2014 (2) TMI 509 - AT - Income Tax

Deletion of Penalty u/s 271(1)(c) of the Act Whether the addition could be treated as unexplained cash credits Held that - The decision in Shri Prakash K. Patel Prop. Pakash Plastics Versus Income Tax Officer 2010 (12) TMI 1083 - ITAT AHMEDABAD followed - The penalty levied on the addition does not survive, thus, the same is deleted - In respect of addition - the addition on the basis that capacity of creditworthiness of the donor could not be established - assessee contended that there is no dispute with regard to genuineness and identity of the donor - The CIT(A) deleted the addition on the basis that provisions of section 68 of the Act creates a legal fiction and fiction created by such provision are only for the limited purpose of assessment and the same cannot be made applicable u/s.271(1)(c) of the Act - Mere operation of the fiction in the quantum proceedings does not by itself justify the levy of penalty - the only reason why the additions have been confirmed is the failure of the assessee in proving the creditworthiness of the donors which is material in so far as quantum assessment proceedings are concerned and not in case of penalty proceedings - there is no infirmity in the finding of CIT(A) and the order is upheld Decided against Revenue.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act for unexplained cash credits.

Analysis:
The appeal by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) regarding the penalty of Rs.2,46,285 levied under section 271(1)(c) for Assessment Year 2004-05. The Revenue contended that the CIT(A) erred in deleting the penalty without properly appreciating the facts and material brought on record by the Assessing Officer. The Revenue argued that the assessee failed to substantiate explanations for entries in the books of accounts, leading to the penalty. The Revenue cited judicial decisions where penalties were upheld for unsubstantiated additions to the returned income. Additionally, the Revenue referred to a Supreme Court decision stating that willful concealment is not necessary for the levy of penalty under section 271(1)(c).

The penalty was based on additions made by the Assessing Officer, including differences in accounts and non-genuine gifts. The CIT(A) deleted the penalty, leading to the Revenue's appeal before the Tribunal. The Senior Departmental Representative supported the AO's order, while the assessee's counsel argued against the penalty. The counsel presented evidence regarding the gifts received, emphasizing the establishment of identity and genuineness despite the inability to prove creditworthiness fully. The counsel referenced case laws supporting the contention that confirmation of gifts as income under section 68 does not automatically warrant a penalty.

The Tribunal reviewed the submissions, case laws, and material on record. It noted that certain additions were set aside by the ITAT, indicating that penalties on those additions did not survive and were deleted. Regarding the gift received from a specific donor, the Tribunal observed that while creditworthiness was not fully proven, identity and genuineness were established. The Tribunal agreed with the CIT(A) that the provisions of section 68 create a legal fiction for assessment purposes, not necessarily applicable to penalty proceedings. The Tribunal upheld the CIT(A)'s decision based on the arguments presented and the relevant case laws cited by the assessee.

In conclusion, the Tribunal confirmed the CIT(A)'s order, dismissing the Revenue's appeal and upholding the deletion of the penalty. The decision was pronounced in open court as per the date mentioned in the order.