2013 (11) TMI 187 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - Penalty will not merely be imposed because it was lawful to do so - Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances - In respect to AY 1991-92, the addition made by AO on account of cash credit and gift remained as against the assessment made by AO - Even in the penalty order, the AO had not brought out any reason how these amounts were concealed income whereas the identity of the creditors, creditworthiness and genuineness of transaction is proved except the negligible amount and that also due to lack of evidence - In respect to other additions, the AO had only made estimates. Hindustan Steel Ltd. Vs. State of Orissa 1969 (8) TMI 31 - SUPREME Court - even if a minimum penalty was prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there was a technical or venial breach of the provisions of the Act or where the breach flows from a bonafide belief that the offender was not liable to act in the manner prescribed by the statute - following the Hon ble Supreme Court, we direct the AO to delete the penalty in AY 1991-92 - In respect to AY 1992-93, the assessee offered explanation before the lower authorities i.e. the AO as well as the CIT(A) during assessment proceedings and also during penalty proceedings - The relevant explanation was that there was no difference as such or the difference was very negligible. The jewelleries explained by the assessee and that was not found to be false by the AO - The explanation offered by assessee was not negated - as per rule of evidence there was distinction between set of facts not proved and facts disproved and facts proved - Benefit of the principle that mere non-satisfactory nature of explanation furnished cannot amount to proof of falsity of explanation furnished can apply in case the fact-finding authority reached to a stage where it can only conclude that the fact alleged was not proved which would result that except rejection of the explanation furnished by the assessee, there was no material to sustain the plea of concealment - once the explanation was not held to be false, the penalty cannot be sustained - Decided in favour of Assessee.

Summary

Issues Involved:
1. Confirmation of penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961 for AY 1991-92.
2. Confirmation of penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961 for AY 1992-93.

Issue-wise Detailed Analysis:

1. Confirmation of penalty imposed under Section 271(1)(c) for AY 1991-92:

The assessee's appeal revolves around the penalty levied for AY 1991-92 amounting to Rs.62,191/-. The penalty was imposed following a search conducted on 20.03.1992, with the assessments framed under Section 144 and Section 143(3) of the Income-tax Act. The Tribunal confirmed part additions for AY 1991-92, which included:
- Addition on account of income from stitching charges at Rs.10,965/-.
- Income in construction business where the returned income was a loss of Rs.74,384/- but the assessed income was Rs.12,400/-.
- Unexplained cash credit under Section 68 amounting to Rs.10,000/-.
- Gift treated as unexplained cash credit at Rs.9253/-.

The CIT(A) confirmed the penalty, stating that the assessee failed to provide evidence for the unexplained cash credit and the gift. The CIT(A) emphasized that the assessee did not produce any books of account to substantiate the claimed loss in the construction business and that the income was estimated due to the absence of records. The CIT(A) concluded that the assessee was guilty of filing inaccurate particulars of income, justifying the penalty under Section 271(1)(c).

Upon appeal, the Tribunal found that the penalty could not be justified merely on the basis of estimates. The Tribunal referenced the Supreme Court's decision in Hindustan Steel Ltd. Vs. State of Orissa, which held that penalty should not be imposed for technical or venial breaches or when the breach flows from a bona fide belief. The Tribunal directed the AO to delete the penalty for AY 1991-92, as the additions were primarily based on estimates, and there was no clear evidence of concealment.

2. Confirmation of penalty imposed under Section 271(1)(c) for AY 1992-93:

For AY 1992-93, the penalty of Rs.1,44,355/- was imposed based on additions confirmed by the Tribunal, which included:
- Unexplained jewellery valued at Rs.2,67,156/-.
- Undisclosed investment in UTI amounting to Rs.10,000/-.

The CIT(A) upheld the penalty for the unexplained jewellery, noting that the assessee had declared additional undisclosed income during the search proceedings. The CIT(A) found that the explanation regarding the jewellery being acquired more than 10 years back was considered during the assessment and appeal proceedings, and the final assessment of undisclosed jewellery was justified. However, the CIT(A) directed the deletion of the penalty related to the UTI investment, as the payments were made from available cash and through cheque, and thus, could not be considered as concealment.

The Tribunal, upon reviewing the facts, found that the jewellery, except for a negligible amount, was explained by the assessee, and the explanation was not proven false by the AO. The Tribunal emphasized the principle that mere non-satisfactory nature of the explanation does not amount to proof of falsity. Since the explanation was not held to be false, the penalty could not be sustained. Consequently, the Tribunal directed the AO to delete the penalty for AY 1992-93 as well.

Conclusion:

The Tribunal allowed the appeals of the assessee for both AY 1991-92 and AY 1992-93, directing the deletion of the penalties imposed under Section 271(1)(c) of the Income-tax Act. The Tribunal's decision was based on the lack of clear evidence of concealment and the reliance on estimated additions, aligning with the principles established by the Supreme Court.