2015 (9) TMI 1634 - AT - Income Tax

Penalty u/s 271(1)(c) - unexplained cash u/s 69A - cash was seized by the Department and ex parte assessment u/s 144 was made - Held that - As relying on case of T.Kodeswaran v. ITO 2008 (10) TMI 273 - ITAT MADRAS-B wherein the similar issue had come up and similar facts were there. In that case, the AO has passed the assessment order ex-parte u/s 144 and the AO has levied penalty u/s 271(1)(c) of the Act, which was deleted and Tribunal has deleted the penalty - Decided against revenue.

Summary

Issues:
- Deletion of penalty under section 271(1)(c) of Rs. 17,35,000.

Analysis:
The case involved an appeal by the Revenue against the order of the CIT(A)ii, Indore, for the assessment year 2006-07, specifically challenging the deletion of penalty under section 271(1)(c) of Rs. 17,35,000. The assessee was found in possession of Rs. 28 lakhs while traveling from Indore to Ahmedabad, which was seized by the Police Department. Subsequently, the Income Tax Department initiated proceedings under section 142(1) due to the cash seizure. The AO conducted an ex-parte assessment under section 144 of the Income-tax Act, adding the Rs. 28 lakhs under section 69A as unexplained cash, along with an additional Rs. 48,000 as salary income. The penalty proceedings under section 271(1)(c) were initiated based on these additions.

The CIT(A) cancelled the penalty, emphasizing the need for the Department to prove its contentions in penalty proceedings. The CIT(A) highlighted that the deeming provision under section 69A could be a valid basis for adding unexplained cash but stressed that the burden of proof shifts to the Department in penalty cases. The CIT(A) noted that the AO did not examine the parties to whom the cash allegedly belonged, as stated by the assessee. Additionally, the CIT(A) referenced various case laws to support the decision to delete the penalty, emphasizing the importance of evidence to establish liability for penalties under section 271(1)(c).

Upon hearing both parties, the Tribunal upheld the CIT(A)'s decision to delete the penalty. The Tribunal reasoned that when additions are made under deeming provisions, penalties cannot be sustained without proper evidence. The Tribunal cited a similar case where penalties were deleted due to the absence of a filed return for the relevant year. The Tribunal further elaborated on the application of Explanation 5 in the context of legal fictions and emphasized the need to interpret deeming provisions within their intended scope. Ultimately, the Tribunal confirmed the CIT(A)'s decision to cancel the penalty under section 271(1)(c) of Rs. 17,35,000.

In conclusion, the Tribunal dismissed the Departmental appeal, affirming the deletion of the penalty. The judgment highlighted the importance of evidence and proper application of legal fictions in determining the liability for penalties under section 271(1)(c). The decision underscored the necessity for the Department to meet the burden of proof in penalty proceedings, especially when relying on deeming provisions.