2009 (11) TMI 462 - HC - Income Tax

Penalty- The return filed by the assessee for the assessment year 1994-95 deduction was claimed in respect of contribution to the petition scheme for Rs. 13,82,078 and interest on penalty charges levied for excess consumption of electricity. However, on consideration of the return after issuing notice under section 143(2) of the Act, and hearing the assessee, the assessment was completed disallowing the deduction. Tribunal held that the assessee had furnished inadequate particular of income and imposed penalty but the Tribunal cancelled it. Held that- order passed by the Tribunal was perverse and arbitrary and could not be sustained.

Summary

Issues:
Appeal against order cancelling penalty under section 271(1)(c) of the Income-tax Act, 1961 without considering the cause shown by the assessee.

Detailed Analysis:

1. Issue: Appeal against order cancelling penalty under section 271(1)(c) without considering cause shown.

The appeal was filed by the Revenue against the order passed by the Income-tax Appellate Tribunal, Bangalore Bench, directing the Assessing Officer to cancel the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. The main question of law was whether the cancellation of the penalty without assessing the cause shown by the assessee was arbitrary and warranted interference. The assessee had claimed deductions for contributions to a pension scheme and interest on penalty charges for excess electricity consumption. The Commissioner of Income-tax (Appeals) held that the assessee had furnished inaccurate particulars of income and imposed a penalty under section 271(1)(c) of the Act. The Tribunal partially allowed the appeal and directed the cancellation of the penalty. The Revenue contended that the Tribunal did not consider whether the cause shown by the assessee was acceptable under Explanation 1 to section 271(1)(c) of the Act.

2. Analysis:

The court observed that under section 271(1)(c) of the Act, penalty can be imposed if the person fails to offer an explanation, offers a false explanation, or fails to substantiate a bona fide explanation. The Tribunal's order lacked a finding on whether the cause shown by the assessee was acceptable or not. It was noted that the Tribunal did not apply its mind to the cause shown by the assessee and proceeded on the basis that imposition of penalty is not automatic. The court emphasized the importance of considering the cause shown by the assessee before imposing a penalty. Since the Tribunal did not make a finding regarding the acceptability of the explanation provided by the assessee, the order to cancel the penalty was deemed arbitrary and perverse. As the Tribunal is the final authority on questions of fact, the matter was remitted back to the Tribunal for fresh disposal in accordance with the law.

Conclusion:

The court allowed the appeal, answered the substantial question of law in favor of the Revenue, and restored the order passed by the Tribunal, remitting the case for fresh consideration. The judgment highlighted the necessity of assessing the cause shown by the assessee before imposing penalties under section 271(1)(c) of the Income-tax Act, 1961.