2015 (7) TMI 1151 - AT - Income Tax

Penalty under section 271(1)(c) - unexpalined deposits - Held that - This is clearly not a case of false explanation as we have already pointed out that the explanation given by the assessee is a plausible one. Even in the order of the ITAT said explanation given by the assessee has been quoted extensively. Once the explanation given by the assessee is found not to be false to bring the case under the ambit of the Explanation to section 271(1)(c) of the Act it has to be seen that whether the same is substantiated or not. Section 68 is a deeming fiction whereby an amount which though not proved to be the income of the assessee is deemed to be so. In the present case the explanation of the assessee though was not accepted in its entirety there is no material on the basis of which it would be held that the same was not bona fide. The explanation given by the assessee has not been disproved. From the order of the AO in penalty it is quite apparent that he has not been able to record any finding with regard to concealment or furnishing of inaccurate particulars of income of the assessee. He has not even considered explanation given by the assessee and merely on the basis of ITAT order he levied the penalty. The A.O has not brought any evidence to conclude that the assessee had furnished inaccurate particulars of his income. In the quantum appeal the Tribunal has accepted explanation of the assessee to the extent of deposit of Rs. 2, 30, 000/- as explained and partly confirmed the addition stating that explanation given by the assessee was not convincing. In the above circumstances it cannot be said that the assessee has concealed his income or furnished any inaccurate particulars. - Decided in favour of assessee

Summary

Issues Involved:
1. Legality of the penalty levied under section 271(1)(c) of the Income Tax Act.
2. Explanation and substantiation of unexplained cash deposits under section 68 of the Income Tax Act.
3. Onus of proof and the role of the Explanation to section 271(1)(c) in penalty proceedings.

Detailed Analysis:

1. Legality of the Penalty Levied under Section 271(1)(c):
The primary issue in this case revolves around the penalty of Rs. 27,860/- levied under section 271(1)(c) of the Income Tax Act for the Assessment Year 2005-06. The penalty was based on the addition of Rs. 1,09,000/- as unexplained cash deposits in the assessee's bank account. The CIT(A) confirmed the penalty, but the ITAT was tasked with determining whether this penalty was justified.

2. Explanation and Substantiation of Unexplained Cash Deposits:
The assessee had deposited Rs. 3,39,000/- in cash in his bank account and issued Demand Drafts (DDs) totaling Rs. 4 lakhs to Bajrang Bali Rice Mills. The assessee claimed that these deposits were from his capital and past savings. However, the Assessing Officer (A.O.) treated Rs. 3,39,000/- as unexplained under section 69 of the Act due to the lack of documentary evidence. The ITAT accepted the explanation for Rs. 2,30,000/- but upheld the addition of Rs. 1,09,000/- as unexplained.

3. Onus of Proof and the Role of the Explanation to Section 271(1)(c):
The penalty proceedings under section 271(1)(c) were initiated based on the addition confirmed by the ITAT. The Explanation to section 271(1)(c) deems income to be concealed if the assessee offers an explanation that is false or unsubstantiated. The assessee argued that the explanation provided was not false and was plausible, even though it was not fully accepted by the authorities. The ITAT noted that the A.O. did not bring any material evidence to prove that the assessee had furnished inaccurate particulars of income. The explanation given by the assessee was found to be bona fide and not disproved. The ITAT emphasized that the conditions under section 271(1)(c) must exist independently of the quantum proceedings for the penalty to be imposed.

Conclusion:
The ITAT concluded that the penalty under section 271(1)(c) was not justified as the explanation provided by the assessee was plausible and bona fide. The A.O. failed to record any finding regarding the concealment or furnishing of inaccurate particulars of income. The Tribunal set aside the orders of the authorities below and canceled the penalty levied under section 271(1)(c) of the Act. The appeal filed by the assessee was allowed.