2002 (12) TMI 57 - HC - Income Tax

Court rules penalty unjustified as assessee disclosed mistakes voluntarily, lacked intent to conceal income.

The court found that the penalty under section 271(1)(c) of the Income-tax Act was not justified as the assessee had voluntarily disclosed the mistakes ... Penalty under section 271(1)(c) – concealment - It is not in dispute that before the proceedings with regard to initiation of penalty and rectification started, the assessee had informed the Assessing Officer under his letter dated July 11, 1981, that he had committed mistakes in totalling and this fact denotes that the assessee was not having guilty mind. It is true that the assessee had already received the notice dated July 4, 1981, at the relevant time, but when the Tribunal has come to a conclusion that the assessee had no intention of concealing particulars of his income or misguiding the Assessing Officer by making incorrect totals it would not be proper to come to a different conclusion. It is a settled legal position that the finding of fact, which might be arrived at by the Tribunal, should not be interfered with by this court while giving its opinion under the provisions of section 256 of the Act. – penalty not leviable Issues Involved:1. Whether the penalty under section 271(1)(c) of the Income-tax Act, 1961, was leviable on the assessee for the assessment years under reference.Issue-wise Detailed Analysis:1. Imposition of Penalty under Section 271(1)(c):The primary issue in this case was whether the penalty under section 271(1)(c) of the Income-tax Act, 1961, was leviable on the assessee for the assessment years 1979-80 and 1980-81. The facts revealed that the assessee, a partnership firm, had filed its returns for the said years but had made mistakes in the totals, resulting in lesser income being returned. These mistakes were discovered during an internal audit in April 1981, and the Assessing Officer was informed.Upon receiving information about the mistakes, the Assessing Officer issued a notice to the assessee on July 4, 1981, requesting verification of certain figures from the books of account. The assessee responded with a letter dated July 11, 1981, admitting the mistakes in the totals and stating that lower income had been returned for the relevant assessment years.The Assessing Officer, upon reassessment, increased the income for both years and imposed penalties under section 271(1)(c) for concealing particulars of income, amounting to Rs. 78,920 for 1979-80 and Rs. 1,10,790 for 1980-81. The assessee appealed against these orders, arguing that there was no concealment of income and no mala fide intention, as the mistakes were voluntarily disclosed upon discovery.The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's orders. However, upon further appeal, the Tribunal members had differing opinions. The Judicial Member opined against the imposition of penalty, while the Accountant Member supported it. The case was referred to the Third Member, the Vice-Chairman, who concurred with the Judicial Member, leading to a majority view that the penalty should not have been imposed.Arguments Presented:The Revenue's counsel argued that the mistakes were deliberate and not mere errors, suggesting an attempt to misguide the Revenue. It was contended that the errors were too significant to be accidental and that the assessee's letter dated July 11, 1981, was a preemptive move to cover up the fraud revealed by the notice dated July 4, 1981.Conversely, the assessee's counsel argued that the mistakes were genuine and discovered during the preparation of accounts for the subsequent year. The letter dated July 11, 1981, was sent immediately upon this discovery, indicating no dishonest intention. It was emphasized that the burden of proving concealment or inaccurate particulars lay on the Revenue, which had not been established beyond doubt.Court's Conclusion:The court noted that the Tribunal had concluded that the assessee did not have a guilty mind and had not intended to conceal income. The court emphasized that findings of fact by the Tribunal should not be interfered with unless found perverse. The Supreme Court's precedent in Hindustan Steel Ltd. v. State of Orissa was cited, stating that penalty need not be imposed merely because it is lawful to do so, especially in cases of technical or venial breaches.Given the Tribunal's finding that the mistakes were voluntarily disclosed and there was no intention to conceal income, the court concluded that the penalty under section 271(1)(c) was not justified. The question referred to the court was answered in the negative, in favor of the assessee and against the Revenue, and the reference was disposed of with no order as to costs.