Penalty rightly deleted u/s 271(1)(c) (of Income Tax Act, 1961) as AO recorded unexplained income. HC

1. A search and seizure operation was conducted at the premises of the director of the assessee-company and certain documents were seized. Notice under section 158BC (of Income Tax Act, 1961) for the block period, i.e., the assessment years 1991-92 to 2001-02 was issued against the assessee-company which filed its block return.

2. During block assessment proceedings, the Assessing Officer sought assessee's explanation as regards the entries recorded in the seized documents. A part of total amount recorded in said documents was claimed to have been recorded twice in the books of account. The Assessing Officer accepted said explanation.

3. For remaining amount, the assessee stated that said sum was spent by the director of the assessee from and out of the imprest account of Rs. 25 lakhs, which had been given to him for the purpose of incurring expenditure on behalf of the company. That was not accepted by the Assessing Officer. Consequently, he made addition of that amount on the ground that those expenses were not recorded in the books of account vis-a-vis documents seized during search. In appeal, the Commissioner (Appeals) and the Tribunal upheld the addition.

4. Thereafter, the Assessing Officer imposed penalty under section 271(1)(c) (of Income Tax Act, 1961) upon the assessee. On appeal, the assessee raised specific plea with respect to the non-recording of satisfaction in the block assessment order regarding levy of penalty and it was contended that in the absence of such satisfaction, the penalty proceedings were bad.

5. The Commissioner (Appeals) deleted the penalty holding that the Assessing Officer was not justified in levying penalty merely on the ground that additions had been upheld by the Tribunal. On the revenue's appeal, the Tribunal reversed the order of the Commissioner (Appeals) holding that the explanation of the assessee that imprest money of Rs. 25 lakhs was utilized for making the expenditure recorded in the seized documents, could not be accepted as correct.

On appeal HC held as under:

6. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi. In order to be covered within the proviso to section 271(1) (of Income Tax Act, 1961)(c ), there has to be concealment of particulars of income by the assessee or the assessee must have furnished inaccurate particulars of income. Incorrect claim may not amount to furnishing of inaccurate particulars. Everything depends upon the return filed by the assessee, because that is the only document where the assessee can furnish particulars of his income. When such particulars are furnished inaccurately, the liability would arise.

7. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth of erroneous. Mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding income of assessee and such a claim cannot amount to furnishing inaccurate particulars. The order imposing penalty is quasi-criminal in nature and the burden lies on the department to establish that the assessee had concealed his income or furnished inaccurate particulars.

8. Findings in assessment proceedings constitute good evidence in the penalty proceeding, but the authorities must consider the matter afresh. The prima facie satisfaction of the Assessing Officer that the case may deserve the imposition of penalty, can be discerned from the order passed during the course of assessment proceedings. The initiation of penalty proceedings cannot be set aside only on the ground that assessment order states that penalty proceedings are initiated separately, if otherwise it conforms to the parameters set out.

9. In the instant case, from the order of the authorities below in the quantum proceedings and also the order of the Assessing Officer in the penalty proceedings as confirmed by the Tribunal, it would be seen that all the authorities had recorded the plea of imprest amount of the assessee, as an afterthought. The explanation furnished by the assessee was evidently found to be false. The Tribunal's order in quantum proceedings would show that different amounts had been credited to the account of director of the assessee on different dates.

10. There being no expenditure of those amounts, it specifically noted that at one point of time, a sum of Rs. 2,65,000 was advanced to the director up to 26-5-1997 and still further sum of Rs. 1,75,000 was advanced on 14-9-1997 without taking account of the earlier amount. Similarly, there was an advance of Rs. 9,40,000 up to 7-10-1997 and without taking account of that amount, further amount of Rs. 10 lakhs was advanced on 21-1-1998.

11. In that way, a total sum of Rs. 25 lakhs was advanced without there being any utilization towards expenditure. Prior to the date of search, those expenses were not recorded in the books of account of the assessee and even uptill September 2001. From the above noted order of the authorities below, it was clearly discernible that the Assessing Officer had recorded prima facie satisfaction that the unexplained amount of expenditure recorded in the seized documents was the unexplained income.

12. It could not be said to be a mistake committed by the assessee in not making entries for such a long time. It was a clear case of furnishing inaccurate particulars of the income by the assessee. From all that, it was established that the Assessing Officer had arrived at satisfaction during the course of proceedings before initiating penalty proceedings. The prima facie satisfaction was discernible from the order of the Assessing Officer.

13. Therefore, the Tribunal was justified in reversing the order of the Commissioner ( Appeals) who deleted the penalty under section 271 (of Income Tax Act, 1961)( 1)(c). Consequently, the appeal was to be dismissed. 

Case Reference-Astra Housing & Investment (P.) Ltd. v. Commissioner of Income-tax

HIGH COURT OF DELHI