2003 (2) TMI 158 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty u/s 271(1)(c) for assessment years 1980-81 and 1982-83.
2. Voluntariness of the disclosure made by the assessee.
3. Adequacy of opportunity for cross-examination of creditors.
4. Limitation period for passing penalty orders.
5. Justification of penalty at the maximum rate.

Summary:

1. Levy of Penalty u/s 271(1)(c):
The assessee appealed against the levy of penalty u/s 271(1)(c) for AY 1980-81 and 1982-83. The Tribunal noted that the penalties were imposed due to the denial of loans by four creditors during a search u/s 132. The Tribunal had previously remitted the matter back to the Assessing Officer (AO) to provide the assessee an opportunity to cross-examine the creditors.

2. Voluntariness of Disclosure:
The assessee filed a petition u/s 273A declaring additional income, including the surrendered loans. The CIT rejected the petition, stating the disclosure was not voluntary. The Tribunal had earlier accepted that the additional income was disclosed to buy peace, except for the loans from the four creditors who denied the loans.

3. Adequacy of Opportunity for Cross-Examination:
The AO provided the assessee with copies of the creditors' statements only ten days before the penalty order was passed. The assessee argued that due to the lapse of 10-12 years, it was impossible to produce the creditors for cross-examination. The Tribunal found that the AO did not provide adequate opportunity for cross-examination, thus violating the principles of natural justice.

4. Limitation Period for Passing Penalty Orders:
The assessee contended that the penalty orders were barred by limitation u/s 275(1)(a). The Tribunal held that the limitation period applies to original penalty orders, not to orders passed afresh following a Tribunal's direction.

5. Justification of Penalty at Maximum Rate:
The AO imposed the penalty for AY 1980-81 at the maximum rate, while for AY 1982-83 at the minimum rate. The Tribunal found no justification for the maximum rate and directed the penalty for AY 1980-81 to be levied at the minimum rate.

Third Member Opinion:
The Third Member agreed with the Judicial Member that penalties were not warranted. The Third Member emphasized that the loans were through account payee cheques, and confirmations with PAN numbers were provided. The surrender was made to buy peace, and the AO did not prove the explanation false or lacking bona fide. Therefore, the case did not fall under Explanation 1 to section 271(1)(c).

Final Decision:
Respecting the Third Member's opinion, the Tribunal reversed the CIT(A)'s orders and canceled the penalties for both assessment years. The appeals filed by the assessee were allowed.