2013 (8) TMI 475 - AT - Income Tax

Penalty u/s 271(1)(c) - mala fide intention - onus on the assessee to prove the genuineness of credits and justify the expenses claimed in profit and loss - Held that - After perusing the assessment order in which the Assessing Officer has made all additions, disallowances, treating the cash credits/foreign receipts as well as the assessee s declared agricultural income merely on estimate and guess work basis without bringing on record any positive and concrete evidence to be applied against the assessee - Assessing Officer has not quoted any comparable case in this line of business, which has shown better gross profit than that shown by the assessee in the present assessment year. As stated above, the assessee has filed statement of trading account, profit and loss account, balance-sheet and audit report in Form 3CD duly signed by the authorised person. As regards the cash credits which the assessee has shown in his return, one can establish its genuineness by furnishing necessary documentary evidence but due to lack of communication by his chartered accountant the assessee could not furnish the same. As regards the foreign gift in dispute which the assessee has received from his real brother who is residing in the USA and made the gift to the assessee out of love and affection through banking channel, for that the assessee has produced all necessary evidence in the assessment proceedings. As regards to the agricultural income declared by the assessee on estimation basis, which has been converted into the income of the assessee from other sources without appreciating the Revenue s record furnished before the Assessing Officer being ancestral land as per Jamabandi available with the assessment record. Penalty in dispute has been imposed is purely on estimation basis and the Assessing Officer has not brought any material on record to establish any mala fide intention of the assessee to evade tax in the return filed by the assessee - Following decision of CIT v. Metal Products of India 1984 (1) TMI 36 - PUNJAB AND HARYANA High Court and Harigopal Singh v. CIT 2002 (8) TMI 65 - PUNJAB AND HARYANA High Court - Decided against Revenue.

Summary

Issues Involved:
1. Validity of ex parte assessment under section 144 of the Income-tax Act, 1961.
2. Legitimacy of penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961.
3. Justifiability of the additions made by the Assessing Officer on an estimated basis.
4. Consideration of documentary evidence and reasons for non-appearance by the assessee.

Detailed Analysis:

1. Validity of Ex Parte Assessment under Section 144 of the Income-tax Act, 1961:
The assessee filed a return of income on October 31, 2005, declaring income and agricultural income. The Assessing Officer (AO) processed the return under section 143(1) and later selected it for scrutiny, issuing a notice under section 143(2). Despite several adjournments and notices, the assessee did not appear, leading the AO to complete the assessment ex parte under section 144 on July 2, 2007. The assessee appealed this order but later withdrew the appeal and filed a petition under section 264, which resulted in a minor relief.

2. Legitimacy of Penalty Proceedings under Section 271(1)(c) of the Income-tax Act, 1961:
The Income-tax Officer initiated penalty proceedings under section 271(1)(c) due to the assessee's failure to prove the genuineness of credits and justify expenses. The AO contended that the assessee furnished inaccurate particulars of income, leading to a penalty of 100% of the concealed income. The assessee argued that the assessment was based on estimates and lacked proper inquiry, making the penalty unwarranted.

3. Justifiability of the Additions Made by the Assessing Officer on an Estimated Basis:
The AO made several additions and disallowances based on estimates without concrete evidence. The assessee provided various documents, including trading account statements, profit and loss account, balance-sheet, and audit report, which were not properly considered by the AO. The Commissioner of Income-tax (Appeals) (CIT(A)) found that the AO's additions were based on estimates and lacked substantial evidence, leading to the cancellation of the penalty.

4. Consideration of Documentary Evidence and Reasons for Non-Appearance by the Assessee:
The assessee provided reasons for non-appearance, including preoccupation with business matters, health issues, and family responsibilities. The CIT(A) acknowledged these reasons and noted that the AO did not establish any mala fide intent by the assessee. The CIT(A) also referenced various judicial decisions supporting the view that penalties should not be imposed based on estimated additions without concrete evidence of concealment or inaccurate particulars.

Conclusion:
The appellate tribunal upheld the CIT(A)'s decision to cancel the penalty, emphasizing that the AO's additions were based on estimates and lacked evidence of deliberate concealment or inaccurate particulars by the assessee. The tribunal highlighted that penalties under section 271(1)(c) require proof of mala fide intent, which was not established in this case. Consequently, the appeal filed by the Revenue was dismissed, affirming the CIT(A)'s well-reasoned order.