2016 (12) TMI 355 - HC - Income Tax

High Court upholds penalty under Income Tax Act for concealment of income in closing stock valuation.

K.K. Motwani (HUF) Versus The Assistant Commissioner of Income Tax 12 (3), Mumbai

K.K. Motwani (HUF) Versus The Assistant Commissioner of Income Tax 12 (3), Mumbai - TMI Issues involved:Challenge to penalty under Section 271(1)(c) of the Income Tax Act, 1961 for bonafide mistake vs. conscious concealment or furnishing of inaccurate particulars.Detailed Analysis:1. Factual Background:The appellant, engaged in property development, filed its income tax return for Assessment Year 2004-05 on 30th October 2004. The Assessing Officer completed the assessment on 22nd December 2006, determining the total income at Rs. 5.65 crores. Subsequently, on 25th March 2009, the assessment was reopened as income chargeable to tax had escaped assessment. In the reassessment, the total income was determined at Rs. 5.99 crores, including an addition of Rs. 34 lakhs for repurchase of five flats not included in the closing stock.2. Penalty Proceedings:The Assessing Officer initiated penalty proceedings under Section 271(1)(c) of the Act, alleging that the appellant concealed income by not adding the Rs. 34 lakhs to the closing stock valuation. The appellant contended it was a mistake, not intentional concealment. However, the Assessing Officer imposed a penalty of Rs. 11.22 lakhs, being 100% of the tax on the concealed amount.3. Appellate Proceedings:The appellant appealed to the CIT (A), who upheld the penalty, stating inaccurate particulars were furnished. The Tribunal also dismissed the appeal, concluding that by not including the Rs. 34 lakhs in the closing stock valuation, the appellant furnished inaccurate particulars leading to income concealment.4. Legal Analysis:The appellant argued before the High Court that the non-inclusion of Rs. 34 lakhs was due to a bonafide mistake, not malafide intent. They cited a Kerala High Court decision that penalty cannot be imposed without conscious concealment. However, the High Court noted that all authorities found the appellant filed inaccurate particulars leading to income concealment, attracting penalty under Section 271(1)(c).5. Judicial Interpretation:The High Court emphasized that Section 271(1)(c) imposes strict liability, not requiring wilful concealment. Referring to a Supreme Court decision, it clarified that mens rea is not essential for civil liability under this section. The High Court held that the Kerala High Court's decision cited by the appellant was no longer valid in light of the Supreme Court's ruling.6. Conclusion:Considering the findings of all authorities and the absence of evidence to show perversity in the impugned order, the High Court dismissed the appeal, stating that the appellant's explanation was unsatisfactory. The High Court held that the question raised did not present a substantial question of law, leading to the dismissal of the appeal with no costs awarded.This detailed analysis of the judgment highlights the factual background, penalty proceedings, appellate decisions, legal arguments presented, judicial interpretation, and the ultimate conclusion reached by the High Court in the case challenging the penalty under Section 271(1)(c) of the Income Tax Act, 1961.