate authority that the explanation offered by the assessee is false, their case of furnishing of inaccurate particulars. In the instant case a wrong claim is made for deduction and an explanation was offered, in the absence of a finding that he has failed to prove such explanation as bonafide, no penalty can be imposed - As long as there is no finding by the appellate authority that the explanation offered is not a bonafide one, the imposition of penalty is illegal - Imposition of penalty is not automatic. It is only when there is an attempt to evade tax by offering explanation which is found to be false or not bonafide the penalty can be imposed Decided against the Revenue.

Summary

Issues:
1. Challenge to penalty order by Revenue
2. Disallowances in assessment leading to penalty imposition
3. Tribunal's interference with penalty imposition

Analysis:

Issue 1: Challenge to penalty order by Revenue
The appeal was filed by the Revenue challenging the Tribunal's decision to set aside the penalty imposed by the Commissioner for Income Tax Appeals in the appellate proceedings. The Revenue contended that the assessee had claimed deductions based on inaccurate particulars of income, justifying the initiation of penalty proceedings.

Issue 2: Disallowances in assessment leading to penalty imposition
The Commissioner had imposed a penalty on the concealed income amounting to Rs. 49,96,267, based on disallowances made by the Assessing Authority in the assessment. The disallowances included contributions to a pension scheme and interest on penal charges for alleged excess consumption of electricity. The Commissioner found the assessee liable for penalty under Section 271(1)(c) for furnishing inaccurate particulars of income.

Issue 3: Tribunal's interference with penalty imposition
The Tribunal upheld the disallowances made in the assessment but disagreed with the penalty imposition. It held that the assessee's claims were based on legal decisions and not made with malafide intent. The Tribunal found no evidence of inaccurate particulars of income being furnished by the assessee, stating that the penalty imposition was not justified in the absence of malafides being established.

The Tribunal emphasized that the levy of penalty under Section 271(1)(c) is not automatic and requires proof of an attempt to evade tax through false or non-bonafide explanations. Since the appellate authority failed to establish lack of bonafide intent in the assessee's explanations, the Tribunal deemed the penalty imposition unjustified. The Tribunal's decision to set aside the penalty order was upheld, dismissing the appeal by the Revenue.