2021 (3) TMI 999 - AT - Income Tax

Penalty u/s 271(1)(c) - additions towards unproved liabilities / cessation of liability and unexplained cash credit u/s. 68 of the Act for the reason that the assessee has failed to prove liability shown under the head map drawing charges and has also failed to prove unsecured loan taken - HELD THAT - On examining the reasons given by the AO for levy of penalty u/s.271(1)(c) of the Act, we find that the reasons given for levy of penalty is not on sound footing, because the sole basis for making addition is report of Inspector of income tax, which was taken during the course of assessment proceedings, which was in the year 2015, whereas, payment against services has been made in the year 2011 and 2012. It is very difficult for the recipient of payment to confirm exact date of receipt of money. Therefore, for that reason alone, it cannot be inferred that liability shown in the books of account is unexplained. Assessing Officer has not disputed the fact that the assessee has furnished all evidences in respect of unproved liability. In fact, recipient of payment has confirmed rendering of services as well as receipt of money. Therefore, at best, the case can be considered as claim of expenditure with necessary evidence, but unsubstantiated to the satisfaction of the Assessing Officer. It is a well settled principle of law by the decision in the case of CIT Vs.Reliance Petro Products Pvt.Ltd 2010 (3) TMI 80 - SUPREME COURT that mere making of claim which is not sustainable in law by itself would not amount to furnishing inaccurate particulars regarding income of the assessee. Therefore, we are of the considered view that on this addition, penalty u/s.271(1)(c) cannot be levied. Additions made towards unexplained cash credit being unsecured loan taken from Mr. Karur Ramasamy - as the explanation of the assessee before the Assessing Officer that party has confirmed loan given to the assessee. Once the assessee has furnished confirmation letters to prove identity of the parties, then initial burden cast upon the assessee was successfully discharged. No doubt, the Assessing Officer may not accept the explanation furnished by the assessee with regard to source and nature of credit, but that by itself would not be a ground to reject explanation furnished by the assesse, when the assessee genuinely explains the credits found in books of account disclosing all necessary facts. Therefore, merely for the reason that the Assessing Officer has not satisfied with the explanation furnished by the assessee, it cannot be said that the assessee has furnished inaccurate particulars of income. Therefore, on this count also, penalty levied by the Assessing Officer u/s.271(1)(c) of the Act is incorrect. Therefore, considering the facts and circumstances of the case, we are of the considered view that the Assessing Officer has erred in levying penalty u/s.271(1)(c) of the Act in respect of the two additions. The learned CIT(A), without appreciating the facts has simply confirmed penalty levied by the Assessing Officer, hence, we set aside the order passed by the learned CIT(A) and direct the Assessing Officer to delete penalty levied u/s.271(1)(c) - Appeal filed by the assessee is allowed.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Legitimacy of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 for unproved liabilities.
3. Legitimacy of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 for unexplained cash credits.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee filed an appeal against the order of the CIT(A) with a delay. The Tribunal considered the petition for condonation of delay along with the reasons provided. The delay was attributed to an inadvertent error in not paying the appeal fees before filing the appeal. The Tribunal noted that the appeal was filed within the specified time but was considered delayed due to the late communication of the appeal fee payment. Given the bona fide interest shown by the assessee and the marginal delay of ten days, the Tribunal condoned the delay in the interest of substantial justice.

2. Legitimacy of Penalty Levied Under Section 271(1)(c) for Unproved Liabilities:
The assessee was penalized for unproved liabilities related to map drawing charges. The assessee argued that necessary evidence was provided to substantiate the liability, including confirmations from recipients of payments. However, the Assessing Officer (AO) disregarded these based on a field report stating no outstanding payments as of 31.03.2012. The Tribunal observed that the AO's reliance on the field report alone was insufficient to establish concealment of income. The Tribunal emphasized that the mere inability to substantiate a claim to the AO’s satisfaction does not equate to willful concealment of income. Citing the Supreme Court's decision in CIT Vs. Reliance Petro Products Pvt. Ltd., the Tribunal held that making an unsustainable claim does not amount to furnishing inaccurate particulars. Consequently, the penalty under Section 271(1)(c) was deemed inappropriate.

3. Legitimacy of Penalty Levied Under Section 271(1)(c) for Unexplained Cash Credits:
The assessee was also penalized for unexplained cash credits amounting to ?13,00,000/- from Mr. Karur Ramasamy. The assessee provided confirmation letters to prove the identity of the creditor, which discharged the initial burden of proof. The AO, however, was not satisfied with the explanation regarding the source and nature of the credit. The Tribunal noted that the mere dissatisfaction of the AO does not justify the imposition of penalty if the assessee has genuinely disclosed all necessary facts. Thus, the Tribunal found the penalty under Section 271(1)(c) for unexplained cash credits to be unjustified.

Conclusion:
The Tribunal concluded that the AO erred in levying penalties under Section 271(1)(c) for both unproved liabilities and unexplained cash credits. The CIT(A)’s order confirming the penalties was set aside, and the AO was directed to delete the penalties. The appeal filed by the assessee was allowed in full.

Order Pronounced:
The order was pronounced in the open court on 19th March 2021.

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