2009 (2) TMI 512 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income-tax Act.
2. Evaluation of explanations provided by the assessee for cash credits, unproved advances, and unexplained capital.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):
The primary issue was whether the CIT(A) was correct in deleting the penalty of Rs. 5,04,896 levied under Section 271(1)(c) by the Assessing Officer (AO). The AO had imposed the penalty based on sustained additions by the ITAT, which included:
- Cash credit under Section 68 for unproved cash loans amounting to Rs. 1,53,500.
- Unproved advances received in cash towards the sale of Shop Nos. 8 & 9 amounting to Rs. 3,80,000.
- Unexplained capital introduced in cash by the partners amounting to Rs. 30,000.

The CIT(A) had previously confirmed the penalty solely on the ground that additions were sustained in appeal without evaluating whether the evidence and material were adequate for levying the penalty. The ITAT had remanded the matter back to the CIT(A) for a fresh decision, emphasizing the need to determine whether the explanation offered by the assessee was bona fide and whether all material facts were disclosed.

2. Evaluation of Explanations Provided by the Assessee:
The CIT(A) cancelled the penalty after finding that the explanations offered by the assessee, though not acceptable to the Department, were legitimate and bona fide in the absence of adverse material on record. The CIT(A) noted that the mere rejection of explanations in quantum appeal could not alone form the basis for penalty under Section 271(1)(c).

Cash Credit under Section 68:
The assessee provided necessary details, loan confirmation, and produced the party before the AO during the remand report stage. However, the AO did not take the statement of the party and sustained the addition on the ground that the creditor was not produced. The CIT(A) found that the explanation was bona fide and the penalty was not leviable.

Unproved Advances for Sale of Shops:
The assessee demonstrated that due to technicalities in passing the map, the proposal included shop Nos. 7, 8 & 9, but only shop Nos. 7 & 8 were passed. Shop No. 8 was sold, and shop No. 7 was sold in the subsequent year. The CIT(A) found the explanation legitimate and bona fide.

Unexplained Capital Introduced by Partners:
The assessee received Rs. 30,000 from partners on their capital account. The CIT(A) noted that while the addition was made in the hands of the firm, the penalty could not be levied on this addition as the explanation was legitimate and bona fide.

Legal Principles and Case Laws:
The ITAT considered various legal principles and case laws, such as:
- The distinction between concealment and furnishing inaccurate particulars of income.
- The strict liability on the assessee for concealment or giving inaccurate particulars.
- The burden of proof on the assessee to provide a bona fide explanation and substantiate it with evidence.
- The relevance of Explanation 1 to Section 271(1)(c), which deems the amount added or disallowed as concealed income if the explanation is not bona fide or substantiated.

Conclusion:
The ITAT concluded that the CIT(A) rightly cancelled the penalty as the explanations provided by the assessee were bona fide and there was no finding by the AO that the explanations were false. The appeal of the revenue was dismissed, confirming the order of the CIT(A).