1988 (7) TMI 101 - AT - Income Tax

Penalty For Concealment Concealment Of Income Penalty False Estimate Or Failure To Pay Advance Tax

Summary

Issues Involved:
1. Penalties under sections 273(a) and 271(1)(c) of the Income-tax Act.
2. Bona fide belief and non-disclosure of income.
3. Full disclosure of material facts.
4. Change in the method of accounting.
5. Approval of penalty imposition.
6. Waiver of interest under section 215.

Detailed Analysis:

1. Penalties under sections 273(a) and 271(1)(c) of the Income-tax Act:
The Income-tax Officer (ITO) imposed penalties on the assessee-company for the assessment years 1977-78 and 1978-79 for non-disclosure of income and furnishing inaccurate particulars under sections 273(a) and 271(1)(c). The Commissioner (A) canceled these penalties, leading to the present appeals by the revenue.

2. Bona fide belief and non-disclosure of income:
The assessee-company did not account for the consultancy commission due from a firm for the years ending 31st August 1975 and 31st August 1976. The company argued that due to disputes within the firm and the appointment of a Receiver by the Bombay High Court, it had a bona fide belief that it would not receive the commission. The Commissioner (A) held that the assessee had a bona fide reason to believe that it would not receive the commission and thus was not guilty of concealment of income.

3. Full disclosure of material facts:
The assessee-company disclosed all relevant facts to the Income-tax authorities, including the disputes within the firm and the termination of the sole selling agency by M/s Modipon Ltd. The Commissioner (A) noted that the inclusion of the commission income in the assessment was due to a difference in interpretation of events, not due to non-disclosure of material facts.

4. Change in the method of accounting:
The ITO argued that the assessee-company, which followed the mercantile system of accounting, should have accounted for the commission income on an accrual basis. The assessee-company contended that it accounted for the commission on a receipt basis due to the uncertainty of receiving the income. The Tribunal upheld the view that the assessee's belief was bona fide and that the change in the method of accounting was justified under the circumstances.

5. Approval of penalty imposition:
The assessee argued that for the assessment year 1978-79, the ITO should have obtained the approval of the Inspecting Assistant Commissioner before imposing the penalty. The absence of such approval rendered the penalty invalid.

6. Waiver of interest under section 215:
The Commissioner of Income-Tax and the Inspecting Assistant Commissioner waived the interest payable under section 215 for the assessment years 1977-78 and 1978-79, respectively. This waiver was based on the assessee's bona fide belief and the Board of Directors' resolution. The Tribunal noted that this waiver supported the assessee's claim of a bona fide belief regarding the non-receipt of the commission.

Conclusion:
The Tribunal upheld the orders of the Commissioner (A), concluding that the assessee held a bona fide belief regarding the non-receipt of the commission and disclosed all material facts. Thus, the non-disclosure of the commission income did not amount to concealment of income, and the penalties under sections 271(1)(c) and 273(a) were not justified. The appeals by the revenue were dismissed.