2005 (5) TMI 549 - AT - Income Tax

Tribunal overturns penalty under Income-tax Act, stresses procedural fairness.

The Tribunal set aside the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, remanding the case for fresh consideration. It was held ... Penalty - For concealment of income Issues Involved:1. Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961.2. Validity of the claim for deduction under section 80-IB.3. Alleged concealment of income and furnishing of inaccurate particulars.4. Procedural fairness in the penalty proceedings.Detailed Analysis:Imposition of Penalty under Section 271(1)(c):The primary issue in this case revolves around the imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961. The assessee had initially claimed a deduction under section 80-IB, which was later withdrawn following a survey action under section 133A. The Assessing Officer (AO) viewed this as a wilful attempt to conceal income by furnishing inaccurate particulars, leading to the initiation of penalty proceedings. The penalty imposed was 200% of the alleged tax evasion, amounting to Rs. 25,58,754.Validity of the Claim for Deduction under Section 80-IB:The assessee had claimed a deduction of Rs. 42,64,591 under section 80-IB, supported by necessary reports and particulars. However, during a survey, the assessee admitted that the conditions for claiming this deduction were not met and subsequently filed a revised return, disclaiming the deduction. The AO and CIT(A) both held that the assessee did not establish a new undertaking, did not employ the requisite number of people, and did not carry out any manufacturing activity, thereby justifying the denial of the deduction.Alleged Concealment of Income and Furnishing of Inaccurate Particulars:The assessee argued that the claim for deduction was made in good faith and supported by statutory documents. The revised return and payment of differential tax were actions taken to avoid litigation and maintain peace with the department, not admissions of concealment or inaccuracy. The assessee also contended that the penalty was based solely on the statement given during the survey, which was made under pressure and with an understanding that no penalty would be imposed.Procedural Fairness in the Penalty Proceedings:The Tribunal emphasized that assessment and penalty proceedings are distinct and should not be conflated. An addition or disallowance in assessment does not automatically lead to a penalty for concealment or inaccurate particulars. The AO should have independently verified the documentary evidence provided by the assessee, rather than relying solely on the survey statement. The Tribunal found that the AO and CIT(A) did not adequately consider the documentary evidence before imposing the penalty, rendering the penalty order premature and arbitrary.Conclusion:The Tribunal set aside the penalty order and remanded the case back to the AO for fresh consideration. The AO was directed to examine the documentary evidence and determine whether the assessee's claim was a deliberate falsehood or a bona fide error. The appeal was allowed for statistical purposes, with instructions for the AO to afford the assessee an effective opportunity to present their case.