1985 (4) TMI 61 - HC - Income Tax

Summary

Issues:
1. Applicability of Explanation to s. 271(1)(c) of the I.T. Act, 1961 for assessment year 1963-64.
2. Legality of penalty imposed under section 271(1)(c) by the Inspecting Assistant Commissioner.

Analysis:
- The assessee filed its return for the assessment year 1963-64, showing an income of Rs. 2,33,085, with cash deposits of Rs. 1,65,294 in the account, including one in the name of another individual. The Income Tax Officer (ITO) treated all deposits as income from undisclosed sources, resulting in a total income of Rs. 5,27,184, initiating penalty proceedings under s. 271(1)(c) of the Act.
- The Appellate Assistant Commissioner (AAC) accepted most cash credits as genuine, reducing the income to Rs. 3,82,956. The Inspecting Assistant Commissioner (IAC) imposed a penalty of Rs. 22,500, considering a specific deposit as concealed income introduced by the assessee.
- The Tribunal, with a difference of opinion, referred the matter to a third member who held that the penalty was not justified as the Department failed to prove the alleged loan was not genuine. The third member also ruled that the Explanation to s. 271(1)(c) introduced in 1964 had no retrospective effect, hence not applicable to this case.
- Citing the Supreme Court precedent in Brij Mohan v. CIT, it was established that the law applicable is that in force when the act of concealment occurs, which in this case was when the return was filed in 1966. Consequently, the Explanation to s. 271(1)(c) was deemed applicable, leading to the cancellation of the penalty by the Tribunal.
- The High Court answered the first issue in favor of the Revenue based on the above analysis. However, the Court declined to address the second issue regarding the legality of the penalty, leaving it to the Tribunal to decide based on the provisions of the Explanation to s. 271(1)(c) as applicable at the relevant time.

This judgment clarifies the application of the Explanation to s. 271(1)(c) of the I.T. Act, 1961 for the assessment year 1963-64 and highlights the importance of establishing concealment at the time of filing the return. It emphasizes the need for the Department to provide concrete evidence to justify the imposition of penalties under tax laws and ensures that legal provisions are applied in a non-retrospective manner.