Tribunal Cancels Income Tax Penalties, Highlights Judicial Discretion and Voluntary Revised Returns Submission.

The Tribunal determined that the penalties imposed under section 271(1)(c) of the Income Tax Act should be canceled. It concluded that the revised returns were filed voluntarily by the assessee before the Assessing Officer had decided on the taxability of the credits. Emphasizing the discretionary power of the Assessing Officer, the Tribunal highlighted the need for judicial exercise of discretion, referencing the Supreme Court's stance that penalties should not be imposed merely because it is lawful. Consequently, the Tribunal directed the cancellation of the penalties, thus allowing the appeals filed by the assessee.

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Issues Involved:
1. Legitimacy of the penalty levied under section 271(1)(c) of the Income Tax Act.
2. Validity of the revised returns filed by the assessee.
3. Discretionary power of the Assessing Officer in levying penalties.

Detailed Analysis:

1. Legitimacy of the Penalty Levied under Section 271(1)(c) of the Income Tax Act:
The appeals were filed by the assessee for the assessment years 1990-91 and 1991-92 against the penalty levied by the Assessing Officer under section 271(1)(c) of the Income Tax Act, which was confirmed by the CIT (Appeals). The penalty was based on the discovery of a benami Savings Bank account operated by the assessee, which led to the reopening of assessments and subsequent declaration of peak unexplained credits by the assessee. The Assessing Officer initiated penalty proceedings, asserting that the revised returns were filed only after detailed investigation and thus could not be considered voluntary. The CIT (Appeals) upheld this view, stating that the assessee had wilfully furnished inaccurate particulars of income and failed to prove the bona fides of his explanation.

2. Validity of the Revised Returns Filed by the Assessee:
The assessee declared additional income in revised returns filed in response to a notice under section 148 of the Act, admitting the transactions in the benami bank account. The assessee contended that the peak credits were offered to purchase peace with the Department and that the returns were filed voluntarily before the Assessing Officer could decide on the taxability of the credits. The assessee's counsel argued that the penalty should not be levied merely because the addition was agreed to and cited several judicial precedents to support this contention.

3. Discretionary Power of the Assessing Officer in Levying Penalties:
The Tribunal examined whether the penalty under section 271(1)(c) is automatic even if the assessee corrects his mistake. It was noted that the Assessing Officer has discretionary power under section 271(1)(c) to levy or not levy a penalty. The Tribunal observed that the assessee had voluntarily filed revised returns and cooperated with the Assessing Officer. The Tribunal emphasized that the Assessing Officer should exercise discretion judicially and consider the circumstances in which the revised returns were filed. The Tribunal referred to the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa, which held that penalty should not be imposed merely because it is lawful to do so, and the discretion should be exercised judicially.

Conclusion:
The Tribunal concluded that the case was fit for cancelling the penalty, particularly since the revised returns were filed voluntarily and the Assessing Officer had not made up his mind to add the income in the assessee's hands at the time of filing. The Tribunal directed the Assessing Officer to cancel the penalty, allowing the appeals filed by the assessee.

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