1985 (4) TMI 329 - AT - Income Tax

Summary

Issues:
Challenge to penalty under section 271(1)(c) of the Income-tax Act, 1961 based on legality of passing order on one legal heir and on merits.

Analysis:
1. The case involves a challenge to the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. The assessee contested the penalty on two grounds: first, the legality of passing the order on only one legal heir instead of all, and second, on the merits of the penalty.

2. The facts of the case revolve around a deceased individual who operated a business as a silversmith. During a customs search in 1976, duplicate books of account were found, leading to reassessment proceedings for multiple years. The discrepancies in income were mainly due to under-assessment of receipts and estimated profits based on the seized documents.

3. During the hearing, the counsel for the assessee acknowledged a previous court decision regarding orders passed on legal heirs but maintained the challenge on that ground. The counsel argued that the income estimation by the Income-tax Officer (ITO) was the primary reason for the income differences, questioning the imposition of penalties under section 271(1)(c).

4. The assessee's counsel contended that the ITO's estimation of income, rather than accepting the seized books, was unjustified. The department's representative, however, argued that the concealment of income was evident, supported by the assessee's admission of keeping duplicate books to evade taxes. The department justified the penalty based on mens rea and the incomplete nature of the seized books.

5. After considering the arguments and the record, the tribunal found no issue with the legality of orders passed on the legal heirs. Regarding the penalty imposition, the tribunal concluded that the case did not warrant penalties under section 271(1)(c). The tribunal noted that the ITO's decision to estimate income at a higher rate, rather than accepting the seized books, was crucial. The tribunal also considered the circumstances under which the assessee made certain statements, indicating a lack of willful concealment.

6. Consequently, the tribunal allowed all the appeals, ruling in favor of the assessee and overturning the penalties imposed by the income-tax authorities for each year under appeal.