2020 (10) TMI 369 - HC - Income Tax

Penalty u/s 271(1)(c) - unexplained credits - Tribunal reducing the penalty by holding the unexplained credits as turnover of the assessee and accordingly proportionately reducing the income and penalty - HELD THAT - Tribunal held that once the income is reduced, the penalty would also get reduced proportionately and thereby the Tribunal restricted the penalty. If such is the view of the Tribunal, then, in our opinion, we should not disturb the same. - Decided against revenue.

Summary

Issues involved:
Reduction of penalty under section 271(1)(c) of the Income Tax Act, 1961 based on unexplained credits as turnover of the assessee.

Analysis:

1. Background and Appeal: The Tax Appeal under Section 260A of the Income Tax Act, 1961 was filed by the Revenue against the order passed by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot dated 20.09.2020 in ITA No. 652/RJT/2014 for A.Y. 2003-04. The main question proposed by the Revenue was whether the Tribunal was justified in reducing the penalty levied under section 271(1)(c) of the Act based on unexplained credits as turnover of the assessee.

2. Factual Circumstances: The case involved a significant amount of cash credits found in the bank account of the assessee. The Assessing Officer initiated penalty proceedings on the grounds of concealment of income, resulting in a penalty of &8377; 2,44,90,900 being levied. The CIT(A) restricted the penalty to the extent of the tax on income determined at 8% of the turnover.

3. Appellate Tribunal's Decision: The Appellate Tribunal dismissed the appeal of the Revenue and allowed the cross objections of the assessee. The Tribunal held that the assessee had concealed particulars of income and, based on estimation of income, determined that the penalty should be reduced proportionately once the income is reduced. Consequently, the penalty was restricted to &8377; 4,89,818.

4. Tribunal's Findings: The Tribunal emphasized that since the income was determined based on estimation due to the absence of maintained books of accounts and filed income return, the assessee was found guilty of concealing income. The Tribunal concluded that the penalty should be computed with reference to the income, and once the income is reduced, the penalty should also reduce proportionately.

5. Court's Decision: The High Court upheld the Tribunal's decision, stating that the proposed question by the Revenue did not raise a substantial question of law. Therefore, the appeal was dismissed, affirming the Tribunal's decision to reduce the penalty based on the proportionate reduction of income.

In conclusion, the High Court's judgment affirmed the Tribunal's decision to reduce the penalty under section 271(1)(c) of the Income Tax Act, 1961 based on the assessee's unexplained credits treated as turnover, emphasizing the principle of proportionate reduction in penalty with a decrease in income.