2010 (6) TMI 649 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Whether the surrender of income by the assessee was voluntary or under compulsion.
3. The adequacy of the assessee's explanation regarding unexplained cash credits.
4. Applicability of judicial precedents cited by both parties.

Detailed Analysis:

Legitimacy of the Penalty Levied under Section 271(1)(c):
The assessee appealed against the order confirming the penalty of Rs. 2,01,628 levied by the Assessing Officer (A.O.) under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was imposed for the Assessment Year 2006-07 due to the addition of Rs. 6 lakhs as unexplained cash credit under Section 68. The A.O. determined that the assessee had concealed particulars of its income, leading to the initiation of penalty proceedings.

Voluntariness of the Surrendered Income:
The assessee claimed that the Rs. 6 lakhs were surrendered voluntarily to avoid penal action. However, the A.O. and CIT(A) found that the surrender was not voluntary but was made after the A.O. issued a show cause notice and conducted inquiries, which revealed that many notices to creditors were returned unserved or unanswered. The Tribunal agreed that the surrender was not voluntary but made under compulsion, citing that the assessee was cornered by the revenue's inquiries.

Adequacy of Assessee's Explanation:
The assessee's explanation was deemed inadequate as it failed to substantiate the identity, creditworthiness, and genuineness of the transactions. The A.O. found that the addresses provided for many creditors were incomplete or incorrect, and no credible evidence was submitted to establish the identity and creditworthiness of the creditors. The Tribunal noted that the assessee did not provide sufficient details or evidence even during penalty proceedings, thus failing to discharge the burden of proof required under Explanation 1 to Section 271(1)(c).

Applicability of Judicial Precedents:
The assessee cited several judicial precedents to argue against the penalty, including CIT v. Suresh Chandra Mittal and Smt. Raj Rani Mittal v. ITO-Rudrapur. However, the Tribunal found these cases inapplicable as they involved different contexts where the additions were made purely on the basis of surrender without any incriminating material. In contrast, the present case involved incriminating material collected by the A.O. through inquiries. The Tribunal also referenced the case of CIT v. Shri Rakesh Suri, which supported the view that a conditional/agreed surrender of income does not preclude the levy of penalty if the surrender was not voluntary.

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) was justified as the surrender of income was not voluntary but made under compulsion after the A.O.'s inquiries. The assessee failed to provide a bona fide explanation and did not furnish all relevant material particulars. The appeal filed by the assessee was dismissed, affirming the CIT(A)'s order.