2011 (5) TMI 496 - AT - Income Tax

Penalty - Addition of Rs. 5, 50, 000 - Assessee could not furnish any documentary evidence in support of its claim that it was not an amount advanced by Nayamma R. Mulla but it was an amount payable towards purchase of car - If the car is purchased by taking finance from ICICI Bank till the entire loan is wiped out written agreement and other papers are legally bound to be available with the bank and it would have been possible to obtain the documents from the bank - Even if there is a difficulty with regard to obtaining records from the bank the assessee could have easily obtained confirmation letter from Nayamma R. Mulla. No such corroborative evidence was placed on record - It is a well settled proposition of law that mere furnishing of explanation is not sufficient but it has to be substantiated with evidence - In the absence of substantiating explanation with evidence the Assessing Officer was justified in coming to the conclusion that the explanation is false and the assessee introduced a sum of Rs. 5, 50, 000 which has to be treated as unexplained cash credit - Addition made u/s. 68 under the deeming provisions has to be taken to its logical conclusions by which one has to assume that the assessee furnished inaccurate particulars and concealed income to the extent of Rs. 5, 50, 000 without any satisfactory explanation - Therefore penalty levied by the Assessing Officer vis- -vis addition of Rs. 5, 50, 000 is justified Disallowance of depreciation of Rs. 11, 00, 000 - Assessee contended that during the course of assessment proceedings assessee-firm was collecting information so as to furnish the details and at that point of time it was realized that depreciation in respect of studio equipment amounting to Rs. 11, 00, 000 was wrongly claimed since this equipment had not been used during the year - It was further submitted that initially depreciation was claimed because of the fact that equipment was purchased (booking made) and thus appeared under the head fixed assets - Since claim of depreciation was withdrawn voluntarily it is not an issue of concealing income or furnishing inaccurate particulars of income - Held that - it cannot be termed as voluntary disclosure and even if it is disclosed voluntarily it can not be termed as a revised return within the meaning of section 139(5) of the Act - It may be reiterated that the assessee has furnished inaccurate particulars of income by claiming excess deprecation in the original return - Thus it is a fit case for levy of penalty.

Summary

Issues Involved:
1. Penalty under Section 271(1)(c) of the Income Tax Act.
2. Addition of Rs. 5,50,000 as unexplained cash credit.
3. Disallowance of depreciation claim of Rs. 11,00,000 on studio equipment.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) of the Income Tax Act:
The case revolves around the penalty of Rs. 6,67,750 levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act, which was affirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The penalty was imposed due to the addition of Rs. 5,50,000 as unexplained cash credit and the disallowance of depreciation claim of Rs. 11,00,000 on studio equipment. The Tribunal had to determine if the penalty was justified based on the facts and circumstances of the case.

2. Addition of Rs. 5,50,000 as Unexplained Cash Credit:
The AO noticed an amount of Rs. 5,50,000 shown as received from Nayamma R. Mulla, which the assessee claimed was payable towards the purchase of a car. However, the assessee failed to provide any documentary evidence to substantiate this claim. The AO rejected the claim due to the lack of proof and treated the amount as unexplained cash credit. The assessee contended that the amount was a liability for the car purchase and not a borrowing, but failed to furnish any corroborative evidence, such as a confirmation letter from Nayamma R. Mulla or documents from ICICI Bank. The Tribunal upheld the AO's decision, stating that the explanation was not substantiated with evidence, making it a fit case for penalty under Section 271(1)(c).

3. Disallowance of Depreciation Claim of Rs. 11,00,000 on Studio Equipment:
The assessee initially claimed depreciation on studio equipment worth Rs. 11,00,000, but later withdrew the claim during the assessment proceedings, stating that the equipment was not used during the year. The AO disallowed the depreciation claim, noting that the withdrawal was not voluntary but prompted by the scrutiny process. The Tribunal observed that the assessee did not revise its return within the stipulated period under Section 139(5) and only withdrew the claim when asked to provide bills for the fixed assets. The Tribunal concluded that the withdrawal was not a voluntary disclosure, but a response to the AO's inquiry, and thus, the penalty under Section 271(1)(c) was justified.

Conclusion:
The Tribunal affirmed the orders of the tax authorities, holding that the assessee failed to provide satisfactory evidence for the addition of Rs. 5,50,000 and the disallowance of depreciation on studio equipment. The penalty under Section 271(1)(c) was upheld, as the assessee was found to have furnished inaccurate particulars of income and concealed income. The appeal filed by the assessee was dismissed.