1995 (2) TMI 106 - AT - Income Tax

Issues Involved:
1. Legitimacy of penalty under Section 271(1)(c) for unexplained cash credits.
2. Applicability of Section 68 for deeming unexplained cash credits as income.
3. Requirement for the Assessing Officer (AO) to establish concealment of income.
4. Burden of proof and its shifting under Explanation 1 to Section 271(1)(c).
5. Assessment of specific cash credits from Smt. Phula Devi, Shri Ganpat Rai, and Shri Ram Parkash.

Detailed Analysis:

1. Legitimacy of Penalty under Section 271(1)(c) for Unexplained Cash Credits:
The assessee appealed against the penalty levied under Section 271(1)(c) by the AO, which was partly upheld by the CIT(A). The primary contention was that the penalty should not apply because the additions were made under Section 68, a deeming provision. However, the Tribunal disagreed, noting that unexplained credits in business books could be treated as business receipts chargeable to tax even without Section 68, referencing the Supreme Court decision in Lakhmichand Bay Nath v. CIT [1959] 35 ITR 416.

2. Applicability of Section 68 for Deeming Unexplained Cash Credits as Income:
The Tribunal clarified that Section 68 is a statutory recognition of the pre-existing law, allowing the AO to add unexplained cash credits to income. The Tribunal rejected the argument that Section 68's deeming provision could not extend to penalties under Section 271(1)(c).

3. Requirement for the AO to Establish Concealment of Income:
The assessee argued that the AO must establish concealment of income to levy a penalty. This argument was based on CIT v. Anwar Ali [1970] 76 ITR 696, where the Supreme Court held that penalty could not be imposed without cogent evidence of concealment. However, the Tribunal noted that Explanation 1 to Section 271(1)(c), inserted by the Finance Act, 1964, shifted the burden to the assessee to prove that the discrepancy was not due to fraud or gross neglect, referencing CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14.

4. Burden of Proof and Its Shifting Under Explanation 1 to Section 271(1)(c):
The Tribunal emphasized that Explanation 1 shifts the burden to the assessee to substantiate their explanation for discrepancies. If the assessee fails to offer a satisfactory explanation or if the explanation is found to be false, the amount added is deemed to represent concealed income. The Tribunal referenced several Supreme Court decisions, including CIT v. K.R. Sadayappan [1990] 185 ITR 49 and CIT v. Jeevan Lal Sah [1994] 205 ITR 244, to support this interpretation.

5. Assessment of Specific Cash Credits:
- Smt. Phula Devi: The assessee provided an affidavit confirming the deposit. The AO rejected it based on presumptions about her financial capacity. The Tribunal held that since the explanation was not found false and the affidavit was provided, the assessee had substantiated the explanation. Thus, no penalty was levied for this credit.

- Shri Ganpat Rai: The assessee only provided an agreement to sell dated after the credit date, making the explanation unbelievable. The Tribunal upheld the penalty for this credit as the assessee failed to substantiate the explanation.

- Shri Ram Parkash: The assessee provided an affidavit, but verification by the AO found no such person at the given address. The Tribunal upheld the penalty, noting the assessee could not substantiate the explanation.

Conclusion:
The Tribunal partly allowed the appeal, directing that the penalty be levied only for the unexplained credits of Rs. 13,000 related to Shri Ganpat Rai and Shri Ram Parkash, while no penalty was levied for the credit from Smt. Phula Devi.

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