1990 (2) TMI 92

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....on. After considered the rival submissions, the appeal filed by the Department and the cross objection filed by the assessee are being disposed of as under. 2. The assessee completed the construction of a cinema theatre called 'Abhinay' in the accounting year relevant to the asst. yr. 1978-79, which is now under consideration. The ITO, in order to find out whether the assessee had disclosed proper cost of construction asked the departmental valuation officer to make an assessment of the cost of construction. The cost of the construction of the building as estimated by the departmental valuation officer was more or less the same as had been shown by the assessee. However, there was divergence with regard to the cost of Auditorium fittings....

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....T(A) was not justified to cancel the penalty. 3. We have considered the matter carefully. Sec. 271 which authorises the levy of penalty, as far as it is relevant for purpose is as under: "271(1) If the ITO or the AAC (or the Commissioner (Appeals)) in the course of any proceedings under this Act, is satisfied that any person— (a) xv xx xx (b) xx xx xx (c) has concealed the particulars of his income or furnished inaccurate particulars of such income. He may direct that such person shall pay by way of penalty,— xx xx xx xx xx xx (Explanation 1.—Where in respect of any facts material to the computation of the toal income of any person under this Act,- (A) such person fails to of....

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....see's income. Apart from the fact of addition the Department must have materials to show that the amount in question was the income of the assessee. In this case, the addition had been made on account of cost of certain items as shown by the assessee having not been accepted and on account of estimation of higher cost instead. Under the main provisions of s. 271(1)(c), this would not suffice for the imposition of penalty. The question now remaining to be examined is whether under Explanation 1 to s. 271(1)(c) imposition of penalty could be justified. This aspect of the matter was also examined by the CIT(A) and his conclusion was that even under Explanation 1 the imposition of penalty could not be justified. We are inclined to agree with th....