2018 (2) TMI 1823 - AT - Income Tax

Penalty u/s 271(1)(c) - unexplained cash deposits - Defective notice - satisfaction of the AO - Held that - Findings recorded by the CIT(A) show that penalty has been confirmed on a different premise and the original satisfaction for imposition of penalty has been altered or modified by the appellate authority. In such circumstances where the original basis of imposition of penalty has been altered in a significant way by the first appellate authority the very basis for sustaining the penalty is rendered non-existent. The imposition of penalty is solely dependent upon the satisfaction of the AO unless initiated by CIT(A) and non-else. The ground for action by AO was allegation of concealment . This ground has been substituted by CIT(A) to furnishing inaccurate particulars of income while confirming the penalty quantified by the AO. Thus in the absence of continuity in the findings of the AO and the CIT(A) the order of the penalty passed by the AO is liable to be struck down on this ground alone - Decided in favour of assessee.

Summary

Issues:
Imposition of penalty under section 271(1)(c) on unexplained cash deposits.

Analysis:
1. The appellant challenged the penalty of ?4,36,330 imposed under section 271(1)(c) for alleged unexplained cash deposits. The Assessing Officer (AO) observed cash deposits of ?33,77,395 in the assessee's bank account, which the assessee tried to justify by citing cash withdrawals and existing cash balance. However, the AO found discrepancies and added ?25,37,395 as unexplained income. The CIT(A) reduced this addition to ?12,98,533 based on the peak credit theory applied by the assessee.

2. The CIT(A) upheld the penalty, citing the Finance Act, 2008, which deems the assessment order as satisfaction for initiating penalty proceedings. The appellant argued that penalty cannot be sustained without clear findings on concealment or inaccurate particulars. The CIT(A) differentiated the case from precedents, stating that penalty under section 271(1)(c) is applicable for furnishing inaccurate particulars and concealing income. The CIT(A) dismissed the appeal based on these grounds.

3. The Tribunal found discrepancies in the penalty imposition process. The AO alleged concealment of income, while the CIT(A) confirmed penalty for furnishing inaccurate particulars. The Tribunal cited legal precedents and held that altering the basis for penalty by the appellate authority renders the original satisfaction for penalty imposition void. Referring to relevant case laws, the Tribunal concluded that penalty under section 271(1)(c) cannot be sustained if there is ambiguity in the nature of the default.

4. Consequently, the Tribunal set aside the penalty imposed by the AO and canceled the penalty order dated 25/11/2013. As the penalty was deleted on legal grounds, the Tribunal did not address other arguments raised by the assessee. The appeal of the assessee was allowed, and the penalty was deemed unsustainable in law.

This detailed analysis covers the issues involved in the legal judgment regarding the imposition of penalty on unexplained cash deposits under section 271(1)(c) of the Income Tax Act, 1961.