2007 (8) TMI 740 - AT - Income Tax

Penalty imposed u/s 271(1)(c) - Prove genuineness of the transactions - inability to prove the share application monies considered as cash credits u/s 68? - concealment of income or furnished inaccurate particulars - not recordedrequisite satisfaction of the AO - non-application of mind - HELD THAT - There is a difference between the two sets of expressions, namely, fictitious on the one hand and doubtful and not proved on the other hand. Thus, while concluding his reasoning and making the addition the Assessing Officer would appear to have abandoned his earlier view that the monies were received from fictitious persons and seems to have settled for less strong expressions. It is, therefore, somewhat difficult to assert that the Assessing Officer did reach the satisfaction in the course of the assessment proceedings that the assessee concealed its income or furnished inaccurate particulars thereof. The last line in the assessment order to the effect that the penalty proceedings u/s 271(1)(c) have been initiated separately does not also amount to recording of the requisite satisfaction. In our opinion, the case falls within the ratio of the judgments of the Hon ble Delhi High Court in CIT v. Ram Commercial Enterprises Ltd. 1998 (10) TMI 13 - DELHI HIGH COURT ; and Diwan Enterprises v. CIT 1998 (11) TMI 27 - DELHI HIGH COURT . We accordingly cancel the penalty on this ground. Even on merits, we are satisfied that it cannot be said that the assessee concealed its income or furnished inaccurate particulars thereof. In the present case, the evidence adduced before the CIT (Appeals) in appeal against the assessment order has not been examined by the Assessing Officer or the CIT (Appeals) while dealing with the penalty proceedings against the assessee for concealment of income. If this evidence is taken into account it would appeal that it cannot be asserted that the receipt of share application monies is totally unsupported. We find that the assessee had filed the confirmation from all the share applicants, proof of share allotment to them, evidence for proving their identity, certificates from chartered accountants showing the distinctive numbers of the shares allotted to the applicants, etc. These ought to have been considered by the departmental authorities while dealing with the penalty proceedings for concealment of income. They have, however, omitted to do so, They have merely relied on the findings in the assessment proceedings without independently examining the evidence adduced by the assessee in the course of the assessment proceedings both before the Assessing Officer as well as the CIT (Appeals). Their orders thus suffer from basic infirmity, Explanation 1 to section 271(1)(c) is also not attracted since the assessee has adduced whatever evidence was in its possession which has not been found to be false unsubstantiated. All that, can be said is that the income-tax authorities were not satisfied with such evidence. That does not amount to proof that the assessee concealed its income or furnished inaccurate particulars thereof. We accordingly accept the submissions made on behalf of the assessee and cancel the penalty imposed on it. The appeal is allowed with no order as to costs.

Summary

Issues:
1. Levy of penalty under section 271(1)(c) of the Income-tax Act for unexplained cash credit under section 68.
2. Whether the Assessing Officer recorded satisfaction for concealment of income or furnishing inaccurate particulars.
3. Justification for penalty imposition on the grounds of non-genuineness of transactions.
4. Consideration of evidence in penalty proceedings for concealment of income.
5. Applicability of Explanation 1 to section 271(1)(c) in the penalty proceedings.

Analysis:
1. The judgment pertains to an appeal against the penalty imposed on the assessee for unexplained cash credit received as share application money. The Assessing Officer added the amount under section 68 of the Income-tax Act due to lack of proof regarding the genuineness of the transactions. The assessee's appeals to the CIT (Appeals) and the Tribunal were unsuccessful, leading to the penalty imposition under section 271(1)(c).

2. The first issue raised was the lack of recorded satisfaction by the Assessing Officer regarding concealment of income or furnishing inaccurate particulars. The Tribunal observed that the Assessing Officer's language in the assessment order was ambiguous, indicating doubt about the genuineness of the transactions rather than conclusive evidence of concealment. The Tribunal cited previous judgments to support the cancellation of the penalty on this ground.

3. On the justification for penalty imposition, the Assessing Officer argued that the assessee failed to provide details supporting the share application monies and attempted to pass off its own funds as investments. However, the Tribunal noted that the evidence presented before the CIT (Appeals) was not adequately considered by the departmental authorities. The Tribunal emphasized the need for a reappraisal of evidence in penalty proceedings and found the penalty unjustified on these grounds.

4. The Tribunal further analyzed the evidence presented by the assessee, including confirmations from share applicants, identity proofs, and certificates from chartered accountants. Despite the confirmation of additions by the CIT (Appeals) and the Tribunal, the Tribunal highlighted that the evidence submitted by the assessee was not fully examined in the penalty proceedings. The Tribunal concluded that the departmental authorities failed to consider crucial evidence, leading to the cancellation of the penalty.

5. Regarding the applicability of Explanation 1 to section 271(1)(c), the Tribunal found that the evidence provided by the assessee, though not entirely satisfactory to the income-tax authorities, did not amount to proof of concealment of income or furnishing inaccurate particulars. The Tribunal concluded that the penalty was unjustified, accepted the submissions made on behalf of the assessee, and canceled the penalty imposed. The appeal was allowed with no order as to costs.