2018 (6) TMI 1399 - HC - Income Tax

High Court affirms Tribunal's decision on tax penalties under Income Tax Act, dismissing Revenue's appeal.

The High Court upheld the Tribunal's decision to set aside penalties under Section 271(1)(c) of the Income Tax Act for excessive deduction claimed under ... Penalty u/s 271(1)(c) - excessive deduction claimed under Section 10B - Held that:- Since the Tribunal has reiterated the findings of facts that both the additions made to the income of the Assessee having been set aside following the decision of the High Court in the case of Tata Elxsi Ltd.,[2011 (8) TMI 782 - KARNATAKA HIGH COURT] as far as issue of Section 10B is concerned Additions made in the income on account of alleged excess stock - the said alleged excess stock was not as a result of purchases made outside the books of accounts, but was only on account of wrong entries in the books of accounts and in any case the higher stock in trade declared as closing stock in a particular year would be taken as opening stock at the beginning of the next year and therefore the tax effect of such alleged excess stock is ‘Nil’ and thus it being a tax neutral entry, no concealment on the part of the Assessee, attracting penalty under Section 271[1][c] - Decided in favour of assessee. Issues Involved:1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act for excessive deduction claimed under Section 10B.2. Imposition of penalty for additions made in income due to alleged excess stock.Issue-wise Detailed Analysis:1. Imposition of penalty under Section 271(1)(c) for excessive deduction claimed under Section 10B:The Tribunal set aside the penalty imposed by the Assessing Authority for the excessive deduction claimed under Section 10B of the Income Tax Act. The Tribunal applied the ratio from the Supreme Court's decision in Reliance Petro Products Pvt. Ltd. and the jurisdictional High Court's decision in Manjunatha Cotton & Ginning Factory, concluding that 'mere addition to returned income does not result in automatic levy of penalty.' The Tribunal found no evidence from the Assessing Officer (AO) that the explanation provided by the assessee in response to the show-cause notice was false or not bona fide. Thus, the penalty was deleted.2. Imposition of penalty for additions made in income due to alleged excess stock:The Tribunal also set aside the penalty related to the addition made on account of excess stock. The Tribunal noted that the excess stock was due to wrong entries in the books of accounts and not from purchases made outside the books. It was observed that the higher stock declared as closing stock in one year would be the opening stock for the next year, making the tax effect 'Nil' and thus tax neutral. The Tribunal emphasized that the AO did not provide a finding on how the assessee furnished inaccurate particulars of income, which is a requisite under Section 271(1)(c). The Tribunal referenced several judicial precedents, including CIT v. Balbir Singh and National Textiles v. CIT, to support its decision that the penalty order lacked the necessary findings and was therefore quashed.Additional Considerations:The Revenue's counsel argued that the surrender of income by the assessee after a search under Section 132 of the Act was not voluntary and justified the penalty. However, the Tribunal found that the explanation provided by the assessee was bona fide and not false, distinguishing the case from MAK Data (P) Ltd. v. CIT, where the Supreme Court upheld the penalty due to lack of explanation for concealment.Conclusion:The High Court upheld the Tribunal's findings, agreeing that the additions made to the income were set aside based on the High Court's decision in Tata Elxsi Ltd. for Section 10B and the tax-neutral nature of the excess stock. The High Court found no substantial question of law in the Revenue's appeal, leading to its dismissal. The appeal was dismissed without costs, affirming the Tribunal's decision to set aside the penalties under Section 271(1)(c).