Yash Shah
Whether the Tribunal was right in confirming the penalty under section 271(1)(c) in respect of the inflation of purchase which was actually detected only when the assessment was subjected to audit under section 142(2A) as not a valid and correct ground?
Relevant Case – Kalpaka Bazar v. CIT (2009) 313 ITR 414 (Kar.)
Relevant Section – 271(1)(c)
- For the assessment year 1984-85, the Income-tax Officer completed the assessment of the assessee by including addition towards purchase and gross profit. In fact, search was carried out in the premises of the assessee and books of account and other documents were seized.
- Statutory audit was done under section 142(2A) of the Income-tax Act. The auditor brought out bogus purchases accounted by the assessee which represents proforma invoices not representing any actual purchases.
- Penalty is levied based on inflation of purchase value and on account of gross profit addition. However, in successive appeals, penalty attributable to gross profit addition was deleted which is final. However, the Tribunal sustained penalty pertaining to inflation of purchases.
- The High Court held that the disputed amount represents proforma invoices which do not represent actual purchases and so much so, the disputed expenditure is bogus purchase accounted by the assessee.
- Accounting of bogus purchase expenditure is nothing but concealment and, therefore, penalty was rightly levied which got confirmed in appeal.
2. Whether the penalty under section 271(1)(c) can be imposed, when positive income reduced to nil after allowing set off of carried forward losses?
Relevant Case – CIT v. R. M. P. Plasto P. Ltd. (2009) 313 ITR 397
Relevant Section – 271(1)(c)
- The Supreme Court held that where in the year under consideration there was positive income of the assessee and the loss was reduced to nil only after set off of carried forward losses of earlier years penalty for concealment of income can be imposed under section 271(1)(c) of the Income-tax Act, 1961.
- The same view has been taken by the Supreme Court in the case of CIT v. Gold Coin Health Food P. Ltd. [2008] 304 ITR 308 (SC).
3. Whether, the imposition of penalty under section 271(1)(c) was justified in view of Explanation 4(a) to section 271(1)(c) due to inaccurate particulars of income by wrongly claiming the deduction under section 80P(2)(a)(iii) of the Income-tax Act, as it was engaged in manufacturing and not in marketing business?
Relevant Case-CIT v. Budhewal Co-operative Sugar Mills Ltd. (2009) 312 ITR 92 (P & H)
Relevant Section – 271(1)(c)
- The assessee, a co-operative society, earned income from the activity of manufacturing of sugar, molasses and other by products from sugarcane. In the return of income, he claimed deduction under section 80P(2)(a)(iii) of the Act.
- The Assessing Officer disallowed the deduction claimed by the assessee under section 80P(2)(a)(iii) of the Income-tax Act, 1961 and initiated penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particulars of income.
- The Commissioner (Appeals) confirmed the disallowance and penalty imposed on the assessee. The Tribunal upheld the disallowance of deduction but cancelled the penalty levied on the assessee on the grounds that the assessee had disclosed all the particulars relating to the computation of its income, paid the tax in advance and on selfassessment and that the assessee’s claim was bona fide.
- The High Court held that the society had paid advance tax as well as self-assessment tax not taking into account the deduction claimed under section 80P(2)(a)(iii) of the Act.
- It was evident from the facts that the assessee’s claim was bona fide and that all the particulars relating to the computation of income had been disclosed. Thus, the Tribunal rightly cancelled the penalty levied.
4. Whether the imposition of penalty under section 271(1)(c) for furnished inaccurate particulars of income to the extent of making a wrong claim of share trading loss against the normal income is justified?
Relevant Case – CIT v. Auric Investment and Securities Ltd. (2009) 310 ITR 121 (Del.)
Relevant Section – 271(1)(c)
- The assessee in its return of income has claimed an amount of Rs.22,15,837 in its profit and loss account on account of share trading loss and has treated the same as normal business expense.
- However, during the assessment proceedings, the Assessing Officer found that this loss is speculative in nature and cannot be adjusted against normal income of the assessee.
- Consequently, the loss of the assessee has been assessed at the amount of Rs.85,259 against returned loss of Rs.23,05,096. The Assessing Officer also held that the assessee had furnished inaccurate particulars of income to the extent of making a wrong claim of share trading loss against normal income. Hence, he was liable for imposition of penalty.
- Therefore, penalty of under section 271(1)(c) of the Income-tax Act, 1961 was levied, for furnishing inaccurate particulars of income.
- The High Court held that it is clear from the record that all the requisite information as required by the Assessing Officer, was furnished by the assessee. There is nothing on record to show that in furnishing its return of income, the assessee has either concealed its income or has furnished any inaccurate particulars of income.
- The mere treatment of the business loss as speculation loss by the Assessing Officer does not automatically warrant inference of concealment of income. The assessee did not conceal any particulars of income, as he filed full details of the sale of shares.
- In any case, it cannot be said that the assessee has concealed any particulars so far as its computation of income is concerned and as the such provisions of section 271(1)(c) of the Act are not attracted in this case.
5. Whether the Tribunal has erred in law in deleting the penalty under section 271(1)(c) of the Act when concealed income had been brought to tax under section 147/148 of the Act ?
Relevant Case – CIT v. Pearey Lal and Sons (Ep) Ltd. (2009) 308 ITR 438 (P&H)
Relevant Section – 271(1)(c)
- The Assessing Officer completed the reassessment in respect of the assessee under section 147 of the Act and imposed penalty to the extent of 200 per cent. of the tax sought to be evaded.
- The Commissioner (Appeals) reduced the penalty to 100 per cent. The Tribunal set aside the penalty imposed by the Assessing Officer on the ground that the mention in the assessment order that “penalty proceedings under sections 271(1)(c) and 273(2)(a) of the Act were being initiated separately” did not amount to recording of satisfaction during the course of assessment in terms of section 271(1)(c) of the Act.
- The High Court held the only requirement under section 271(1)(c) of the Income-tax Act, 1961, is that during the course of assessment there must be existence of satisfaction for initiating penalty proceedings and this must be expressly reflected in the assessment order.
- There is no required format in which such satisfaction is to be recorded. An indication in the assessment order regarding the initiation of penalty proceedings separately is tantamount to an indication as to the satisfaction of the authorities that the assessee has concealed income or furnished inaccurate particulars.
- In the present case, the existence of satisfaction during the course of assessment was clear. Absence of satisfaction could not be inferred from the fact that the only words used in the assessment order were that proceedings were being separately initiated.
- The view of the Tribunal that mere mention of initiation of penalty proceedings separately did not justify initiation of penalty proceedings was to be set aside and the matter was remanded to the Tribunal for a fresh decision on the issue of penalty in accordance with law.
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