2015 (8) TMI 1517 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Failure to prove opening capital - The assessee has offered this income during the course of assessment proceedings to buy mental peace and non-imposition of penalty. The assessee was given sufficient opportunity to explain the opening capital. Assessee has voluntarily admitted the income of undisclosed sources. - HELD THAT - As per the provisions 2 to Explanation 1(B) now the entire onus is on the assessee to not only offer an explanation but also to substantiate it and to prove that the presumption was bona fide. At the same time the presumption so raised by the Explanation 1 is rebuttable. The effect is that unless and until rebuts the presumption he would be liable to penalty u/s 271(1)(c) of the Income-tax Act 1961. It is now established law that presumption would not stand rebutted merely by furnishing any general or fantastic or fanciful or unreasonable explanation by the assessee the explanation should be based on cogent and relevant material and should be accepted to the authorities. We find from the explanation of the assessee that the assessee has tried to explain the facts but the assessee could not prove this amount before the AO. WE find that similar issue had come up before the Hon ble A.P. High Court in the case of Chennupatti Tyres Rubber Products 2014 (11) TMI 510 - ANDHRA PRADESH HIGH COURT wherein the penalty was deleted. The Hon ble Andhra Pradesh High Court has discussed the decision of Mak Data Mak Data Private Limited vs. CIT 2013 (11) TMI 14 - SUPREME COURT and after considering the decision of Mak Data deleted the penalty. Penalty deleted - Decided in favor of assessee.

Summary

Issues Involved:
1. Legitimacy of the opening capital claimed by the assessee.
2. Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961 for concealment or furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Legitimacy of the Opening Capital Claimed by the Assessee:
The assessee filed the return of income for the first time for the assessment year 2009-10, showing an opening capital of Rs. 13,43,020/-. Despite repeated opportunities, the assessee failed to furnish documentary evidence to substantiate the opening capital. Consequently, the assessee voluntarily surrendered Rs. 7,17,000/- as additional income during the current year to avoid further litigation and buy mental peace. This amount was offered during the course of assessment proceedings, and the tax was paid before the assessment order was passed.

2. Imposition of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The Assessing Officer (AO) imposed a penalty under Section 271(1)(c) on the surrendered amount of Rs. 7,17,000/-, considering it as income from undisclosed sources. The CIT(A) upheld this penalty. The assessee argued that the penalty was not justified as the income was voluntarily surrendered to avoid litigation and that there was no conscious concealment or furnishing of inaccurate particulars.

The assessee relied on several judicial precedents, including the Supreme Court's decision in Mak Data P. Ltd. vs. Commissioner of Income Tax-II, which held that the burden is on the assessee to provide a cogent and reliable explanation for the income, and once this onus is discharged, it shifts to the Revenue to prove concealment. The Tribunal noted that the assessee had provided a cogent and reliable explanation which was not disproved by the Revenue. The Tribunal also referred to the decision in Commissioner Of Income Tax Vs. Suresh Chandra Mittal, where it was held that penalty is not imposable if the assessee's explanation is bona fide and the income was surrendered to buy peace.

The Tribunal observed that the explanation provided by the assessee was bona fide and that the Revenue failed to prove any conscious concealment or furnishing of inaccurate particulars. The Tribunal also referred to the Andhra Pradesh High Court's decision in Chennupati Tyres & Rubber Products, which emphasized that concealment can only occur when there is an intentional act of not disclosing income, and a bona fide belief or inadvertent mistake cannot be grounds for penalty.

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) was not justified as the assessee had provided a bona fide explanation for the surrendered income, and the Revenue failed to prove any intentional concealment. Therefore, the penalty was deleted, and the appeal of the assessee was allowed. The decision was pronounced in the open court on 10th August 2015.