2018 (1) TMI 26 - AT - Income Tax

Penalty u/s 271(1)(c) of the ITA 1961 - disallowance of deduction under Chapter VIA - Held that - as observed by the CIT(A), the assessee had not even furnished the details as regards which all investments the said deduction was claimed by him, the same not only fails to inspire any confidence as regards the said claim, but rather, raises serious doubts as regards the veracity of the same - it is neither a case of a bonafide claim of excess deduction, nor a case of mere unproved or unsubstantiated claim of deduction of the assessee - even if the assessee was unable to place on record the supporting documents to substantiate his claim, then nothing stopped him from at least furnishing the details of the investments in respect of which such deduction was claimed by him, which we find had not been done by him - penalty upheld. Penalty - cash deposit of ₹ 4,81,600/- in the bank account of the assessee - Held that - a disproved explanation of the assessee would undoubtedly lead to levy of penalty under Sec. 271(1)(c), however, the same would not be applicable as regards an unproved explanation - as the explanation of the assessee as regards the cash deposit of ₹ 4,81,600/- had though remained unproved to the satisfaction of the A.O, however, the same had and not been disproved and conclusively found to be false, therefore, no penalty under Sec. 271(1)(c) would be called for in his hands on the said count - penalty set aside. Appeal allowed in part.

Summary

Issues Involved:
1. Legitimacy of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Disallowance of deduction under Chapter VIA.
3. Treatment of cash deposits as unexplained cash credits under Section 68.

Issue-wise Detailed Analysis:

1. Legitimacy of Penalty under Section 271(1)(c):
The primary issue is whether the penalty under Section 271(1)(c) for concealment of income or furnishing inaccurate particulars of income was justified. The assessee argued that all facts were disclosed during the assessment proceedings, and hence no penalty should be levied. However, the Assessing Officer (A.O) and the Commissioner of Income Tax (Appeals) [CIT(A)] found that the assessee had purposefully furnished inaccurate particulars of income, leading to the imposition of a penalty of ?1,48,550/- for A.Y. 2006-07 and ?1,77,591/- for A.Y. 2007-08.

2. Disallowance of Deduction under Chapter VIA:
For A.Y. 2006-07, the assessee claimed a deduction of ?1,00,000/- under Chapter VIA but could only substantiate ?26,644/-. Consequently, the A.O disallowed ?73,356/- of the claim. The CIT(A) upheld this disallowance, noting the lack of evidence and details regarding the investments. The Tribunal agreed, emphasizing that the assessee failed to provide any supporting documents or details of the investments, thus proving the falsity of the claim. Therefore, the penalty for this disallowance was upheld.

For A.Y. 2007-08, the assessee claimed a deduction of ?1,00,000/- but could only substantiate ?95,882/-. The A.O disallowed ?4,118/- and treated it as unexplained. The Tribunal applied the same reasoning as in A.Y. 2006-07, upholding the penalty for this disallowance.

3. Treatment of Cash Deposits as Unexplained Cash Credits under Section 68:
For A.Y. 2006-07, the assessee deposited ?4,81,600/- in cash, claiming it was a loan from the HUF of his father. Despite providing a confirmation from the HUF, the A.O and CIT(A) found the financial credentials of the creditor unconvincing and treated the amount as unexplained cash credit. However, the Tribunal observed that while the explanation was unproved, it was not disproved or found false. Citing the Bombay High Court judgment in CIT Vs. Upendra V. Mithani, the Tribunal concluded that an unproved explanation does not warrant a penalty under Section 271(1)(c). Thus, the penalty for this cash deposit was set aside.

For A.Y. 2007-08, the assessee deposited ?5,87,500/- in cash, similarly claiming it was a loan from the HUF of his father. The A.O and CIT(A) treated it as unexplained cash credit. The Tribunal applied the same reasoning as in A.Y. 2006-07, setting aside the penalty for this cash deposit.

Conclusion:
The Tribunal upheld the penalties related to the disallowance of deductions under Chapter VIA for both assessment years, as the claims were found to be false. However, it set aside the penalties related to the cash deposits, as the explanations, though unproved, were not disproved or found false. Thus, the appeals were partly allowed, upholding penalties for false deduction claims while setting aside penalties for unexplained cash deposits.