Law:

Section:

Section 271(1)(c) , read with section 2(31) of the Income-tax Act, 1961 - Penalty - For concealment of income - Assessee-firm in its return showed certain amount as interest paid to various parties - Subsequently, some of partners of assessee-firm made declarations that some of interest payments made by assessee in names of certain other persons were in fact made to themselves - Penalty was thereafter levied on assessee under section 271(1)(c) for furnishing inaccurate particulars - Whether disclosure made by some of partners might amount to knowledge of those particular partners regarding inaccurate particulars, but that disclosure could not prove knowledge of firm about inaccurate particulars at time of filing return inasmuch as firm is distinct entity distinguished from individual partners for purposes of Act - Held, yes - Whether therefore, penalty levied on assessee-firm under section 271(1)(c) was not justified - Held, yes FACTS The assessee-firm, in its return for the relevant assessment year, showed certain amounts as interest paid to various parties. Subsequently, four out of its seven partners made declarations under section 24 of the Finance Act, 1965, that some of the interest payments made in the names of certain other persons were in fact made to themselves. The ITO made necessary addition and allocated it among the various partners. The ITO initiated penalty proceedings under section 271(1)(c) and the IAC levied penalty on the assessee. On appeal, the Tribunal found that the assessee furnished inaccurate particulars of its income and it was within its knowledge that the particulars furnished were not correct. The Tribunal further held that it was not possible to accept that the partners and the firm were separate entities in so far as the consciousness about the real state of affairs was concerned, and that the partners knew that the claim for interest was not genuine, and that they also knew that these amounts belonged to the partners themselves. In that view, the Tribunal upheld the levy of penalty. On reference: HELD It was nobody's case that at the time of filing the return, the assessee-firm had knowledge that the interest amounts shown as…

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