2005 (2) TMI 69 - HC - Income Tax

Penalty Cash credits filing of revised return - concealment - Whether Tribunal was right in law in cancelling the penalty levied under section 271(1)(c) particularly when the assessee had surrendered the amount of cash credit in the revised return of income when it failed to prove the genuineness of the creditors - Tribunal concurred with the reasons assigned by the Commissioner of Income-tax (Appeals) and held that the assessee by producing evidence in the form of affidavits of Naresh Kumar and two creditors has been able to prove the genuineness of the cash credits. In our opinion the findings of the Commissioner of Income-tax (Appeals) and the Tribunal on the issue of source of income of the creditors etc. are pure findings of fact - question of law framed by the appellant-revenue cannot be treated as a substantial question of law appeal dismissed

Summary

Issues Involved:
1. Whether the Tribunal was right in law in canceling the penalty levied under section 271(1)(c) of the Income-tax Act.
2. Whether the assessee failed to prove the genuineness of the creditors.
3. Whether the filing of a revised return is an admission of concealed income.

Issue-wise Detailed Analysis:

1. Cancellation of Penalty under Section 271(1)(c):
The primary issue revolves around the Tribunal's decision to cancel the penalty levied under section 271(1)(c) of the Income-tax Act. The assessee initially filed a return declaring an income of Rs. 1,60,010, but later, during the assessment proceedings, offered to surrender Rs. 2,95,000 to purchase peace, subject to no penalty and prosecution. The Assessing Officer did not accept this surrender and finalized the assessment by adding Rs. 3,40,000 as income from undisclosed sources, initiating penalty proceedings. The Commissioner of Income-tax (Appeals) directed the Assessing Officer to verify the statement of peak deposits and restrict the addition accordingly. The Tribunal dismissed the Revenue's appeal against this order. Subsequently, the Assessing Officer imposed a penalty of Rs. 1,38,310, which was upheld by the Commissioner of Income-tax (Appeals) but later remanded by the Tribunal for fresh determination. Upon reconsideration, the Assessing Officer re-imposed the penalty, but the Commissioner of Income-tax (Appeals) allowed the assessee's appeal, establishing the identity and source of income of the creditors. The Tribunal confirmed this order, noting that all particulars of loans were disclosed, and the loans were repaid. The Tribunal emphasized that the Assessing Officer must record satisfaction that the assessee concealed income, which was not done.

2. Genuineness of the Creditors:
The assessee's failure to produce all creditors except one before the Income-tax Officer and the lack of reliable affidavits raised doubts about the genuineness of the credits. The Commissioner of Income-tax (Appeals) noted that the assessee could not prove the genuineness of the credits and attempted to prolong the issue. However, the Tribunal, upon remand, found that the creditors were duly assessed to income-tax, and the loans were repaid through a middleman. The Commissioner of Income-tax (Appeals) and the Tribunal concluded that the assessee established the identity of the creditors and the source of their income, and no deliberate furnishing of inaccurate particulars or incorrect return was proven by the Department.

3. Filing of Revised Return as Admission of Concealed Income:
The appellant contended that the filing of a revised return indicated an admission of concealed income, referencing the judgment in Mahavir Metal Works v. CIT. However, the Tribunal and the Commissioner of Income-tax (Appeals) found that the assessee's surrender of the amount was to buy peace and did not necessarily imply concealment. The Tribunal highlighted that penalty proceedings are independent of assessment proceedings and required satisfaction of concealment, which was not recorded by the Assessing Officer.

Conclusion:
The High Court concluded that no substantial question of law arose for determination, affirming the Tribunal's findings. The court referenced CIT v. Ms. Monica Oswal, emphasizing that an appeal under section 260A requires a substantial question of law, which must be debatable and materially impactful. The court found that the Tribunal and the Commissioner of Income-tax (Appeals) correctly appreciated the evidence, establishing the genuineness of the cash credits and the identity of the creditors. Consequently, the appeal was dismissed, upholding the Tribunal's decision to cancel the penalty.