2020 (1) TMI 351 - AT - Income Tax

Unexplained cash credit u/s.68 - HELD THAT - It was for the assessee to prove that the loan creditor had advanced the money out of the income of any other source like his capital i.e. saving of earlier years or receipt from any other person from which the loan creditor could have advanced the loan. The observation of the AO while making the addition u/s.68 is that the loan creditor has deposited the amount in cash of 7, 90, 000/- before issuing cheque of an amount of 8, 00, 000/- to the assessee on the same day. On perusal of the bank statement of the creditor filed by the assessee it is observed that nowhere it is shown that the assessee has any other income routed through the bank. From the above it can be inferred that the creditor is a man of means and the creditworthiness of the lender is not substantiated by furnishing the required details as called for by the Assessing Officer as per section 68 of the Income tax Act. In our considered view the AO is justified in making the addition and ld CIT(A) is fully correct in confirming the same. Penalty u/s 271(1)(c) - HELD THAT - Penalty order is based on furnishing of inaccurate particulars but the notice is not specifying exactly on which limb the penalty u/s 271(1)(c) has been initiated. From the notice dated 12.3.2014 produced during the hearing it can be seen that the Assessing Officer was not sure under which limb of provisions of Section 271 of the Income Tax Act 1961 the assessee is liable for penalty. The issue is squarely covered by the decision of the Hon ble Supreme Court in case of M/s SSA Emerald Meadows 2016 (8) TMI 1145 - SC ORDER . Since in the instant case also the inappropriate words in the penalty notice has not been struck off and the notice does not specify as to under which limb of the provisions the penalty u/s 271(1)(c) has been initiated therefore we are of the considered opinion that the penalty levied u/s 271(1)(c) is not sustainable and has to be deleted. We therefore set-aside the order of the CIT(A) and direct the Assessing Officer to cancel the penalty so levied u/s.271(1)(c) - Decided in favour of assessee.

Summary

Issues:
1. Addition of unexplained cash credit u/s.68 of the Act in ITA No.51/CTK/2016.
2. Confirmation of penalty u/s.271(1)(c) in ITA No.320/CTK/2018.

Issue 1: Addition of Unexplained Cash Credit u/s.68 of the Act (ITA No.51/CTK/2016):

The case revolved around the addition of ?8,00,000 as unexplained cash credit u/s.68 of the Act. The Assessing Officer observed discrepancies in the loan transactions of the assessee, particularly with Shri Basanta Bihari and M/s. Kalinga Minerals. Shri Bihari allegedly transferred ?8,00,000 to the assessee, but the source of this amount was questioned due to insufficient evidence of the lender's creditworthiness. The Assessing Officer disbelieved the lender's creditworthiness and added the amount to the assessee's income. The ld CIT(A) upheld this decision.

During the appeal, the assessee argued that it had fulfilled the requirements of proving the identity of the creditor, genuineness of the transaction, and creditworthiness of the lender. The assessee claimed that Shri Bihari, being a director of the company, had provided advances on multiple occasions, indicating a legitimate transaction. However, the Departmental Representative contended that the lender's creditworthiness was dubious, as the cash deposit and subsequent cheque issue on the same day raised suspicions.

The Tribunal analyzed the evidence and found discrepancies in the lender's income tax return, indicating a lack of surplus funds to lend the amount. Additionally, the absence of interest payments on the loan and no evidence of other income sources raised doubts about the transaction's authenticity. The Tribunal concluded that the lender's creditworthiness was not substantiated, justifying the addition of ?8,00,000 to the assessee's income. Consequently, the appeal was dismissed.

Issue 2: Confirmation of Penalty u/s.271(1)(c) (ITA No.320/CTK/2018):

The second issue concerned the confirmation of a penalty of ?2,47,000 under section 271(1)(c) of the Act. The assessee argued that the penalty notice was defective as it did not specify the charge against the assessee accurately. The notice lacked clarity on whether the penalty was for concealing income particulars or furnishing inaccurate income details. The assessee cited legal precedents to support the argument that such defective notices render the penalty unsustainable.

The Departmental Representative supported the penalty, emphasizing the correctness of the authorities' decisions. The Tribunal examined the penalty notice and noted the lack of clarity regarding the specific provision under which the penalty was imposed. Citing the Supreme Court's decision in a similar case, the Tribunal concluded that the penalty notice's deficiencies rendered the penalty unsustainable. Consequently, the penalty levied under section 271(1)(c) was set aside, and the appeal of the assessee was allowed.

In conclusion, the Tribunal upheld the addition of unexplained cash credit u/s.68 of the Act in ITA No.51/CTK/2016, while setting aside the penalty under section 271(1)(c) in ITA No.320/CTK/2018.