2004 (12) TMI 312 - AT - Income Tax

Tribunal Overturns Penalty; Government-Owned Company Did Not Conceal Income or Furnish Inaccurate Particulars.

The Tribunal determined that the penalty imposed on the assessee under Section 271(1)(c) was unwarranted. It concluded that the assessee, a ... Levy of penalty u/s 271(1)(c) - Concealment Of Income Or furnished inaccurate particulars of income -Applicability of Explanation 1 to section 271(1)(c) regarding the imposition of penalty - HELD THAT:- Since the assessee had made a claim, which was open for scrutiny and assessment, the mere fact that the assessee had estimated the deterioration in stocks and had finally taken a decision only in the year 1990 does not justify the inference that the explanation of the assessee has been proved to be false. On the basis of the evidence on record and taking the totality of the facts and circumstances of this case into consideration, we are of the considered view that the explanation offered by the assessee cannot be considered to have been found to be false. In this view of the matter, Explanation 1(A) is not attracted. The assessee, in our view, had disclosed all the material facts. The assessee also disclosed that the percentage of reduction was on estimate. Nothing was concealed in regard to the claim. If all disallowances attract penalty u/s 271(1)(c), then the taxpayers would not be free to make claims which are perceived to be genuine. The revenue has not, in our view, established beyond doubt that the explanation offered by the assessee is false. In our considered view, it has got to be borne in mind that the second part of the Explanation 1(A) does not get automatically attracted if the explanation offered by the assessee is not substantiated unless the assessee fails to prove that all the material facts have been disclosed. In this case, it is the claim of the revenue that the explanation offered by the assessee is not substantiated. In our considered view, once the claim made by the assessee of allowance or deduction is not substantiated, the consequences are that assessee suffers tax in respect of the claim disallowed in assessment. As already pointed out, the mere disallowance of claim for any reason including the reason of the claim not having been substantiated with sufficient evidence, the disallowance does not automatically result in levy of penalty. The assessee having disclosed all the material facts in regard to the claim made in respect of the valuation of the closing stock, we are of the considered view that the onus which is placed by the Explanation 1(B) to section 271(1)(c) upon the assessee stood discharged. We are, therefore, of the considered view that penalty u/s 271(1)(c) is not warranted in this case. The same is accordingly deleted. In the result, the appeal of the assessee is allowed. Issues Involved:1. Legitimacy of the penalty u/s 271(1)(c) imposed on the assessee.2. Whether the assessee concealed income or furnished inaccurate particulars of income.3. Validity of the explanation provided by the assessee regarding the reduction in the value of closing stock.Summary:1. Legitimacy of the penalty u/s 271(1)(c):The appeal concerns the penalty of Rs. 1,06,09,150 u/s 271(1)(c) sustained by the CIT(A) out of Rs. 2,01,18,300 imposed by the Assessing Officer. The assessee, a Government-owned company, filed a return declaring income of Rs. 58,27,000, later revised to Rs. 72,60,868. The penalty was imposed due to the reduction in the value of closing stock by Rs. 2,12,18,295, which the Assessing Officer found unjustified. The Tribunal confirmed the addition, stating the reduction was not supported by sufficient evidence and was done on estimation.2. Whether the assessee concealed income or furnished inaccurate particulars of income:The assessee argued that it neither concealed income nor furnished inaccurate particulars, adhering to the method of valuation 'cost or market price, whichever is lower.' The reduction in value was based on reports from officers and auditors' observations. The Assessing Officer, however, initiated penalty proceedings u/s 271(1)(c), claiming the under-valuation was intended to evade tax. The Tribunal noted that the Assessing Officer recorded satisfaction regarding the proceedings u/s 271(1)(c), rejecting the assessee's contention of no concealment.3. Validity of the explanation provided by the assessee regarding the reduction in the value of closing stock:The assessee contended that the reduction was based on bona fide reports of deterioration and was disclosed in the balance sheet. The Tribunal observed that the assessee disclosed all facts regarding the valuation of stock and that the reduction was based on estimation, not actual valuation. The Tribunal held that the explanation offered by the assessee was bona fide and that all material facts were disclosed, thus not warranting the penalty u/s 271(1)(c).Conclusion:The Tribunal concluded that the assessee had not concealed income or furnished inaccurate particulars, and the explanation provided was bona fide. Therefore, the penalty u/s 271(1)(c) was not warranted, and the appeal of the assessee was allowed.