2014 (7) TMI 633 - AT - Income Tax

Levy of penalty u/s 271(1)(c) of the Act Actual turnover higher than disclosed in return Held that - The assessee has maintained two sets of books of account - one set was maintained for Income-tax authorities wherein systematically the assessee had been disclosing to the lower sales and thereby declaring lower income by concealing its income - The other set of documents contains the actual amount of sales - It was in the knowledge of the assessee, but, in fact, is a well planned and executed tax evasion so as to defraud the revenue - the additions cannot be termed as agreed additions because there is nothing that the assessee had agreed to suo moto - the conduct of the assessee has been such that it certainly calls for the levy of penalty. The assessee arranged its financial affairs in such a way as to write duplicate sets of account - portions of the duplicate accounts are seized during search operations - In the return of income filed consequent to the search operations, the assessee does not disclose either its true turnover or the true profit percentage - additions have to be resorted to and the turnover is ultimately confirmed at the stage of first appellate proceedings relying upon CIT vs. HCIL Kalindee ARSSPL 2013 (8) TMI 245 - DELHI HIGH COURT - the conduct of the assessee is far from bona fide and there was a clear-cut strategy to not only evade taxes, but also to file inaccurate particulars of income even after search operation - the penalty u/s 271(1)(c) of IT Act is confirmed Decided against Assessee.

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Allegations of concealment of income and filing of inaccurate particulars of income.
3. Validity of initiation of penalty proceedings.
4. Bona fide nature of the assessee's explanations and the applicability of Explanation 5A to Section 271.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee appealed against the levy of penalty under Section 271(1)(c) for Assessment Years 2006-07 to 2008-09, imposed by the Assessing Officer (AO) for concealing income and filing inaccurate particulars. The penalties imposed were 100% of the tax sought to be evaded, amounting to Rs. 14,18,852 for A.Y. 2008-09, Rs. 38,56,477 for A.Y. 2007-08, and Rs. 35,56,130 for A.Y. 2006-07.

2. Allegations of Concealment of Income and Filing of Inaccurate Particulars of Income:
The assessee, engaged in the business of supplying food items, was found to have maintained two sets of books during a search and seizure operation. One set, meant for tax authorities, showed lower sales and turnover, while the other set contained the actual sales figures. The AO extrapolated the turnover based on seized documents, leading to the conclusion that the assessee concealed income and filed inaccurate particulars. The CIT(A) and the Tribunal had previously confirmed the turnover but reduced the net profit.

3. Validity of Initiation of Penalty Proceedings:
The CIT(A) dismissed the assessee's argument that proper opportunity was not provided and that the charge was unclear. The penalty order and assessment order clearly listed the defaults. The initiation of penalty proceedings was questioned too late, and the assessee had ample opportunity to defend its case during the penalty proceedings. The CIT(A) found the arguments against the initiation of penalty proceedings untenable.

4. Bona Fide Nature of the Assessee's Explanations and Applicability of Explanation 5A to Section 271:
The CIT(A) found that the assessee had a deliberate plan for tax evasion, maintaining duplicate accounts to systematically underreport sales. The seized documents provided a clear picture of the actual business operations, contradicting the assessee's claims of mere estimations. The CIT(A) confirmed the penalties, citing the Delhi High Court's judgment in CIT vs. HCIL Kalindee ARSSPL, which emphasized that statutory certifications do not prevent penalty if the act of claiming deductions is not bona fide.

The assessee's AR argued that the AO did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars, citing CIT vs. Manjunatha Cotton & Ginning Factory. The AR contended that the turnover was offered to purchase peace with the Department and was not found false by the AO. The AR also referenced cases where penalties were deleted due to lack of conclusive evidence or voluntary disclosure of additional turnover.

However, the Tribunal found that the assessee's conduct, including maintaining two sets of books and not disclosing true turnover even after search operations, warranted the penalty. The Tribunal dismissed the assessee's appeals, confirming the penalties under Section 271(1)(c).

Conclusion:
The Tribunal upheld the penalties imposed under Section 271(1)(c) for all three assessment years, finding that the assessee's actions were deliberate and not bona fide. The appeals were dismissed, and the penalties confirmed, emphasizing the importance of accurate and honest reporting of income and the consequences of tax evasion strategies.

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