Law: Income Tax Act, 1961

Section: 271(1)(c)

Income-tax----Penalty---Concealment of income---Bona fide belief of assessee that income not taxable---Levy of penalty not valid---For levy of penalty Revenue has to prove assessee had knowingly concealed his income ---Assessee, a tea company, selling all its assets---Sale proceeds of tea estates from S under litigation and only one instalment paid to assessee---No interest received from W---W under liquidation and even principal amount from W not recoverable ---Assessee having no income except interest income in relevant years---Method of accounting changed from mercantile to cash system---Bona fide belief of assessee that no taxable income in hands of assessee -after switch over of method of accounting--Levy of penalty not valid---Indian Income Tax Act, 1961, S.271(1)(c). In cases where the assessee bona fide believed that his income is not taxable and he failed to disclose such income under that bona fide belief, no penalty should be imposed on the assessee under section 271(1)(c) of the Income Tax Act, 1.961. For imposition of penalty under section 271(1)(c) the Revenue has to prove that the assessee had knowingly concealed his income. The assessments of the assessee, which owned tea estates and maintained its accounts on the mercantile system, were completed under section 143(3) of the Income Tax Act, 1961, at "nil" income for the assessment years 1976-77, 1977-78, 1978-79, 1979-80 and 1981-82. All the assets of the tea estates were sold before the previous years relevant to the assessment years in question. After completion of the assessments, the Income-tax Officer found that some interest was receivable by the assessee on the amounts of sale proceeds of tea estates from S Tea Co., and some interest from W Tea Co. The assessee contended before the Income-tax Officer that the amount of sale proceeds payable by S Tea Co. was under litigation and only one instalment of the sale proceeds had been paid and the second instalment was payable in the year 1976 which had not yet been paid and no interest had been received. Similarly, no interest had been received from W Tea Co. and the company had gone into liquidation and there was no hope of recovery of even the…

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