2019 (5) TMI 739 - AT - Income Tax

Penalty u/s 271(1)(c) - Addition towards borrowal from friends and relatives for financing his son s USA visa - penalty imposed by rejecting confirmations filed by the depositors on the ground that depositors were not capable of advancing such sum - HELD THAT - The assessee was a salaried employee working with postal department. According to him, these loans were taken for the purpose of obtaining VISA for his son. He has withdrawn the money from his bank account and repaid to the creditors in cash. His explanation was not accepted in the quantum proceedings, probably he failed to substantiate his explanation, but against the order of the ITAT, appeal of the assessee stands admitted before the Hon ble High Court. It is settled position of law that when the evidences and explanation furnished by the assessee in support of cash credits are not acceptable by the department, then addition u/s 68 can be made, but penalty u/s 271(1)(c) is not automatic. Thus, from the material available on record, we are of the view that the explanation of the assessee was not found to be false, but it could not be accepted on account of substantiation of his claim with help of some solid evidences. Therefore, it is not a fit case for visiting the assessee with penalty. We allow the appeal of the assessee

Issues: Appeal against penalty under section 271(1)(c) of the Income Tax Act for concealment of income or furnishing inaccurate particulars.

Analysis:
1. Issue of Penalty Imposition: The appeal before the Tribunal was against the confirmation of a penalty of ?2,04,905 imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act. The assessee, a salaried individual, had filed a return of income showing total income of ?2,04,660. An addition of ?8,49,500 was made on account of unexplained cash credit during assessment under section 143(3), which was ultimately confirmed by the Tribunal. The penalty proceedings were initiated based on this addition.

2. Contentions and Evidence: The assessee explained that the cash credit represented borrowings from friends and relatives for financing his son's USA visa, supported by details and evidence of lenders. The lenders confirmed advancing the loan and provided supporting documents. However, the Assessing Officer rejected the explanations and imposed the penalty, alleging that the depositors were not capable of advancing such sums.

3. Legal Provisions - Section 271(1)(c): The section provides for penalty if the Assessing Officer or the Commissioner is satisfied that the assessee has concealed income or furnished inaccurate particulars. The penalty can range from 100% to 300% of the tax sought to be evaded. The deeming provisions under Explanation 1 deal with situations where the assessee fails to offer a valid explanation or fails to substantiate it, leading to a presumption of concealment of income.

4. Tribunal's Decision: The Tribunal noted that while the assessee's explanation was not accepted in the quantum proceedings, the appeal stood admitted before the High Court. It emphasized that the addition under section 68 for unexplained cash credits does not automatically lead to penalty under section 271(1)(c). The Tribunal found that the assessee's explanation, though not substantiated with solid evidence, was not false. Consequently, it held that it was not a suitable case for imposing the penalty and allowed the appeal, deleting the penalty of ?2,04,905.

5. Conclusion: The Tribunal's decision highlighted the importance of substantiating explanations with solid evidence to avoid penalties under section 271(1)(c). It underscored that while unexplained additions may lead to tax liabilities, penalties should not be imposed automatically without establishing deliberate concealment or furnishing of inaccurate particulars.

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