2013 (12) TMI 846 - HC - Income Tax

High Court dismisses Revenue's challenge to penalty under Income Tax Act for concealment of excess stock

The High Court dismissed the Revenue's challenge to the penalty imposed under Section 271(1)(c) of the Income Tax Act for Assessment Year 2001-2002. The ... Penalty u/s 271(1)(c) - CIT(A) and ITAT deleted the penalty - Held that:- The question of mens rea and interference with the penalty imposed would arise only if concealment deliberate in nature is found to be established. Once the concurrent findings with regard to excess stock being deducted is held not to be a concealment at all we cannot accept the submission of revenue. - Decided against the revenue. Issues:Challenge to penalty under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2001-2002.Detailed Analysis:The appeal challenged the penalty imposed by the Tax Appellate Tribunal and the Appellate Authority under Section 271(1)(c) of the Income Tax Act, 1961. The case involved a partnership firm trading in cloth and furnishing items. A survey was conducted under Section 133-A, revealing discrepancies in the income declared by the assessee. The assessing authority found unaccounted excess stock and unexplained investments by partners, leading to concealment of income. Penalty proceedings were initiated, resulting in a penalty assessment of Rs.7,50,000. The appellate authority reduced the penalty amount after evaluating the concealment issues. The appellate tribunal allowed the appeal of the assessee, leading to the revenue's appeal under Section 260-A of the Income Tax Act.The Revenue contended that mens rea is not essential for imposing a penalty under Section 271(1)(c) once concealment of income is proven. They argued that the interference by the appellate authorities was unwarranted. However, both the appellate authority and the appellate tribunal meticulously assessed the concealment issues. The appellate authority found that the excess stock concealment was explained by the assessee in the return filed under Section 139, with reasonable justification provided. The authorities concluded that there was no deliberate or intentional concealment regarding the excess stock, leading to the penalty being quashed for this aspect. On the other hand, deliberate concealment was found in the unexplained investments by partners, justifying the penalty imposition on this amount.The High Court observed that the findings of the appellate authority and the appellate tribunal were reasonable, based on a thorough evaluation of the facts. The court stated that since the concealment related to excess stock was not deliberate, the penalty could not be imposed for this aspect. The court emphasized that mens rea and interference with the penalty would only arise if deliberate concealment is established. As the findings regarding the excess stock concealment were not considered concealment by the authorities, the appeal by the Revenue was dismissed without notice to the respondent.Therefore, the High Court disposed of the appeal, finding no merit in the Revenue's challenge to the penalty imposed under Section 271(1)(c) for the Assessment Year 2001-2002.