2013 (8) TMI 876 - AT - Income Tax

Penalty under section 271(1)(c) - addition u/s 68 - Held that - Imposition of penalty under section 271(1)(c) is not simply a consequence of an addition being made to the income of the appellant. Penalty under section 271(1)(c) irrespective of whether it is a civil liability or criminal liability can only be imposed when the scheme of the Act permits or requires so. It is not an automatic consequence of an addition being made to the income. An addition made during the course of assessment proceedings by itself cannot be enough to initiate leave aside conclude penalty proceedings. See Rupam Mercantile Ltd. v. Deputy CIT 2004 (7) TMI 274 - ITAT AHMEDABAD-A - Penalty deleted - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Genuineness and creditworthiness of the lender in relation to the advance received.
3. Admissibility of additional evidence regarding the loan creditor.
4. Deletion of penalty based on the debatable nature of the addition upheld by the Tribunal.

Issue 1: Confirmation of penalty under section 271(1)(c) of the Income-tax Act, 1961:
The appeal was against the penalty confirmed by the Commissioner of Income-tax (Appeals) under section 271(1)(c) of the Income-tax Act, 1961. The appellant contested the imposition of the penalty amounting to Rs. 91,89,181 on the addition made during the assessment proceedings for an advance received from M/s. Kuber Developers. The appellant argued that the penalty should not be imposed solely based on the addition to income and that the Act must permit or require such penalties. The Tribunal noted that the penalty under section 271(1)(c) cannot be automatic and must be considered separately from the addition made during assessment proceedings.

Issue 2: Genuineness and creditworthiness of the lender in relation to the advance received:
The appellant provided various evidence during the assessment proceedings to establish the genuineness and creditworthiness of the lender, including loan confirmation, bank statements, and receipts confirming the advance receipt and repayment. However, the Commissioner of Income-tax (Appeals) concluded that the appellant failed to prove the genuineness and creditworthiness of the lender. The Tribunal emphasized the importance of establishing the legitimacy of transactions involving advances and scrutinized the evidence presented by the appellant in this regard.

Issue 3: Admissibility of additional evidence regarding the loan creditor:
The appellant sought to introduce additional evidence related to the loan creditor, Mr. Mahendra Mansingh Arora, including his return of income, balance-sheet, and profit and loss account for the assessment year 2006-07. However, the Tribunal considered whether the additional evidence was admissible, particularly since it was not filed earlier before the relevant authority. The Tribunal examined the relevance and timing of submitting additional evidence in the context of the case.

Issue 4: Deletion of penalty based on the debatable nature of the addition upheld by the Tribunal:
The Tribunal reviewed precedents where penalties were deleted when the quantum addition was considered debatable or when substantial questions of law were admitted by the High Court. In cases where the High Court admitted substantial questions of law related to additions, it was deemed that the additions were debatable. Consequently, the Tribunal held that penalties under section 271(1)(c) should not be imposed in such circumstances. The Tribunal cited previous cases to support the deletion of penalties based on the debatable nature of the additions upheld by the Tribunal.

In conclusion, the Tribunal allowed the appeal, setting aside the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961. The decision was based on the debatable nature of the additions upheld by the Tribunal and the admission of substantial questions of law by the High Court, indicating that the penalties were not warranted in this case.