1976 (12) TMI 33 - HC - Income Tax

Court rules assessee not liable for penalties under Income-tax Act for failure to disclose income

Commissioner Of Income-Tax Versus Biju Patnaik

Commissioner Of Income-Tax Versus Biju Patnaik - [1978] 112 ITR 555, 1977 CTR 135 Issues Involved:1. Liability for penalty on income from house property.2. Liability for penalty on income from undisclosed sources (cash credit).3. Liability for penalty on capital gains.Issue-wise Detailed Analysis:1. Liability for Penalty on Income from House Property:The Tribunal examined whether the assessee was liable for penalty for not disclosing Rs. 14,050 as income from house property. The assessee had purchased a residential house in New Delhi during the assessment year but did not show any income from it, believing that no notional income needed to be disclosed since the house did not generate rental income and was not permanently occupied. The Tribunal found that the assessee's conduct was beyond reproach and lacked mala fide intention. The High Court agreed with the Tribunal's conclusion, stating that the Tribunal's finding was not erroneous and could be reached by a prudent person versed in law.2. Liability for Penalty on Income from Undisclosed Sources (Cash Credit):The Tribunal considered the imposition of penalty on Rs. 51,000, which was alleged to be income from undisclosed sources. The assessee had received a cheque from F.C. Mehra, which was endorsed to the property vendor, and the amount was later repaid to Mehra by cheque. The Tribunal noted that there was no material evidence linking the assessee to the deposit in Mehra's account, and the Inspecting Assistant Commissioner's suspicion alone was insufficient for imposing a penalty. The High Court supported the Tribunal's view, emphasizing that mere suspicion cannot form the basis for a quasi-judicial act and that the Tribunal rightly concluded no penalty was warranted. The Tribunal's reference to the Supreme Court's decision in Anwar Ali's case was deemed appropriate, reinforcing that the burden of proof lies with the revenue to establish concealment.3. Liability for Penalty on Capital Gains:The Tribunal reviewed whether the assessee should be penalized for not disclosing Rs. 30,400 as capital gains. The assessee had shown this amount in his capital account as compensation received for the termination of a lease on his Calcutta property, believing it was not taxable. The Income-tax Officer considered it as capital gain. The Tribunal accepted the assessee's explanation that there was no mala fide intention and that the amount had been disclosed in the accounts, albeit not as capital gain. The High Court concurred with the Tribunal's decision, noting that the Tribunal's conclusion was reasonable and not erroneous.Conclusion:The High Court concluded that the Tribunal was correct in holding that the assessee was not liable for penalty under section 271(1)(c) of the Income-tax Act for the three omissions from his return. The Tribunal's findings were based on the absence of mala fide intention and the peculiar facts of the case. The High Court emphasized that penalty should not be imposed merely because it is lawful to do so, particularly when the conduct is not contumacious or dishonest, as highlighted in the Supreme Court's decision in Hindustan Steel Limited v. State of Orissa. The High Court answered the reference in favor of the assessee and directed both parties to bear their own costs.