2016 (1) TMI 983 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - addition made on the basis of DVO s report - Held that - The DVO s report is merely an expression of opinion. Thus, on the basis of opinion and assumption no penalty u/s. 271(1)(c) is leviable. Offence of concealment is not proved in such situation which is the co-requirement for levy of penalty u/s. 271(1)(c) of the Act. Similarly, in the case of Sathe Biscuits Vs. DCIT (2012 (3) TMI 468 - ITAT PUNE) the Co-ordinate Bench has held that no penalty can be levied on the addition made on the basis of DVO s report. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 in the assessment year 2007-08 based on unexplained investment u/s. 69 of the Act.

Analysis:
The appeal was filed against the order confirming the penalty. The Assessing Officer made an addition of Rs. 20,80,000 as unexplained investment based on the difference between the value determined by the DVO and the purchase price mentioned in the registered sale deed. The assessee argued that the addition was based on assumptions and estimations without concrete evidence of cash payment. The assessee was not given the opportunity to cross-examine the vendor, violating principles of natural justice. The Revenue assumed on-money payment based on cash deposits in the vendor's bank account, but failed to establish a direct link between the cash deposited and the payment made by the assessee.

The Tribunal found that the addition was made solely on probability without conclusive evidence. The Revenue's assumption of on-money payment lacked a clear nexus between the cash deposits and the alleged payment. The Tribunal cited various case laws to support the argument that penalty cannot be levied solely on assumptions and estimations. The failure to provide an opportunity for cross-examination further weakened the basis for penalty imposition.

Citing precedents, the Tribunal held that penalty under section 271(1)(c) was not justified in this case. The DVO's report and assumptions did not prove concealment of income, a requirement for penalty imposition. The Tribunal concluded that the penalty was not warranted based on the facts and established legal principles, setting aside the order and allowing the appeal of the assessee.