2016 (8) TMI 216 - HC - Income Tax

High Court upholds ITAT decision canceling penalty under Section 271(1)(c) of Income Tax Act for cloth manufacturer.

COMMISSIONER OF INCOME TAX-IV Versus SOMA TEXTILES & INDUSTRIES LTD

The High Court upheld the decision of the Income Tax Appellate Tribunal (ITAT) to cancel the penalty imposed under Section 271(1)(c) of the Income Tax Act ... Penalty imposed u/s. 271(1)(c) - Held that:- As the assessee is not found to be guilty of concealment or misappropriation but was found to be negligent in furnishing the accurate facts. Therefore, the entries which were made by the assessee were not found to be acceptable. The explanation with regard to the same surfaces at Paragraphs 12 and 13 of the findings of the Tribunal which have been reproduced hereinabove. Therefore, we are in complete agreement with the findings of the Tribunal. Consequently, we answer the question raised in this Appeal in favour of the assessee and against the Department Issues Involved:1. Legality of the Income Tax Appellate Tribunal's decision to cancel the penalty imposed under Section 271(1)(c) of the Income Tax Act.2. Whether the assessee was guilty of furnishing inaccurate particulars of income.Detailed Analysis:1. Legality of the Income Tax Appellate Tribunal's Decision:The Appellant Department challenged the judgment and order of the Income Tax Appellate Tribunal (ITAT) that canceled the penalty imposed under Section 271(1)(c) of the Income Tax Act. The substantial question of law framed was whether the ITAT was right in reversing the order passed by the CIT(A) and thereby canceling the penalty when quantum additions stood confirmed. The facts revealed that the assessee, a company engaged in the manufacturing and sale of cloth, was penalized for furnishing inaccurate particulars, leading to a minimum penalty of Rs. 21,06,225/- imposed by the Assessing Officer (AO) on 28.03.2003. The CIT (Appeals) confirmed this penalty, but the ITAT deleted it.2. Whether the Assessee was Guilty of Furnishing Inaccurate Particulars of Income:The Department argued that the ITAT erred in deleting the penalty, asserting that the decision to impose the penalty was justified due to the submission of inaccurate particulars by the assessee. The AO had issued a notice to the assessee indicating that an amount of Rs. 20,40,000/- was not entered in the books of accounts, suggesting suppression of income. The ITAT, however, observed that the assessee had made payments and received payments from the same party, and the explanation provided by the assessee was not proven false by the Revenue. The ITAT referenced the Gujarat High Court's decision in National Textile v. CIT, which stated that for penalty imposition, there must be material leading to the conclusion that the amount represents the assessee's income and that there was conscious concealment or furnishing of inaccurate particulars.Supporting Judgments:The respondent-assessee relied on several Supreme Court decisions, including:- Commissioner of Income-tax v. Vegetable Products (1973) 88 ITR 192 (SC)- Commissioner of Income-tax v. Orissa Corpn. (P.) Ltd. 159 ITR 78- T. Ashok Pai v. Commissioner of Income-tax, Bangalore 292 ITR 11Additionally, the decision of the Gujarat High Court in National Textiles v. Commissioner of Income-tax (249 ITR 145) was cited, emphasizing that addition under Section 68 does not automatically justify penalty under Section 271(1)(c) unless there is material leading to the conclusion of conscious concealment. The case of BTX Chemicals (P.) Ltd. v. Commissioner of Income-tax (288 ITR 196) was also referenced, where the Tribunal found that a double claim was a bona fide mistake, and penalty was rightly deleted.Conclusion:The High Court, after hearing the arguments and considering the cited judgments, concluded that the assessee was not guilty of concealment or misappropriation but was negligent in furnishing accurate facts. The Tribunal's findings indicated that the explanation provided by the assessee was not proven false by the Revenue. Therefore, the High Court agreed with the Tribunal's decision to cancel the penalty and answered the question in favor of the assessee and against the Department. The appeal was disposed of accordingly.