2015 (10) TMI 2750 - AT - Income Tax

Penalty levied u/s 271(1)(c) - addition u/s 68 - Held that - It is well settled proposition that addition made during the course of assessment proceedings would not automatically give rise to penalty under section 271(1)(c) of the Act. It is pertinent to note that the identity of the creditor and genuineness of the transaction have not been found fault with - the Explanations and documents furnished by the assessee to prove the creditworthiness were only found to be inadequate and not found to be false - Explanation 1 to section 271 (1)(c) of the Act would come to the help of the assessee. Hence, on conspectus of the matter, we are of the view that the addition of cash credits confirmed by the ITAT, in the facts and circumstances of the instant case, would not necessitate levy of penalty under section 271(1)(c) of the Act, as the same, in our view, cannot be considered to be concealment of particulars of income. Thus direct the AO to cancel the penalty levied - Decided in favour of assessee.

Summary

Issues:
Challenging penalty under section 271(1)(c) for addition under section 68 of the Income Tax Act, 1961.

Analysis:
The appellant, engaged in the manufacture and sale of medicines, challenged the penalty imposed under section 271(1)(c) for an addition made under section 68 of the Act concerning a loan amount. The AO added Rs. 70.05 lakhs as unexplained cash credit under section 68 as the assessee failed to prove the creditworthiness of the NRI creditor. Despite furnishing bank statements and other details, the AO and ITAT upheld the addition. The appellant argued that evidence, including a bank certificate and donation details, proved the creditor's creditworthiness. The Tribunal found these insufficient, leading to the penalty confirmation by the ld.CIT(A).

The ld. Counsel contended that all available materials were submitted, and explanations were not false, citing Explanation 1 to section 271(1)(c) to support cancellation of the penalty. The ld. DR, however, supported the penalty citing the Tribunal's confirmation of the cash credit addition. The Tribunal noted the creditor's identity and transaction genuineness were established, but the evidence provided was deemed inadequate. The Tribunal emphasized that the addition under section 68 does not automatically lead to a penalty, requiring a fresh examination during penalty proceedings. The Tribunal clarified that the addition being a legal fiction does not necessarily imply concealment of income, depending on the case's facts.

The Tribunal found the creditor's identity and transaction genuine, with the documents submitted by the assessee deemed inadequate but not false. Relying on Explanation 1 to section 271(1)(c), the Tribunal concluded that in this case, the cash credit addition did not warrant a penalty as it did not amount to concealment of income. Consequently, the Tribunal set aside the ld. CIT(A)'s decision, directing the AO to cancel the penalty on the cash credit addition. As a result, the appeal by the assessee was allowed, and the penalty was revoked.