2017 (2) TMI 1472 - AT - Income Tax

Penalty u/s. 271(1)(c) - assessee is a trader in fabrics but on survey u/s.133A it was found engaging only in issuing accommodation sale bills - HELD THAT - We found that the issues in controversy regarding penalty has been decided in the assessee group case in the case of Smt. Hema R. Gupta and Shri Nilesh Rakesh Kumar Gupta 2016 (11) TMI 448 - ITAT MUMBAI wherein the similar kind of penalty has been deleted by the tribunal and held this is not a fit case where penalty can be imposed under section 271 (1 )(c) of the Act for concealment of income or for furnishing incorrect particulars of income. We, therefore, set aside the impugned order and allow the grounds of appeal of the assessee. Penalty levied on the alleged unexplained loan - HELD THAT - As decided in own case 2016 (9) TMI 1243 - ITAT MUMBAI Assessing Officer has disallowed the deduction on ground that assessee had not substantiated the claim. But, Assessing Officer failed to consider that loans are opening balance which were accepted in 2005-06 - Assessee submitted that assessee had provided all the details available Assessing Officer. Hence, Assessing Officer cannot state that assessee failed to substantiate the claim. So, the deduction claimed by assessee is requested to be allowed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of penalty under Section 271(1)(c) for assessment years 2003-04 to 2008-09.
2. Basis of addition for various assessment years.
3. Treatment of unexplained cash loan and related penalty.

Issue-wise Detailed Analysis:

1. Justification of Penalty under Section 271(1)(c):
The appellant contested the imposition of penalties under Section 271(1)(c) for the assessment years 2003-04 to 2008-09. The penalties were levied by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The penalties were based on the finding that the assessee was engaged in issuing accommodation sale bills rather than actual trading in fabrics. The Tribunal had previously decided the quantum appeal, reducing the estimated commission income significantly. The Tribunal held that when the quantum addition is restricted, the basis for imposing the penalty is undermined. The Tribunal referenced similar cases within the same group, where penalties were deleted, and applied the same rationale here, leading to the deletion of penalties.

2. Basis of Addition for Various Assessment Years:
The additions were primarily based on the estimation of commission income on sales and purchases. Different percentages were applied across the years, ranging from 6% to 7% on sales and 3% on purchases, with adjustments for expenses. The Tribunal had previously reduced the commission rate to 0.6% of turnover, which was considered reasonable based on precedents such as Sanjay Kumar Garg vs. ACIT and Gold Star Finvest (P) Ltd vs. ITO. These precedents established that lower commission rates were more appropriate, thus reducing the basis for the original higher additions.

3. Treatment of Unexplained Cash Loan and Related Penalty:
The AO added an amount of ?1,40,00,000 as unexplained cash loan received by the assessee, which was not substantiated during the assessment proceedings. The assessee contended that this amount was a business advance given to a third party, which was not returned, and hence, should be treated as a business loss. The Tribunal, in the assessee's own case for earlier years, had deleted this addition, recognizing it as a business loss. The Tribunal cited the decision in Vijayashanthi Builders Ltd. vs. JCIT, where forfeited advance money was treated as a revenue loss. Similarly, in Dr. T. A. Quereshi vs. CIT, the Supreme Court held that loss of stock-in-trade should be considered a trading loss. Based on these principles, the Tribunal deleted the penalty related to the unexplained cash loan, affirming that it was a business loss rather than concealed income.

Conclusion:
The Tribunal allowed all the appeals of the assessee, deleting the penalties imposed under Section 271(1)(c) for the assessment years in question. The judgments were based on the rationale that the quantum additions were significantly reduced and the unexplained cash loan was treated as a business loss, thus invalidating the basis for the penalties. The order was pronounced in the open court on 3rd February 2017.