Whether penalty is warranted even in case where tax is paid to buy peace with the Revenue - NO: HC

THE issues before the Bench are - Whether penalty is warranted even in a case where tax is paid to buy peace with the Revenue and Whether when the assessee runs a small school and maintains no books, detection of some additional income during the Survey must necessarily lead to imposition of penalty after the Tribunal confirms the additions. And the verdict goes against the Revenue.

Facts of the case

The assessee is an individual who had established a small private school. A search was conducted

and it was noticed that sums of Rs.46,530/- and 48,380/- for the two years were not accounted for. Thus, the amounts were added to his income and separate orders of assessment were passed. On appeal, the CIT(A) granted him relief.

On appeal, the Tribunal upheld the order of assessment. Accordingly, the assessee paid the dues of tax, on the amounts added to his income. Subsequently, the ITO initiated proceedings under Section 271(1)(c). The assessee submitted that he had admitted to the figures as they were only the result of calculations and also he had already been subjected to tax on such amount. However, rejecting such submission, the ITO passed an order levying penalty of Rs.20,000/- each for the two assessment years. On appeal, the CIT(A) deleted the penalty levied. The Department filed an appeal before the Tribunal, which upheld the order of the ITO and directed the Assessing Officer to levy minimum penalty.

On appeal, the HC held that,

++ the assessee is not a businessman nor has he been maintaining books of account. A small school was being run by him. The maintenance of accounts was so casual and imperfect, that hardly any details of exact amount received towards fees and amount paid towards salaries were available. The record discloses that the assessee himself was so anxious to pay the tax and that when in a particular year, the income was below the minimum levels, he added some amounts and filed returns;

++ the survey did not result in recovery of any specific amount as such. The record discloses that the assessee was subjected to such an extensive grilling that as many as 50 questions were put to him and the deposition itself runs to about 10 typed pages. Ultimately, the figures were arrived at, by taking into account, the number of students and the prescribed fee. It was not even noticed that in several cases, there will be default in payment of fee and the managements of the schools have to discharge their social obligation, be it to poor students or to other important persons in the locality;

++ whatever may have been the justification in adding the figures so arrived at, to the income of the assessee, we find that there was no justification to initiate the proceedings under Section 271 (1) (c). We agree with the reasons furnished by the Commissioner and find that the Tribunal proceeded on hyper-technicalities. Many a time, an assessee would admit or even disclose certain amounts with a view to purchase peace. Such steps may result in bringing the corresponding amount to tax, but cannot be permitted to expose the assessee to penalty. It was not even alleged that the assessee had any intention to evade tax or to defraud the Revenue. In the facts of the case, we find that there was no basis to levy penalty, and accordingly, allow the appeal.