2006 (3) TMI 562 - AT - Income Tax

Summary

Issues Involved:
1. Justification for deleting the penalty of Rs. 1,05,566 imposed under section 271(1)(c) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Justification for Deleting Penalty under Section 271(1)(c)

Background:
The revenue appealed against the order of the CIT(A), Jalandhar, which deleted the penalty of Rs. 1,05,566 imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961. The penalty was related to three additions totaling Rs. 2,08,676.

Additions Considered for Penalty:
1. Unexplained Cash Credits in the Capital Account of the Partner: Rs. 80,000.
2. Credit on Account of Suspense Account: Rs. 62,176.
3. Unexplained Cash Credits in the Capital Accounts of Partners in the Books of Account of M/s. Trade Linkers: Rs. 66,500.

Explanation by the Assessee:
- Unexplained Cash Credits of Rs. 80,000: The assessee argued that the explanation was bona fide and not found false by the Assessing Officer, relying on the decision of the Tribunal, Agra Bench, in Asstt. CIT v. Jain Motors & Tractors [2003] 85 ITD 68 (Agra).
- Credit on Account of Suspense Account of Rs. 62,176: The assessee claimed that the books of account were washed away in floods, and the explanation was supported by an affidavit and FIR lodged for the loss.
- Unexplained Cash Credits in M/s. Trade Linkers: The assessee stated that the said concern was a separate entity, and the income was declared and accepted under section 143(1). The addition was made only on the ground that the explanation was not satisfactory.

CIT(A)'s Findings:
- Suspense Account Credit of Rs. 62,176: The CIT(A) found merit in the assessee's explanation that the amount represented receipts from sundry debtors, and the same could not be considered concealed income due to the lack of findings of fraudulent intent by the Assessing Officer.
- Unexplained Cash Credits of Rs. 80,000 and Rs. 66,500: The CIT(A) noted that the bona fides of the explanation were not doubted by the Assessing Officer, and the case was covered by the decision of the Tribunal, Agra Bench. The mere sustaining of an addition by the Tribunal was not a ground for levy of penalty, as held in several judgments including CIT v. Smt. Padma Devi Jain [2000] 158 CTR (MP) 278 : [2000] 245 ITR 818 (MP) and CIT v. Inden Bislers [2000] 158 CTR (Mad.) 323 : [1999] 240 ITR 943 (Mad.).

Tribunal's Analysis:
- Legal Position: The Tribunal emphasized that both penalty proceedings and assessment proceedings are separate and independent, and merely because additions have been upheld does not ipso facto attract levy of penalty under section 271(1)(c). The very expression of concealment implies mala fide intent to hide or suppress income with a view to evade tax.
- Unexplained Cash Credits of Rs. 80,000: The Tribunal noted that the addition was made merely because the explanation of the assessee was not found satisfactory, without any finding that the explanation was false or not bona fide. The Assessing Officer did not record any finding indicating mala fide intent.
- Unexplained Cash Credits in M/s. Trade Linkers: The Tribunal found that the addition was made by rejecting the explanation of the assessee, but there was no finding that the explanation was false or not bona fide. The credits appeared in the books of account of the firm and were brought to tax under section 68, representing deemed income but not concealed income.
- Suspense Account Credit of Rs. 62,176: The Tribunal accepted the bona fide explanation that the amount represented receipts from sundry debtors, and no evidence was provided to show that the explanation was false.

Conclusion:
The Tribunal upheld the order of the CIT(A) canceling the penalty, stating that the mere fact of sustaining an addition does not justify the levy of penalty under section 271(1)(c). The appeal filed by the revenue was dismissed.

Result:
The appeal filed by the revenue is dismissed.