2004 (1) TMI 13 - HC - Income Tax

Court upholds cancellation of penalty order due to inadvertent errors in bank passbook; stresses importance of genuine explanations in tax.

Commissioner of Income-Tax Versus AD Kohli.

The High Court dismissed the Revenue's appeal against the cancellation of a penalty order by the Commissioner of Income-tax (Appeals) for the assessment ... Penalty - If any explanation, which is bona fide, within the totality of the case is offered and accepted as indicated by the lower authorities, the assessee would be absolved of liabilities of penalty. There are two sets of evidence, one produced by the assessee in the form of a pass book and another copy of the bank ledger. The pass book normally reflects whatever is in the ledger but, if in respect of two entries there is an error committed by the bank officials and the same is relied upon by the assessee and the latter's explanation is accepted, we do not think that any case is made out – revenue’s appeal rejected Issues:Appeal against cancellation of penalty order by Commissioner of Income-tax (Appeals) for assessment year 1992-93.Analysis:The High Court of Delhi dealt with an appeal filed by the Revenue against the cancellation of a penalty order by the Commissioner of Income-tax (Appeals) for the assessment year 1992-93. The Tribunal had confirmed the cancellation of the penalty. The case involved discrepancies in the pass book provided by a bank to the assessee, where two entries were found to be incorrect. The pass book is considered as documentary evidence under the Banker's Books Evidence Act. In this case, a copy of the ledger was also presented, showing the errors in the pass book. The assessee explained the discrepancies and paid the tax. The Commissioner of Income-tax (Appeals) accepted the explanation, noting that the mistake was inadvertent as the assessee did not engage an accountant and filed their own income tax return. The Tribunal also found the explanation to be bona fide. The Revenue relied on a Supreme Court judgment and argued that the Tribunal erred in not allowing the appeal.The court referred to Explanation 1 to section 271(1) of the Income Tax Act, emphasizing that if a person fails to offer a valid explanation or provides a false explanation, penalty can be imposed. However, if a bona fide explanation is offered and accepted by the authorities, the assessee would not be liable for penalty. In this case, the assessee provided evidence in the form of a pass book and bank ledger, showing the errors made by the bank officials. Since the explanation was accepted by the lower authorities and the errors were unintentional, the court concluded that no legal issue was raised, and the appeal was dismissed. The judgment highlighted the importance of a genuine explanation and the acceptance of such explanation in determining liability for penalties under the Income Tax Act.