2014 (3) TMI 762 - HC - Income Tax

High Court ruling: Penalty upheld for concealment of deposits, but not for balance sheet differences.

The Andhra Pradesh High Court upheld the penalty under Section 271(2) of the Income Tax Act for concealment of refundable empty bottle deposits but ruled ... Penalty u/s 271(2) of the Act – Concealment of refundable empty bottle deposit -Whether the Tribunal is justified in upholding the levy of maximum penalty u/s 271(2) of the Act – Held that:- The Tribunal recorded a finding that the assessee did not disclose the income on account of refundable empty bottle deposit and servicing and packing charges either in the profit and loss account or in the balance sheet besides not claiming exemption in respect thereof in Part-IV of the Return - there was a deliberate and wanton concealment on the part of the assessee, and this finding is not dislodged in any manner by the assessee - the distinguishing aspect which is sought to be made, has no distinction at all - in the absence of dislodging the finding of the Tribunal to the effect that there was a deliberate concealment of the refundable empty bottle deposits by not disclosing the same either in profit and loss account or in the balance sheet, the levy of penalty as provided under Section 271(c) of the Act on the facts of the case, cannot be found fault with – Decided against Assessee. Penalty for unreconciled difference in balance sheet – Held that:- The differences in the balance sheet can be the result of various wrong entries - The AO himself noticed some wrong entries like the understatement of purchases and understatement of sundry creditors and no motive of concealment can be attributed to these wrong entries – thus, there is no justification for the levy of penalty u/s 271(1)(c) of the Act - there is no contra finding given by the Tribunal – Decided in favour of Assessee. Issues:1) Justification of upholding the levy of maximum penalty under Section 271(2) of the Income Tax Act for concealment of refundable empty bottle deposit.2) Justification of upholding the maximum penalty arising on account of unreconciled difference in the balance sheet.Analysis:The judgment by the Andhra Pradesh High Court involved a reference from the Tribunal regarding the levy of penalties under Section 271(2) of the Income Tax Act for the assessment year 1982-83. The primary question was whether the Tribunal was justified in upholding the penalties and if its findings were flawed due to the non-consideration of relevant factors. The Tribunal had upheld penalties on the concealment of refundable empty bottle deposit and unreconciled differences in the balance sheet. The assessee, engaged in the liquor business, contested the penalties imposed. The Tribunal found deliberate concealment by the assessee regarding the refundable empty bottle deposits, which came to light during Revenue's search operations. The Tribunal noted that the Supreme Court had ruled such amounts as trading receipts to be disclosed in profit and loss accounts. The Tribunal rejected the assessee's contentions based on previous judgments. However, the Tribunal's decision on the penalty related to the unreconciled difference in the balance sheet was not supported by a detailed discussion or a contrary finding to the one made by the first appellate authority.The Court examined the arguments presented by both parties. The counsel for the assessee contended that the Tribunal's reasoning for overturning the first appellate authority's decision was flawed. The counsel highlighted the distinction between judgments cited and argued that the Tribunal failed to address the penalty related to the unreconciled balance sheet differences adequately. On the other hand, the Senior Counsel for the Department supported the Tribunal's decision. The Court observed that while the concealment of refundable empty bottle deposits was established by the Tribunal, the penalty for unreconciled balance sheet differences lacked a robust justification. The first appellate authority's clear finding on the balance sheet differences was not contradicted by the Tribunal, leading the Court to rule in favor of the assessee on this issue.In conclusion, the Court answered the first question in favor of the Revenue and against the assessee, upholding the penalty for concealment of refundable empty bottle deposits. However, the second question was answered in favor of the assessee and against the Revenue, as the Tribunal's decision on the penalty related to unreconciled balance sheet differences lacked sufficient reasoning. The referred case was disposed of accordingly, with no costs awarded. Any pending miscellaneous petitions were deemed infructuous following the judgment.