2011 (3) TMI 156 - HC - Income Tax

Penalty - Concealment of income - Addition in respect of excessive expenses which remained unsupported/ substantiated and were not found to be genuine - mere fact that the assessee could not furnish evidence in support of the expenses claimed was not by itself enough to hold that the assessee had furnished incorrect particulars of income consciously - Substantial part of the expenses claimed was duly explained by the assessee - In the present case the Tribunal has analysed the facts and held that the assessee could not be held to have consciously given inaccurate particulars - penalty not to be imposed.

Summary

Issues:
1. Justification of canceling penalty under Section 271(1)(c) by the Ld. CIT(A).
2. Justification of canceling penalty by the Ld. ITAT based on conscious concealment of income through excessive expenses.

Analysis:

Issue 1:
The appeal was filed by the revenue against the order of the Income Tax Appellate Tribunal (ITAT) canceling the penalty under Section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer disallowed the labour expenses claimed by the assessee for loading and unloading of wheat bags, citing lack of evidence to support the claim. The CIT (A) and further appeals reduced the disallowance. The Tribunal set aside the penalty, stating that the disallowance of expenses did not automatically warrant a penalty. The Tribunal found no evidence of conscious concealment of income by the assessee. The Tribunal highlighted that the books of account were audited, and the profit declared was accepted by the department in previous years. The Tribunal concluded that there was no conscious act by the assessee to conceal income or provide inaccurate particulars. Therefore, the penalty was unjustified, and the Tribunal directed its deletion.

Issue 2:
The appellant contended that since the addition on disallowance of expenses was upheld by the Court, the burden of proof was on the assessee to justify the claimed expenses. However, the Court rejected this argument, stating that the mere inability of the assessee to substantiate the expenses did not automatically imply conscious furnishing of incorrect income particulars. The Tribunal's analysis revealed that a substantial part of the expenses claimed was explained by the assessee, and the books of account were audited. The Tribunal concluded that there was no conscious intent to provide inaccurate particulars. Therefore, the Court dismissed the appeal, stating that no substantial question of law arose for consideration in this case.

In conclusion, the judgment emphasized that the disallowance of expenses alone did not establish conscious concealment of income. The Tribunal's detailed analysis of the facts led to the cancellation of the penalty, highlighting the importance of distinguishing between quantum proceedings and penalty imposition.