2014 (1) TMI 1303 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Held that - The order of the CIT(A) upheld - It cannot be held as an inflexible rule that when the assessee agrees to have certain items included in his total income, he makes an admission which by itself would warrant the imposition of penalty - It would be a wrong notion deciding the penalty proceedings that once a surrender is made of any amount, the assessee can be straightaway penalized without asking the Assessing Officer to bring some other material and further proof establishing the dishonest concealment of the undisclosed income and the falsity of the return and without affording the assessee an opportunity to show that the surrendered amount was in reality his undisclosed income or that it was for certain other reasons that the assessee had made surrender of the amount - no addition on account of sundry creditors can be made unless the trade liability had ceased to exist, even if no confirmations are filed Relying upon CIT vs. Sita Devi Juneja 2009 (12) TMI 34 - PUNJAB AND HARYANA HIGH COURT . Mere fact of surrender could not necessarily be an admission of assessee that amount surrendered was undisclosed income and liable to be subjected to penalty Relying upon CIT of CIT vs. Punjab Tyres 1986 (7) TMI 77 - MADHYA PRADESH High Court - no penalty u/s. 271(1)(c) can be levied when the assessee has surrendered certain amount in the assessment proceedings - The requirements of sections 271(1)(c) had not been satisfied so as to bring the case of the assessee within the same - Thus, the penalty could not be levied on the amount surrendered by the assessee, unless there was material on the record to show that the surrendered item was his income - there was no case of furnishing of inaccurate particulars of income so as to make the appellant liable for penal consequences thus, the order passed by the AO u/s 271(1)(c) levying penalty is cancelled Decided against Revenue.

Summary

Issues Involved:
Appeal against deletion of penalty under section 271(1)(c) of the Income Tax Act for assessment year 2007-08.

Detailed Analysis:

Issue 1: Initiation of penalty proceedings under section 271(1)(c)
The department initiated penalty proceedings against the assessee for furnishing inaccurate particulars of income. The AO imposed a penalty of Rs. 6,26,911, being 100% of the tax sought to have been evaded, under section 271(1)(c) of the Act.

Issue 2: Assessee's contention against penalty
The assessee contended that the amount was offered for taxation voluntarily to avoid litigation with the department, not due to detection of inaccurate particulars. The addition was made under section 41(1)(a), treating the amount as income due to cessation/remission of liability. The assessee maintained that the liabilities were still payable, and there was no unilateral cessation/remission of liability.

Issue 3: Judicial precedents and CIT(A)'s decision
The assessee relied on various case laws to support the contention that surrendering an amount voluntarily does not automatically justify imposition of penalty under section 271(1)(c). The CIT(A) concluded that the penalty was not justified as there was no evidence of conscious concealment of income or furnishing inaccurate particulars. The CIT(A) emphasized that the surrender was made to purchase peace or avoid litigation, not as an admission of concealment.

Issue 4: Department's appeal against CIT(A)'s decision
The department appealed the CIT(A)'s order, arguing that the explanation offered by the assessee regarding the trading liability of 4 creditors was false. The department contended that penalty under section 271(1)(c) was leviable as per Explanation 1, and the surrender made by the assessee did not absolve them from penalty for concealment of income.

Issue 5: Arguments and reliance on case laws
Both sides presented arguments and relied on case laws to support their positions. The department cited precedents to justify penalty imposition, while the assessee emphasized the voluntary surrender to buy peace and lack of evidence for concealment or inaccurate particulars.

Issue 6: Tribunal's decision
After considering the arguments, case laws, and material on record, the Tribunal upheld the CIT(A)'s decision to delete the penalty. The Tribunal found the CIT(A)'s reasoning sound and noted the absence of conflicting higher court orders on similar facts. Consequently, the department's appeal was dismissed, affirming the deletion of the penalty.

In conclusion, the Tribunal upheld the decision to delete the penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment year 2007-08, based on the rationale that the surrender by the assessee was not indicative of conscious concealment or furnishing inaccurate particulars of income. The judgment highlighted the importance of voluntary surrender to buy peace and the lack of evidence supporting penalty imposition in this case.