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1999 (11) TMI 29 - HC - Income Tax
Issues Involved:
1. Whether the Tribunal was right in law and fact in canceling the penalty u/s 271(1)(c) of the Income-tax Act, 1961.
Summary:
Issue 1: Validity of Penalty Cancellation u/s 271(1)(c)
The Tribunal had to determine if the penalty imposed on the assessee u/s 271(1)(c) for concealment of income was justified. The assessee, a partnership firm engaged in processing and export of sea foods, had claimed a deduction of Rs. 2,99,996 from the compensation received, which was credited to the current account of its four partners. The Assessing Officer (AO) added this amount to the disclosed income, concluding it was a device to reduce the income of the assessee. The Commissioner of Income-tax (Appeals) [CIT(A)] and the Tribunal upheld this addition, applying section 40(b) of the Act.
Tribunal's Observations:
The Tribunal noted that the agreement dated March 31, 1976, was not accepted by the AO, but the other material confirmed the CIT(A)'s conclusion. The Tribunal observed that the commission credited to Hotel Winrace Ltd. was immediately transferred to the partners' accounts, indicating an arrangement by a partner rather than the company.
Penalty Proceedings:
The AO imposed a penalty of Rs. 2,50,000 u/s 271(1)(c), which was confirmed by the CIT(A). However, the Tribunal had differing views. The Judicial Member held that the addition was upheld on different grounds than those in the assessment order, and there was no concealment. The Accountant Member believed the proceedings were valid and the claim was false, thus deeming concealment. The Third Member (Vice-President) concluded that penalty could not be imposed, as the explanation offered by the assessee was bona fide.
Legal Position:
The court examined the legislative history of section 271(1)(c) and its amendments, emphasizing the deeming provision introduced from April 1, 1976. The Explanation to section 271(1)(c) shifts the burden of proof to the assessee to show that the explanation offered was bona fide and all material facts were disclosed. The Tribunal found that the assessee's explanation regarding the commission payment was bona fide and there was no concealment of income.
Conclusion:
The Vice-President-Third Member applied the correct legal position and recorded a factual finding that penalty was not imposable. The Tribunal's conclusions were based on materials and no irrelevant material was considered. Therefore, the reference was answered in the affirmative, in favor of the assessee, and against the Revenue.