2019 (1) TMI 1460 - AT - Income Tax

Levy of penalty u/s.271(1)(c) - Addition towards working capital - Held that - We find that assessee is not in appeal against estimation of 8% on its receipts of ₹ 1,42,54,512/-, as income from civil construction business. Once an addition on estimate basis is made, in our opinion a further estimate for investments in working capital will be superfluous. There is nothing on record to show that assessee had any working capital or work in progress. Estimation of ₹ 24,00,000/- , as net receivables of the assessee was purely an assumption. We have no hesitation in deleting this addition. Ground No.2 of the assessee is allowed. Initiating levy of penalty u/s.271(1) (c) of the Act, which is consequential in nature, needing no specific adjudication. Unexplained investment in business - Assessee seeks telescoping of such investment against the income estimated at 8% on contract receipts - Held that - It is clear that assessee itself had admitted a sum of ₹ 4,00,000/- as peak investment in bank account which was not disclosed. Having done so, assessee cannot turn around and say that such addition ought not have been made by the ld. CIT(A). Assessee cannot plead for telescoping of admitted income with what is found by the Assessing authority to be undisclosed income. We thus do not find any reason to interfere with the order of the ld. CIT(A). Grounds 4 and 5 of the assessee stand dismissed. Penalty u/s 271(1)(c) - income arrived at estimated basis - assessee in its original return of income had shown only income from salary and income from house property and never revealed that it was doing any business, much less a civil contract business - Held that - Question of concealment and furnishing of inaccurate particulars has to be answered with reference to the original return filed by the assessee, and not based subsequent computations or revised return filed when assessee became aware that Assessing Officer was having information on income not disclosed in the original returns. Thus, in our opinion there was clear furnishing of inaccurate particulars as well as concealment of income. Even in the revised computation filed, during the course of assessment proceedings, assessee had admitted income of only ₹ 1,24,400/- that too, on estimate basis. Lower authorities were justified in levying penalty under Section 271(1)(c). Nevertheless, since we have deleted the addition of ₹ 24,00,000/- considered as unexplained investment in working capital, the penalty levied also requires to be reduced proportionately. Appeal of the assessee are partly allowed.

Summary

Issues Involved:

1. Addition/disallowances made for the impugned assessment year.
2. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Addition/Disallowances Made for the Impugned Assessment Year:

The assessee filed a return declaring an income of ?11,14,850/-, which included salary and house property income. During assessment, the Assessing Officer (AO) found unexplained cash/clearing credits in two bank accounts totaling ?1,02,29,512/-. The assessee claimed these were drawings from M/s. Baba Foundations P. Ltd, but the AO excluded cheques from this company and added the unexplained credits under Section 69 of the Income Tax Act.

Additionally, the AO found that the assessee repaid ?34,10,000/- against loans from M/s. Baba Foundations P. Ltd without explaining the source, leading to another addition under Section 69.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the appeal due to lack of evidence from the assessee. The Tribunal remitted the issues back to CIT(A) with directions to re-examine the case after giving the assessee another opportunity.

Upon re-examination, the CIT(A) accepted the assessee's claim that the credits were from civil construction business and computed the income at 8% of the total receipts of ?1,42,54,512/-, resulting in an addition of ?11,40,360/-. However, the CIT(A) also estimated an unexplained investment in working capital of ?24,00,000/- and an initial investment of ?4,00,000/-, totaling an aggregate undisclosed income of ?39,40,360/-.

The Tribunal found the addition of ?24,00,000/- for working capital to be based on assumptions and deleted it. However, it upheld the addition of ?4,00,000/- as the assessee had admitted this as peak investment.

2. Levy of Penalty Under Section 271(1)(c) of the Income Tax Act, 1961:

The CIT(A) levied a penalty on the concealed income of ?39,40,360/-. The Tribunal noted that the assessee initially did not disclose any business income and only admitted to civil construction business after the AO pointed out the bank credits. The Tribunal held that the concealment and furnishing of inaccurate particulars should be assessed based on the original return, not subsequent revisions.

The Tribunal upheld the penalty but directed the AO to rework it considering the reduced undisclosed income of ?15,40,360/- following the deletion of the ?24,00,000/- addition.

Conclusion:

The appeal of the assessee was partly allowed, with the Tribunal deleting the addition for working capital but upholding the penalty proportionate to the revised undisclosed income. The final order was pronounced on January 24, 2019, in Chennai.