2018 (3) TMI 1573 - AT - Income Tax

Unexplained investment u/s 69 - unexplained money u/s 69A - nature of receipt not explained by assessee - AO observed that, mere filing of copy of agreement is not sufficient - Information was received u/s 133(6) - Held that - In the instant case, the nature of investment is in respect of interest which accrued to the assessee on the deposits in the Natwest Bank, London. We have already held above that the assessee has duly explained even the nature and source of the deposits in the Natwest Bank accounts and thus, said the deposits cannot be regarded as unexplained investment under section 69 of the Act. The deposits represent income from support services provided by the assessee to TPE and therefore, the conclusion of the revenue to regard the sum offered as income and assess under section 69 of the Act has no validity in law. In view of the above, we do not find merit in the claim of the revenue to treat the interest and income from deposits as unexplained investment under section 69 of the Act. The aspect that this income was not declared in the original return of income cannot be a ground to automatically conclude that it is unexplained investment particularly having regard to the aforesaid evidences and factual position placed on record which remains un-assailed despite examination at various levels. - Decided in favor of assessee. Disallowance of expenditure - Held that - AO had made the disallowance since this audit report mentions that the expenses vouchers were not supported by documentary evidence. It has been also noted that during the appellate proceedings, the assessee has not produced any evidence to justify the claim of expenditure. It has been held that mere contention that disallowance is ad hoc was not a valid basis. Having regard to the reasonable estimate made by the learned Assessing Officer, the aforesaid disallowances were deleted. No reason to deviate from the aforesaid findings recorded by the Ld. CIT (A). The assessee has not brought any material so as to warrant a view different from the aforesaid conclusion. In view of the aforesaid reasons, claim raised by the assessee is rejected. Interest levied under section 234B and 234C - Held that - We hold that levy of interest is mandatory and we reject the claim raised by the appellant. Imposition of penalty u/s 271(1)(c) - Held that - AO is required to specify as to under which limb of section 271(1)(c) of the Act, the penalty proceedings had been initiated, i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. From the perusal of the notice u/s 274 r.w.s. 271, AO has not specified as to under which of the two limbs the penalty is imposable. In the circumstances and facts of the case, the penalty proceedings so initiated by the AO are bad in law and accordingly the penalties so initiated are ordered to be cancelled and the order/s of the learned CIT (A) are reversed. Thus, the legal ground raised is decided in favour of the assessee and is allowed.

Issues Involved:

1. Voluntary Disclosure of Income
2. Validity of Revised Return
3. Treatment of Receipts as Unexplained Investment under Section 69
4. Disallowance of Professional Charges
5. Levy of Interest under Sections 234B and 234C
6. Levy of Penalty under Section 271(1)(c)

Issue-wise Detailed Analysis:

1. Voluntary Disclosure of Income:

The Tribunal examined whether the income declared by the assessee in the revised returns was voluntary. It was argued that the income declared in letters dated 1.4.2006 and subsequent returns was voluntary and not detected by the revenue. The Tribunal found that the initiation of proceedings under section 147 was based on the assessee's disclosure, and no independent detection was made by the revenue. The Tribunal concluded that the income declared by the assessee was voluntary.

2. Validity of Revised Return:

The Tribunal considered whether the revised returns filed by the assessee were valid. It was held that a return filed in response to notice under section 148 can be revised under section 139(5) of the Act. The Tribunal noted that the revised returns were filed within the permissible period and were, therefore, valid.

3. Treatment of Receipts as Unexplained Investment under Section 69:

The Tribunal examined the treatment of receipts from M/s TPE as unexplained investments under section 69. It was argued that the receipts represented sums received under an agreement for providing support services. The Tribunal found that the agreements, invoices, and remittance certificates supported the claim that the receipts were business income and not unexplained investments. The Tribunal concluded that the receipts could not be treated as unexplained investments under section 69.

4. Disallowance of Professional Charges:

The Tribunal considered the disallowance of professional charges claimed by the assessee. It was held that since the assessee was following the cash system of accounting, the disallowance was justified as the expenses were not paid during the year.

5. Levy of Interest under Sections 234B and 234C:

The Tribunal examined the levy of interest under sections 234B and 234C. It was argued that the assessee had a bona fide belief that the income was not taxable in India. The Tribunal held that the levy of interest was mandatory, but no interest could be levied after 1.4.2006, when the assessee voluntarily declared the income and requested the revenue to adjust the deposits against the tax liability.

6. Levy of Penalty under Section 271(1)(c):

The Tribunal considered the levy of penalty under section 271(1)(c). It was argued that the income declared was voluntary and not detected by the revenue. The Tribunal found that the notices issued were vague and non-specific, and the penalty proceedings were not valid. The Tribunal also held that the income declared was voluntary and not a case of concealment. The penalties were, therefore, deleted.

Conclusion:

The Tribunal allowed the appeals partly, holding that the income declared by the assessee was voluntary, the revised returns were valid, and the receipts could not be treated as unexplained investments. The disallowance of professional charges was upheld, and the levy of interest was partly allowed. The penalties under section 271(1)(c) were deleted.

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