2008 (3) TMI 41 - HC - Income Tax

Court rules surrendering income to avoid disputes not concealment under Income Tax Act Section 271(1)(c)

The High Court dismissed the Revenue's appeal against the deletion of penalty under Section 271(1)(c) of the Income Tax Act. The Court held that the ... AO framed the assessment after making addition on account of uncorroborated freight charges – assessee surrendered Rs.12,12,880/- subject to no penal action. He surrendered just to buy peace of mind to avoid further litigation - while making the assessment AO rejected the request of the surrender made by the respondent and initiated penalty proceedings on this account - held that penalty cannot be imposed merely on account of higher income having been subsequently declared. Issues:Appeal against deletion of penalty under Section 271(1)(c) - Whether the Tribunal was right in confirming the order of CIT(A) in deleting the penalty leviedRs.Analysis:The case involved an appeal by the Revenue against the deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961. The respondent had income from various sources and filed a return declaring income of Rs.4,35,110/-. The Assessing Officer framed the assessment at an income of Rs.16,47,990/- after making additions due to uncorroborated freight charges. The Assessing Officer imposed a penalty of Rs.4,25,720/- for furnishing inaccurate particulars and concealing income. The Commissioner of Income Tax (Appeals)-II deleted the penalty, which was upheld by the Tribunal, leading to the Revenue's appeal.The Revenue argued that the respondent failed to prove the genuineness of transportation expenses and that the surrender of income was not voluntary but made after departmental investigation. However, the High Court noted that the surrender was made to avoid further litigation, citing judicial precedents where surrendering income did not imply concealment. The Court emphasized that the Revenue must prove mens rea before imposing penalties under Section 271(1)(c) and that surrendering income to avoid litigation does not necessarily indicate concealment.Referring to previous cases, the Court highlighted that penalties cannot be imposed solely based on revised returns showing higher income, especially when the additional income was declared to avoid litigation. In the present case, the Court found that no return was revised, and the transportation charges were made by suppliers, not the assessee, thus negating the allegations of concealment or furnishing inaccurate particulars. The Tribunal's factual finding of no concealment or inaccuracies further supported the dismissal of the Revenue's appeal.In conclusion, the High Court dismissed the appeal, stating that no substantial question of law arose for determination. The judgment clarified the necessity for proving mens rea before imposing penalties under Section 271(1)(c) and emphasized that surrendering income to avoid litigation does not automatically indicate concealment or inaccuracies in income reporting.