2016 (9) TMI 304 - AT - Income Tax

Penalty u/s 271(1)(c) - unexplained cash deposit - assessee surrendered an amount of ₹ 20 lac on a condition that the AO shall not levy penalty u/s 271(1)(c) of the Act, as per mutual discussions - AO had not complied with the conditions laid down by the assessee for surrender - CIT(A) upheld the addition on the ground that the assessee had made a surrender & came to a conclusion that the assessee had taken into account the opening balance while surrendering the amount of ₹ 20 lac - Held that - as far as the opening balance is concerned, the assessment of the earlier assessment year was reopened and the claims of the assessee was accepted. Order was passed u/s 143(3) read with section 148 of the Act on 25.2.2014. Thus, the opening balance cannot be added. Coming to the surrender made by the assessee, as find that this is a conditional surrender. The assessee, in his detailed reply dated 27.12.2011, explained the sources of cash deposit made during the year. It was submitted that the assessee was having sufficient cash in hand at the beginning of the year amounting to ₹ 22,36,415/-. As already stated, this opening balance was explained by filing the financial statement as well as the assessment order for the assessment year 2008-09. The assessee, in his detailed explanation, had explained monthwise, the cash deposits made in the savings bank account along with the corresponding sources. This explanation runs into ten pages. Cash memos with regard to the sales made of MS BARS was also furnished. The AO has not pointed out any defect or discrepancy in these details submitted by the assessee. The entire addition was based on the conditional surrender made by the assessee. The AO did not honour the condition of not levying penalty and went ahead and issued notice for levying penalty u/s 271(1)(c). The AO, in my view, should have entirely rejected the offer of the assessee and gone ahead with his finding based on evidence or, in the alternative, desisted from initiating penalty proceedings. In this case, the AO chose to accept only a part of the statement. As the submissions of the assessee vide letter dated 27.12.2011 were not factually controverted by any of the authorities, the addition made merely on the ground of disclosure cannot be sustained. The assessee has explained the source of each deposit with evidence and the AO has not found any fault in the claim made by the assessee. No defects were pointed out. Hence, the addition in question is hereby deleted. - Decided in favour of assessee

Summary

Issues:
Assessment of cash deposits in savings bank account, Conditional surrender by assessee, Penalty proceedings under section 271(1)(c), Consideration of admission by assessee, Deletion of addition based on disclosure.

Assessment of Cash Deposits:
The assessee, engaged in property dealing and trading, declared income but faced scrutiny due to cash deposits in the savings bank account. The Assessing Officer (AO) sought explanations, leading to a conditional surrender of ?20 lac by the assessee to avoid penalty. The Commissioner of Income Tax (Appeals) upheld the addition based on the surrender, questioning the opening balance claimed by the assessee. However, the Tribunal noted that the opening balance was previously accepted, preventing its addition. The Tribunal analyzed the detailed explanation provided by the assessee regarding the cash deposits, highlighting that the AO did not find any discrepancies in the explanations or evidence provided. The Tribunal criticized the AO for not honoring the condition of not levying a penalty and concluded that the addition based solely on the conditional surrender was unjustified.

Conditional Surrender and Penalty Proceedings:
The Tribunal emphasized that the surrender made by the assessee was conditional, with a detailed explanation provided regarding the sources of cash deposits. The Tribunal cited legal precedents to establish that an admission or surrender by an assessee, if based on mistaken beliefs or misunderstandings, cannot be binding. Referring to various case laws, the Tribunal highlighted that an admission alone cannot be the basis for assessment and must be corroborated with other evidence. In this case, the Tribunal found that the AO did not contest the factual submissions made by the assessee, leading to the deletion of the addition based solely on the disclosure without any substantive defects identified by the AO.

Consideration of Admission and Deletion of Addition:
Relying on the detailed submissions provided by the assessee, the Tribunal concluded that the addition made solely on the grounds of disclosure could not be sustained. The Tribunal noted that the assessee had meticulously explained the sources of each deposit with supporting evidence, and the AO failed to identify any faults in the explanations. Consequently, the Tribunal allowed the appeal of the assessee, deleting the addition in question.

In conclusion, the Tribunal ruled in favor of the assessee, highlighting the importance of considering all evidence and not solely relying on conditional surrenders or admissions by taxpayers without proper verification.