CIT vs Home De Royale

Challenge in this appeal u/s 260A of the Income Tax Act, 1961 is made to the orders passed by the Tribunal and the appellate authority in the matter of levying penalty against respondent/assessee u/s 271(1)(c) of the Income Tax Act,. 1961 for the assessment year 2001-02.

The assessee is a partnership firm trading in cloth and furnishing items. On 15-11-2000 survey at the premises of assessee was undertaken u/s 133A of the Income Tax Act, 1961. Return was filed by the assessee declaring the income of Rs. 83,157 on 21st March, 2002. The case was taken up for scrutiny and the assessing authority concluded the assessment u/s 143(3) and a total income of Rs. 9,64,940 was found. Subsequently on rectification being undertaken u/s 154 on 14th Feb., 2005 the correct income was determined at Rs. 15,88,504. However, during the course of assessment u/s 143(3) the assessing authority found that the declaration of stock done by the assessee was not tallying with the physical survey done; a difference of Rs. 9,00,000 was found unaccounted with regard to excess of stock. Similarly, concealment of income to the tune of Rs. 8,00,000 on account of unexplained investment made by the partners i.e. Rs. 2,00,000 each by four partners was found. For this concealment to the tune of Rs. 8,00,000 and Rs. 9,00,000 respectively on two counts vide order dt. 28th March, 2007 penalty proceedings u/s 271(1)(c) were initiated and a sum of Rs. 7,50,000 as penalty was assessed vide order Annex. A-1. The assessee challenged the imposition of penalty by filing an appeal before the Commissioner (Appeals) and the Commissioner (Appeals) vide its order dt. 16th Dec, 2008 held that the levying of penalty to the tune of Rs. 7,50,000 is in excess. The appellate authority found that the concealment to the tune of Rs. 9,00,000 with regard to excess of stock was not a deliberate or intentional concealment and for the said amount the penalty could not be imposed, but for the concealment of Rs. 8,00,000 it was found to be unexplained and penalty on this count was upheld. After appropriating the penalty, the amount of penalty levied was assessed at Rs. 3,13,600 and the penalty of Rs. 4,36,400 on account of concealment of stock was quashed. This order passed by the appellate authority vide Annex. A-2 was challenged before the Tribunal both by the Revenue and the assessee. The Tribunal vide Annex. A-3 allowed the appeal of assessee and dismissed the appeal of Revenue; this appeal has been filed by the Revenue u/s 260A of the Income Tax Act.

Shri Sanjay Lal, learned counsel for the petitioner took us through the orders passed by the appellate authority and the Tribunal, the reasons given by the authorities and tried to emphasize that for the purpose of imposing the penalty u/s 271(1)(c) mens rea is not an essential ingredient and once concealment of income is established no discretion is available to the competent authority to interfere with the penalty imposed or to modify it. It is stated that in perverse manner the interference is made by the appellate authority and the Tribunal and, therefore, the appeal be admitted on the questions formulated in the memorandum.

We have heard learned counsel for the Revenue at length, it is seen that for the purpose of considering the question of levying penalty, both the concealment i.e. Rs. 9,00,000 on account of difference of stock and Rs. 8,00,000 pertaining to investment by partners, both the appellate authority and the Tribunal have meticulously evaluated the matter. As far as disclosure of excess stock which was detected during survey u/s 133A is concerned, the appellate authority has evaluated the entire matter and it is found that assessee has explained the concealment and has indicated it in the return filed. It is found that the assessee has given reasonable justification for the differences with regard to excess stock. It was found that this amount was disclosed in the return filed by the assessee u/s 139 of the Act and had also paid tax on surrendered income and the assessing authority accepted the return of income filed by the assessee in this regard. Evaluating the reason given for the said concealment of excess stock after detailed analysis concurrent findings are recorded, both the appellate authorities say that there was no deliberate or intentional concealment and, therefore, on this count penalty cannot be imposed. However, with regard to concealment of Rs. 8,00,000 i.e. regarding unexplained investment by partners deliberate act of concealment is found and imposition of penalty on this amount is established. The findings, concurrent in nature recorded by the appellate authority and the Tribunal seem to be reasonable and as the exoneration from payment of penalty for concealment on account of excess stock is found to be not a concealment in accordance to the authorities concerned we see no reason to interfere into the matter in this proceeding. The concurrent findings recorded by the appellate authority and the Tribunal are based on due appreciation of the totality of facts and circumstances and the discretion exercised in the matter cannot be termed as perverse or erroneous to such an extent that a substantial question of law rises, which warrants consideration by this Court. The question of mens rea and interference with the penalty imposed would arise only if concealment deliberate in nature is found to be established. Once the concurrent findings with regard to excess stock being deducted (sic-detected) is held not to be a concealment at all we cannot accept the submission of Shri Sanjay Lal.

Accordingly, finding no merit in this appeal filed by the Revenue the same is dismissed at this stage itself without notice to the respondent.

With the aforesaid the appeal stands disposed of.