2020 (4) TMI 554 - AT - Income Tax

Penalty u/s 271(1)(c) - unexplained investment u/s.69 - as contended that assessee had deposited cash, out of the sales proceeds of Art Silk Cloth and also withdrawn money from the said bank account for payment of purchase of Art Silk Cloth - assessee was not maintaining any books of accounts, therefore requested to treat the above account as retail business account and club the income from retail business u/s.44AF - HELD THAT - In case addition is made on the basis of peak working and on the same estimated income is assessed, then, in that eventuality, no penalty is leviable and moreover once the assessee himself has submitted that the above account be treated as retail business account and club the income from retail business u/s.44AF of the Act. Then, obviously the additions at the most could be made on the basis of estimation. And, therefore, in that circumstance, no penalty is leviable. Revenue has failed to make any such enquiry and as stated earlier no corresponding unaccounted asset belonging to assessee has been found and therefore, following the ratio of SHRI OJAS ASHOKBHAI MEHTA VERSUS ITO, WARD 3 (1) , SURAT. 2013 (8) TMI 1127 - ITAT AHMEDABAD the explanation of assessee is required to be treated as bonafide and consequently no penalty u/s 271(1)(c) can be imposed in view of explanation to section 271(1)(c) of the Act and we have also considered that merely because additions have been made the same is confirmed in first appeal, it does not at all mean that penalty for concealment of income is automatically required to be imposed. Explanation 1 to section 271(1)(c) only raises rebuttable presumption, which can be discharged by assessee on balance of probability. The penalty can be justified only if assessee fails to offer an explanation or his explanation is found to be false. If these circumstances are not present, the penalty can be avoided if assessee is able to substantiate his explanation. Respectfully following the aforesaid decision of the Co-ordinate Bench and decision of Hon'ble Gujarat High Court decision CIT Vs. President Industries 1999 (4) TMI 8 - GUJARAT HIGH COURT we are of the considered opinion that present penalty does not survive - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Treatment of unexplained cash deposits in the bank account.
3. Applicability of Section 44AF for income estimation from retail business.

Detailed Analysis:

1. Legitimacy of the Penalty Levied under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue revolves around the penalty of ?7,14,662/- levied on the assessee under Section 271(1)(c) for concealment of income. The Assessing Officer (AO) found unexplained cash deposits totaling ?21,56,035/- in the assessee's ICICI Bank account, which were treated as unexplained investments under Section 69. The assessee argued that these deposits were from sales proceeds of Art Silk Cloth and requested that the account be treated as a business account under Section 44AF. The Tribunal, after considering various precedents, concluded that penalty under Section 271(1)(c) is not justified when the addition is based on estimation. The Tribunal emphasized that the penalty can only be imposed if the explanation provided by the assessee is found to be false or if the assessee fails to substantiate the explanation. In this case, the Tribunal found the explanation of the assessee to be bona fide and directed the deletion of the penalty.

2. Treatment of Unexplained Cash Deposits in the Bank Account:
The AO treated the cash deposits in the ICICI Bank account as unexplained investments. The assessee contended that the deposits were from business activities related to the sale of Art Silk Cloth. The Tribunal examined the month-wise pattern of deposits and withdrawals, which indicated continuous business activities. The Tribunal referred to similar cases where additions were made based on peak credit working and concluded that such additions are essentially estimations. Therefore, the Tribunal held that in the absence of books of accounts, treating the deposits as business income under Section 44AF is justified, and no penalty should be levied on such estimated additions.

3. Applicability of Section 44AF for Income Estimation from Retail Business:
The assessee requested that the cash deposits be treated as income from retail business under Section 44AF. The Tribunal agreed with this approach, noting that the assessee was not maintaining books of accounts but had provided a plausible explanation for the deposits. The Tribunal cited precedents where penalties were deleted in similar circumstances, emphasizing that additions based on estimation do not warrant penalties for concealment of income. The Tribunal concluded that the income should be clubbed under Section 44AF, and the penalty levied by the AO should be deleted.

Conclusion:
The Tribunal allowed the appeal in favor of the assessee, directing the deletion of the penalty under Section 271(1)(c). The Tribunal's decision was based on the rationale that the additions were made on an estimated basis, and the assessee's explanation was found to be bona fide. The Tribunal also emphasized that penalties for concealment cannot be imposed merely because additions have been confirmed on appeal. The decision underscores the importance of substantiating explanations and the principle that penalties should not be imposed on estimated additions.