1999 (9) TMI 133 - AT - Income Tax

Tribunal sets aside penalty for disputed income but confirms penalty for failure to substantiate credits.

The Tribunal set aside the penalty imposed for income of Rs. 1,32,000 as the matter of royalty payment was under dispute and later disclosed by the ... Penalty Issues Involved:1. Imposition of penalty under section 271(1)(c) on income of Rs. 1,32,000.2. Imposition of penalty under section 271(1)(c) on income of Rs. 1,02,000.Issue-Wise Detailed Analysis:1. Imposition of penalty under section 271(1)(c) on income of Rs. 1,32,000:The appeal is directed against the confirmation of penalty under section 271(1)(c) by the CIT (Appeals) concerning income of Rs. 1,32,000. The assessee had initially claimed a deduction of Rs. 94.05 lakhs on account of payment of royalty to the Arunachal Pradesh Relief and Welfare (Charitable) Society. The Assessing Officer (AO) observed that the guaranteed royalty was Rs. 1.65 lakhs per draw, but the assessee had claimed Rs. 2.97 lakhs, leading to an addition of Rs. 1,32,000 to the total income. The CIT (Appeals) confirmed this addition as the assessee did not contest it.However, the Tribunal found that the matter of royalty payment was under dispute and the assessee had disclosed the amount of Rs. 2.97 lakhs in the subsequent assessment year 1988-89. The Tribunal concluded that the assessee could not be held guilty of concealment of Rs. 1,32,000 because the matter was pending settlement and was disclosed once settled. Therefore, penalty under section 271(1)(c) cannot be imposed for the amount of Rs. 1,32,000.2. Imposition of penalty under section 271(1)(c) on income of Rs. 1,02,000:The AO noticed that the assessee received security deposits from various stockists but failed to provide confirmatory letters or evidence to prove the genuineness of these credits, leading to an addition of Rs. 1,02,600 under the head 'Other sources'. The CIT (Appeals) confirmed this addition due to lack of evidence from the assessee. During penalty proceedings, the assessee could not provide satisfactory explanations, invoking Explanation 1 to section 271(1)(c).The Tribunal noted that under Explanation 1 to section 271(1)(c), if a person fails to offer an explanation or offers an explanation which is found to be false, the amount added or disallowed shall be deemed to represent the income in respect of which particulars have been concealed. The Tribunal referred to various case laws, including CIT v. Ganpatrai Gajanand and CIT v. Prathi Hardware Stores, to emphasize that the burden of proof lies on the assessee to provide a bona fide explanation and substantiate it with evidence. Since the assessee failed to discharge this burden, the Tribunal confirmed the levy of penalty for the concealed income of Rs. 1,02,000.In conclusion, the appeal is partly allowed, with the penalty for Rs. 1,32,000 being set aside, while the penalty for Rs. 1,02,000 is confirmed. The Assessing Officer is directed to recalculate the penalty based on the concealed income of Rs. 1,02,000.