2017 (11) TMI 2071 - AT - Income Tax

Penalty u/s. 271(1)(c) - cash receipts on the sale of property - HELD THAT - As additions on which the penalty in dispute was levied has already been deleted by the ITAT 2016 (11) TMI 1365 - ITAT DELHI in assessee s own case as aforesaid hence the penalty in dispute will not survive. Appeal filed by the Assessee stands allowed.

Summary

The core legal questions considered by the Tribunal in this appeal pertain to the validity and justification of the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961, in relation to alleged undisclosed income arising from cash receipts on the sale of property. Specifically, the issues were:

1. Whether the penalty under section 271(1)(c) was rightly imposed on the assessee for concealment of income based on the addition of Rs. 15,00,000/- purportedly received in cash from the sale of property.

2. Whether the assessee was afforded a proper opportunity of being heard before confirming the penalty.

3. Whether the quantum addition on which the penalty was based was sustainable in law, given that the same was later deleted by the Income Tax Appellate Tribunal (ITAT) in the assessee's own case.

Issue-wise Detailed Analysis:

1. Validity of Penalty under Section 271(1)(c) for Concealment of Income

Relevant Legal Framework and Precedents: Section 271(1)(c) of the Income Tax Act empowers the assessing officer to levy penalty if any person conceals particulars of income or furnishes inaccurate particulars. The burden lies on the revenue to establish concealment or inaccurate particulars. The evidentiary value of seized documents during search proceedings is governed by section 292C, which creates a rebuttable presumption that such documents belong to the person in possession.

Several precedents were relied upon by the Tribunal to assess the evidentiary value of loose sheets and seized documents, including:

• Vatika Landbase Pvt. Ltd. - where the Delhi High Court held that "mere notings on loose papers" without corroborative evidence cannot sustain additions;
• Delco India Pvt. Ltd. - emphasizing the rebuttable nature of presumption under section 292C and the need for independent enquiry;
• P. Koteshwara Rao - where the ITAT held that loose sheets and third-party statements without corroboration cannot be treated as conclusive evidence of on-money transactions;
• K.V. Lakshmi Savitri Devi - where the Tribunal and High Court stressed that additions based on "dumb documents" or loose sheets found at third-party premises lacking nexus to the assessee cannot be sustained;
• CBI vs. VC Shukla - holding that loose sheets cannot be considered books of account;
• CIT vs. PV Kalyansundaram and CIT vs. Girish Chaudhary - reinforcing that vague notings on loose papers are insufficient to prove undisclosed income beyond doubt.

Court's Interpretation and Reasoning: The Tribunal carefully examined the seized material relied upon by the assessing officer, notably a loose sheet indicating cash payments totaling Rs. 97 lakhs allegedly received against the sale of property no. ES95, Block R & T Nirvana Country, Gurgaon. The Tribunal observed that the document was a "dumb document" - unsigned, undated, and lacking clear narration or corroborative details such as transaction dates or parties involved. It was found that the alleged cash payments were not supported by any other material evidence, such as bank statements or corroborative witness testimony.

The Tribunal highlighted that the presumption under section 292C is rebuttable and limited to the authenticity of documents found during search, but does not automatically translate into income of the assessee without corroboration. The assessee had denied receipt of any cash over and above the declared sale consideration, and the Tribunal found no cogent material to contradict this.

Key Evidence and Findings: The key evidence against the assessee was a loose sheet found during search proceedings, which the Tribunal characterized as unreliable and insufficient. The Tribunal also noted that the sale consideration declared in registered sale deeds was accepted by state authorities for stamp duty purposes, and there was no evidence of undervaluation or on-money payments corroborated by independent enquiry.

Application of Law to Facts: Applying the principles established in precedents, the Tribunal concluded that the additions made by the assessing officer and confirmed by the CIT(A) were based on conjectures and surmises rather than substantive evidence. The burden to prove concealment of income and justify penalty was not discharged by the revenue.

Treatment of Competing Arguments: The revenue's reliance on the loose sheet and third-party statements was rejected as insufficient. The Tribunal noted that no independent enquiry was conducted by the assessing officer to verify the alleged cash payments or value of the property beyond the registered sale consideration. The assessee's denial and documentary evidence were accepted as credible.

Conclusion: The Tribunal deleted the addition of Rs. 15,00,000/- and consequently held that the penalty imposed under section 271(1)(c) could not survive since it was predicated on the deleted addition.

2. Whether Proper Opportunity of Hearing was Afforded

The assessee contended that the penalty was confirmed without affording a proper opportunity of hearing. However, the Tribunal's order does not specifically delve into this procedural issue in detail, focusing primarily on the substantive issue of the quantum addition and penalty justification. Given the penalty was deleted on merits, the procedural contention became moot.

3. Impact of ITAT's Subsequent Order Deleting Quantum Addition

The Tribunal noted that the quantum addition of Rs. 15,00,000/- on which the penalty was levied had already been deleted by the ITAT in the assessee's own case for assessment years 2008-09 and 2009-10 by its order dated 29.11.2016. The Tribunal reproduced extensive excerpts from this order, which elaborated on the unreliability of the seized documents and the absence of corroborative evidence.

In light of the ITAT's order deleting the addition, the Tribunal held that the penalty based on the same addition "will not survive." Hence, the penalty imposed by the AO and confirmed by the CIT(A) was cancelled.

Significant Holdings:

"The presumption as envisaged in section 292C is limited to the correctness of the documents found at the time of search or survey, but that presumption has not been extended by the statute to be presumed to be the income of the assessee."

"The allegation made by AO that a cash payment of Rs. 97 lacs has been made/received against this property & out of which Rs. 15 lacs has been paid/read during the financial year 2007-08 is based on mere conjecture & surmises."

"There is no other material on record other than this loose paper to corroborate the stand of the department."

"No addition can be made on a dumb document and noting on loose sheet. It should be supported by the evidence on record and the evidence on record is not sufficient to support the Revenue's action."

"The burden of proving the actual consideration in the purchase of property is on the Revenue and it had failed to discharge the said burden."

"Suspicion, however strong cannot take place of material in support of the finding from the AO."

Core principles established include:

• The presumption under section 292C is rebuttable and does not equate to proof of income.
• Loose sheets or "dumb documents" without corroborative evidence cannot sustain additions or penalties.
• The revenue must conduct independent enquiries and produce tangible evidence to justify additions based on alleged on-money or undisclosed income.
• Statements of third parties or seized documents without nexus to the assessee cannot be conclusive evidence.
• Penalties under section 271(1)(c) cannot be sustained if the underlying addition is deleted for lack of evidence.

Final determinations were:

• The addition of Rs. 15,00,000/- on account of alleged cash receipt was deleted.
• The penalty imposed under section 271(1)(c) based on the deleted addition was cancelled.
• The appeal filed by the assessee was allowed.