2016 (4) TMI 573 - AT - Income Tax

Penalty under section 271(1)(c) - Held that - The addition has been made only on the ground that assessee has not been able to produce the evidence in favour of the payments made by the assessee by way of DDs to the proprietary concern of Mr. Chetan P. Shah i.e., Amit Enterprises. There is nothing on record such as documents found during the course of search in the case of Mr. Chetan P. Shah, to show that the payments made by the assessee were fictitious. The only evidence in possession of the Revenue was that Mr. Chentan P. Shah was in the business of issuing accommodation entries. There is nothing on record also to show that all the entries of Mr. Chetan P. Shah including the entries pertaining to the assessee are fictitious. Further, the assessee has submitted his explanation that the assessee is not in possession of the relevant documents due to passage of time and this has not been found to be false by any of the authorities below. The penalty under section 271(1)(c) of the I.T. Act is leviable where the assessee does not file his return of income or does not file explanation to the show cause notice for levy of penalty or where the explanation is found to be not bonafide. None of these circumstances exist in the case before us. In view of the same, we are of the opinion that the penalty under section 271(1)(c) of the Act, is not leviable in the case of the assessee in the absence of any of the above conditions. - Decided in favour of assessee

Summary

Issues:
Appeal against penalty under section 271(1)(c) of the I.T. Act, 1961 for A.Y. 2003-04.

Detailed Analysis:

Issue 1: Background and Assessment Proceedings
The appellant, a company engaged in bulk drug manufacturing, filed its income return for A.Y. 2003-04, later assessed with total income of &8377; 1,43,68,620. Subsequently, based on information from a search operation involving an entry operator, the AO alleged bogus expenditure of &8377; 17,63,784. The appellant, unable to produce evidence, agreed to the addition, leading to penalty proceedings under section 271(1)(c) initiated in 2010-11.

Issue 2: Penalty Proceedings and Arguments
The appellant, in response to the penalty notice, cited the inability to retain relevant evidence due to the passage of time and non-preference of appeal to avoid prolonged litigation. The AO imposed a penalty of &8377; 6,48,190, upheld by the CIT(A), leading to the current appeal. The appellant's counsel argued that the penalty was unjustified as there was no positive evidence of fictitious expenditure, and the payment was made through DDs, with no proof of repayment in any other form.

Issue 3: Judicial Analysis and Decision
The Tribunal observed that the addition was solely due to the appellant's failure to produce evidence of payments via DDs to the entry operator's concern. No evidence suggested the payments were fictitious, and the appellant's explanation of document unavailability was not refuted. The Tribunal noted that penalty under section 271(1)(c) is applicable in specific circumstances, none of which were present in this case. Consequently, the Tribunal held that the penalty was unwarranted, as the appellant's actions did not meet the conditions for penalty imposition, thereby allowing the appeal.

This judgment highlights the importance of substantiating claims with evidence, the burden of proof in penalty proceedings, and the necessity for specific conditions to justify penalty under section 271(1)(c) of the I.T. Act, 1961.