2021 (6) TMI 73 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - disparity between the returned income and assessed income - Addition on account of unexplained cash deposits AND Addition on account of interest on savings bank account - HELD THAT - On mere reading of the assessment order, it is evident that the appellant had offered an explanation in support of the sources for the cash deposits. It is stated by the appellant during the course of assessment proceedings as well as proceedings before the ld. CIT(A) that the cash deposits were made out of the withdrawals made from the bank through ATM. The Assessing Officer as well as the ld. CIT(A) had rejected this explanation by holding that no documentary evidence in support of the explanation was filed. It is not the case of the lower authorities that the assessee had filed a false explanation as result of which additions were made. It is settled position of law that mere rejection of the explanation does not entail levy of penalty u/s 271(1)(c) of the Act as held by the Hon ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT We are of the considered opinion that it is not a fit case for levy of penalty u/s 271(1)(c) of the Act. - Decided in favour of assessee.

Summary

Issues:
Levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961 based on unexplained cash deposits and interest on savings bank account.

Analysis:
The appellant, engaged in the business of builders and land promoters, filed an appeal against the order of the CIT(A) confirming the penalty under section 271(1)(c) of the Act for the assessment year 2011-12. The Assessing Officer made additions totaling &8377; 29,50,000/- for unexplained cash deposits and &8377; 1,472/- as interest from savings bank accounts. The CIT(A) further added &8377; 9,55,000/- on account of unexplained credit transfers through ATM. The penalty proceedings were initiated, and the Assessing Officer levied a penalty of &8377; 9,51,170/- despite the appellant's explanation that the cash deposits were made from ATM withdrawals. The appellant cited the decision in CIT vs. Reliance Petroproducts Pvt. Ltd., emphasizing that mere rejection of an explanation does not warrant a penalty under section 271(1)(c) of the Act.

The ITAT Pune analyzed the case and noted that the appellant had provided explanations for the cash deposits, which were rejected due to lack of documentary evidence. Referring to the Supreme Court's decision, the ITAT emphasized that the mere rejection of an explanation does not automatically lead to the imposition of a penalty. The court highlighted that the particulars in the return must be inaccurate to invoke the penalty provision. As there was no finding that the details supplied by the appellant were incorrect or false, the penalty under section 271(1)(c) was deemed unjustified. The ITAT concluded that the case did not warrant a penalty and directed the Assessing Officer to delete the penalty of &8377; 9,51,170/-.

Therefore, the ITAT allowed the appeal of the assessee, emphasizing that the conditions under section 271(1)(c) were not met, and the penalty was unjustified. The order was pronounced on June 1, 2021.