2019 (2) TMI 701 - AT - Income Tax

Penalty u/s. 271(1)(c) - Addition made of unsecured creditors as unexplained - Held that - Though it is incumbent upon the authorities below while dealing the issue in a quasi Judicial proceeding, the same has not been performed by the AO nor by the First Appellate Authority. The documents so placed before us though were available before the Learned CIT(A) was not taken into consideration in its proper prospective. If those documents were really insufficient to reach the level of satisfaction to assess the bonafide of the assessee the CIT(A) could have called for details from the assessee in the penalty appeal proceeding, instead of doing so, simply on the basis of the finding of the Assessing Officer, the CIT(A) confirmed the penalty which in our considered view is arbitrary, erroneous and of course not in accordance with law. We, therefore, respectfully relying upon the judgment passed by the Jurisdictional High Court decide the issue against the Revenue. We find that the order imposing penalty as made by the Learned AO, confirmed by the Learned CIT(A) is without any firm basis and/or independent enquiry which failed to have been conducted by the Authorities below. Such finding culminating into the order of the imposition of penalty is bad and liable to the quashed. We, thus, allow the appeal filed by the assessee.

Issues Involved:
1. Penalty on addition made of unsecured loans.
2. Penalty on addition made of unsecured creditors as unexplained.

Detailed Analysis:

1. Penalty on Addition Made of Unsecured Loans:

The assessee, a civil contractor, declared a total income of ?7,17,790/- for the Assessment Year (AY) 2010-11. The assessment was finalized under Section 143(3) of the Income Tax Act, 1961, with an addition of ?1,15,500/- on account of unsecured loans. The details of the unsecured loans were provided, but the Assessing Officer (AO) issued a show-cause notice questioning the genuineness of these loans. The assessee claimed to have submitted confirmations and ledger accounts, but the AO found these submissions insufficient and initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income.

The AO concluded that the assessee failed to discharge the onus of proving the identity, creditworthiness, and genuineness of the transactions. No prima facie evidence or details were provided to support the claims. The AO noted that the assessee had agreed to the addition during the assessment proceedings but had not provided any supporting evidence during the penalty proceedings.

2. Penalty on Addition Made of Unsecured Creditors as Unexplained:

An addition of ?1,50,360/- was made due to disallowance of bogus creditors, specifically Ms. Gayatri Trading Co. The assessee claimed that the transaction was genuine but disputed due to the quality of goods received. The AO found that no payment was made to the said party, and the entire amount was shown as outstanding. The assessee failed to provide the address of Ms. Gayatri Trading Co. and offered the amount for taxation during the assessment proceedings.

The AO imposed a penalty, stating that the assessee had furnished inaccurate particulars of income. The AO referenced Explanation 1 to Section 271(1)(c), noting that the assessee failed to furnish material evidence necessary for the computation of income and did not prove that he was prevented by sufficient cause from furnishing the required details.

Tribunal's Findings:

The Tribunal reviewed the penalty proceedings and found that the AO did not conduct a fresh enquiry during the penalty proceedings to verify the assessee's claims. The Tribunal emphasized that the burden of proof in penalty proceedings is on the department to establish that the assessee had concealed income or furnished inaccurate particulars. The Tribunal cited the judgment in National Textiles-vs.-CIT, stating that the same evidence used in quantum proceedings could not automatically justify the imposition of a penalty without further enquiry.

The Tribunal noted that the AO had pointed out the assessee's failure to provide details during the assessment proceedings but did not make any effort to obtain these details during the penalty proceedings. The Tribunal concluded that the penalty imposed was arbitrary and not in accordance with the law, as the AO and the First Appellate Authority did not perform the necessary due diligence.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, quashing the penalty imposed under Section 271(1)(c). The Tribunal emphasized the need for a fresh enquiry during penalty proceedings to establish the assessee's guilt conclusively. The order imposing the penalty was deemed without firm basis and was thus quashed.

Result:

The assessee's appeal was allowed, and the penalty imposed was quashed.

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