1995 (2) TMI 98 - AT - Income Tax

Summary

Issues Involved:
1. Genuineness of cash credits
2. Levy of penalty under section 271(1)(c)
3. Quantum of penalty based on finally assessed income

Detailed Analysis:

1. Genuineness of Cash Credits:

The assessee-firm, engaged in the manufacture and sale of RCC Spun Pipes, filed its return of income for the assessment year 1979-80 showing a loss of Rs. 1,54,360. Upon reopening the assessment, the AO noticed cash credits totaling Rs. 2,24,140. The assessee failed to produce books of accounts, claiming they were lost, but furnished confirmatory letters. The AO found the explanation unsatisfactory and considered the credits as the assessee's income from undisclosed sources. This decision was upheld by the DCIT(A) and partially by the Tribunal, which confirmed the addition of Rs. 2,14,000 but remanded the issue of Rs. 10,140 to the AO for verification.

2. Levy of Penalty under Section 271(1)(c):

The AO initiated penalty proceedings under section 271(1)(c) for concealment of income related to the unexplained cash credits. The penalty was confirmed by the CIT(A) but limited to the three cash credits totaling Rs. 2,14,000. The assessee argued that mere addition of cash credits does not prove concealment of income and that the AO did not specify which Explanation under section 271(1)(c) was invoked. The Tribunal noted that the AO's failure to specify the Explanation did not invalidate the penalty, as the assessee was aware of the charges against it.

3. Quantum of Penalty Based on Finally Assessed Income:

The Tribunal emphasized that penalty under section 271(1)(c) should be based on the income finally assessed. The assessee's income was finally determined at Rs. 62,651 after giving effect to the Tribunal's order. The Tribunal referred to the decisions of the Hon'ble Madhya Pradesh High Court in Jaora Oil Mill and the Hon'ble Punjab and Haryana High Court in Prithipal Singh & Co., which support the view that penalty should be levied on the finally assessed income. Consequently, the Tribunal directed that the penalty be recomputed based on the finally assessed income.

Conclusion:

The appeal filed by the assessee was partly allowed. The Tribunal directed that the penalty under section 271(1)(c) be recomputed based on the income finally assessed, which was Rs. 62,651, subject to verification of the Rs. 10,140 credit. The Tribunal upheld the addition of Rs. 2,14,000 as the assessee's concealed income but provided relief by ensuring that the penalty was calculated on the correct quantum of income.