1994 (7) TMI 120 - AT - Income Tax

Tribunal deletes penalty under section 271(1)(c) for assessee. Appeal allowed.

The Tribunal concluded that the penalty under section 271(1)(c) was not applicable in the case of the assessee and, therefore, deleted the penalty. The ... Assessing Officer, Assessment Year, In Part Issues:Appeal against penalty imposed under section 271(1)(c) challenged by the assessee.Analysis:The appeal was filed against the penalty imposed under section 271(1)(c) by the Commissioner of Income-tax (Appeals). The assessee-firm was formed with 10 partners and engaged in rice milling business. An addition of Rs. 1,43,000 was made under 'Unexplained investment by the partners,' which was later deleted by the CIT(A) and reinstated by the ITAT. The penalty of Rs. 66,670 was imposed by the Assessing Officer, which was confirmed by the CIT(A) under Explanation 1 to section 271(1)(c).The assessee contested the order, arguing that the explanation provided was not false and fell under the Proviso to Clause (B) of Explanation 1 to section 271(1)(c). The Departmental Representative emphasized that the partners' income declarations were identical, raising doubts about the source of investment. The ITAT rejected the assessee's explanation, leading to the imposition of the penalty.The Tribunal analyzed the provisions of section 271(1)(c) and Explanation 1, highlighting three situations for penalty imposition: failure to offer an explanation, offering a false explanation, or inability to substantiate the explanation. The Tribunal found that the explanation provided by the assessee was not false and could not be categorized under Explanation 1(A) to section 271(1)(c).Regarding Explanation 1(B) and the proviso, the Tribunal noted that the explanation can be substantiated by direct or circumstantial evidence. The Tribunal considered the acceptance of income and investments by the partners as a favorable inference for the assessee. The Tribunal also discussed relevant case laws to support its decision.The Tribunal concluded that the penalty under section 271(1)(c) was not applicable in the case of the assessee and, therefore, deleted the penalty. The appeal was allowed in favor of the assessee.