2017 (11) TMI 1902 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee surrendered the additional income - assessee omitted information regarding cash deposits - HELD THAT - Assessee is rustic villager and did not know about the intricacies of the law therefore surrendered the income we feel that the Id. Counsel has bonafide correct belief however we feel it appropriate to deal the instant case under the parameters of income tax laws and law settled by apex court in MAK DATA P. LTD. VERSUS COMMISSIONER OF INCOME TAX-II 2013 (11) TMI 14 - SUPREME COURT . Assessee being an un- educated and rustic villager on bonafide beliefs kept the earnest money in his bank account and waited for maturity of deal and did not show the earnest money in his Income Tax Return and was unable to demonstrate his transactions of Rs. 22, 50, 000/- to the Revenue Authorities however by filing an application u/s 29 of the I.T. Rules tried to substantiate his claim in respect of receiving earnest money of Rs. 22, 50, 000. No doubt the submissions of the assessee to the effect that the assessee had surrendered the amount in order to buy peace and subject to no penal action lacks merits. Because the Assessee sold his property by making unregistered Agreement to sell and received part payment only and somehow the said deal could not be finalized therefore he under the impression that he will return the earnest money to the buyer therefore has not shown the said amount in his income although the said circumstances have been explained to the revenue authorities however did not yield any result therefore we are of Asst. Year 2009-10 the considered view that the penalty proceedings are quasi-criminal in nature cannot be fastened only on the probabilities and from the facts as emerged that the assessee has not concealed the particulars of income hence we order for deletion of penalty. - 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. Basis for initiation and imposition of penalty.
3. Allegations of concealment of income and furnishing inaccurate particulars.
4. Evaluation of the explanation and evidence provided by the assessee.
5. Approval process by the Joint Commissioner of Income Tax under Section 274(2).
6. Consideration of voluntary surrender of income to avoid litigation.
7. Applicability of precedents and legal principles to the case.

Detailed Analysis:

1. Legality of the Penalty Levied Under Section 271(1)(c):
The assessee contested the penalty of Rs. 8,47,410/- levied under Section 271(1)(c) of the Income Tax Act, arguing that it was wrongly imposed and upheld by the CIT(A). The penalty was based on alleged concealment of income and furnishing inaccurate particulars.

2. Basis for Initiation and Imposition of Penalty:
The penalty proceedings were initiated after the Department discovered a cash deposit of Rs. 22,50,000/- in the assessee's HDFC Bank account, which was not declared in the return of income. Additionally, interest income of Rs. 2,89,769/- was also not fully disclosed. The assessee admitted the mistake and surrendered the amount to avoid litigation.

3. Allegations of Concealment of Income and Furnishing Inaccurate Particulars:
The Assessing Officer (AO) and CIT(A) held that the assessee failed to disclose material facts regarding cash deposits and interest income. They concluded that the explanation provided by the assessee was neither bona fide nor substantiated, leading to the imposition of penalty.

4. Evaluation of the Explanation and Evidence Provided by the Assessee:
The assessee claimed that the amount of Rs. 22,50,000/- was received as an advance for a property deal, which did not materialize. The assessee provided affidavits and other documents to support this claim. However, the AO and CIT(A) found the explanation insufficient and maintained the penalty.

5. Approval Process by the Joint Commissioner of Income Tax Under Section 274(2):
The assessee argued that the approval for penalty by the Joint Commissioner was granted without proper application of mind and without providing an opportunity to the assessee, making the penalty unlawful.

6. Consideration of Voluntary Surrender of Income to Avoid Litigation:
The assessee contended that the surrender of income was made to avoid litigation and buy peace of mind, subject to no penalty. The ITAT considered the Supreme Court's judgment in MAK Data P. Ltd. vs. CIT, which held that voluntary disclosure does not absolve an assessee from penalty unless supported by cogent evidence.

7. Applicability of Precedents and Legal Principles to the Case:
The ITAT referred to the Supreme Court's judgment in Commissioner of Income Tax vs. Balbir Singh Maini, which emphasized the necessity of a registered agreement to claim any right under Section 53A of the Transfer of Property Act. The ITAT found that the unregistered agreement in the assessee's case did not qualify as a transfer, and therefore, the earnest money received was not taxable.

Conclusion:
The ITAT concluded that the penalty proceedings, being quasi-criminal in nature, could not be based on mere probabilities. The assessee's explanation regarding the unregistered agreement and the earnest money was found credible. Consequently, the penalty was deleted, and the appeal was allowed.

Order Pronounced:
The appeal filed by the assessee was allowed, and the penalty of Rs. 8,47,410/- was deleted. The order was pronounced in open court on 08.11.2017.