2017 (11) TMI 1831 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - addition on account of cash deposits treating the same as unexplained - HELD THAT - In the present case the explanation offered by the assessee in quantum proceedings could not be adequately substantiated by him but this fact alone would not automatically lead to the levy of penalty. Penalty proceedings being separate and distinct from assessment proceedings the assessee is entitled to give all possible explanations in support of his contentions. As observed earlier by us, the findings in quantum proceedings will not operate as res judicata. The assessee cannot be stopped from raising new contentions which he had not raised in quantum proceedings. CIT(Appeals), in the present case, we hold, ought to have considered the alternate explanation given by the assessee regarding the source of cash deposited in his bank, before adjudicating on the levy of penalty. We, therefore, consider it fit to restore the matter back to the file of the CIT(Appeals) to consider the explanation offered by the assessee and thereafter decide the issue in accordance with law. We may add that the assessee be given due opportunity of hearing in this regard. Appeal of the assessee stands allowed for statistical purposes

Summary

Issues:
- Appeal against penalty u/s 271(1)(c) of the Income Tax Act, 1961.
- Validity of penalty levy on unexplained cash deposits.
- Consideration of alternate explanation in penalty proceedings.

Analysis:
The appeal was filed against the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961, relating to the assessment year 2009-10. The assessment was made under section 143(3) for cash deposits amounting to ?70,41,000, treated as unexplained. The penalty proceedings were initiated by the Assessing Officer despite the assessee's plea to keep them in abeyance pending an appeal in the High Court. The penalty was levied at 300% of the tax sought to be evaded, amounting to ?69,72,671, and was confirmed by the Ld.CIT(Appeals). The grounds of appeal raised by the assessee included challenging the order passed by the CIT(A), the quantum of penalty levied, and the failure to adjudicate on the alternative plea for explanation of deposits.

During the assessment proceedings, the assessee explained the cash deposits as advances received for the sale of immovable properties, which were forfeited due to the non-appearance of the other parties on the date of registration. Despite producing agreements and explanations, further investigations failed to establish the genuineness of the transactions. The Assessing Officer added the amount to the income of the assessee, a decision upheld by the appellate authorities. In the appeal, the assessee presented an alternate explanation attributing the deposits to cash withdrawn from bank accounts, supported by bank statements and a cash flow statement.

The Tribunal found merit in the assessee's contentions, emphasizing that penalty proceedings are distinct from quantum proceedings. The standard of proof for penalty imposition differs, and findings in assessment cannot operate as res judicata in penalty proceedings. Citing legal precedents, the Tribunal highlighted the need for the Assessing Officer to consider new evidence and explanations in penalty proceedings, even if earlier contentions were rejected. Therefore, the Tribunal held that the CIT(A) should have considered the alternate explanation provided by the assessee before deciding on the penalty levy, and the matter was remanded back to the CIT(A) for proper consideration, ensuring the assessee's right to a fair hearing.

In conclusion, the appeal of the assessee was allowed for statistical purposes, emphasizing the importance of separate treatment for penalty and quantum proceedings and the need for a comprehensive review of all explanations in penalty assessments.