2022 (3) TMI 667 - AT - Income Tax

Penalty u/s 271(1)(c) - Ex-party order passed by AO - Addition u/s 68 - assessee has deposited cash into bank account and no explanation has been provided for the same - HELD THAT - AO has failed to consider the fact that all the notices were send by speed post and have been received by member of Sahakari Samiti. He explained that the members who received those notices failed to communicate the same to the executives of Sahakari Samiti. Where they could not comply with any notices issued by the Ld AO. In our opinion, AO has erred in passing Ex-party order without giving opportunity to the assessee in furnishing the documentary evidences. The AO has not verified whether the notices sent was received by the assessee. If the disclosure of facts is incorrect or false and to the knowledge of the assessee and it is established, then such disclosure cannot take it out from the purview of the act of concealment of particulars or furnishing inaccurate particulars, thereof for the purpose of levy of penalty. The penalty u/s 271(1)(c) is liveable, if the Assessing Officer is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In the present case, the AO passed ex-parte order and has levied penalty for concealment of such income or non furnishing of particulars u/s 271(1)(c). Rightly pointing the issue is that the assessee has not replied or non compliances for the notice issued by the AO, where the penalty should be levied u/s 271(1)(b). Commissioner of Income-tax (Appeals) erred in holding that penalty u/s 271(1)(c) is liveable. He erred upholding the order by the AO, Where the assessee made an attempt to explain and submitted detailed written submissions before CIT(A) and produced the evidences of Bank Accounts, Bank certificate and details of cash deposits also.. There is no failure on part of the assessee in explaining the source of cash deposit, the Bank Statement, Bank certificate. There is no finding of the AO based on some contradictory evidence to disapprove that explanation offered by the assessee was false or the assessee was not able to substantiate the explanation furnished or fails to prove that such explanation is not bona fide and that all the facts relating to the same and material to the computation of his total income has not been disclosed by him. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the penalty under Section 271(1)(c) of the Income Tax Act, 1961 was correctly levied.
2. Whether the principles of natural justice were violated.
3. Whether the penalty proceedings are separate and distinct from the assessment proceedings.
4. Whether the explanation provided by the assessee for the cash deposits was sufficient and credible.

Detailed Analysis:

1. Penalty under Section 271(1)(c):
The appeal was filed against the order of the National Faceless Appeal Centre (NFAC) which upheld the penalty of ?3,87,000/- levied under Section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2010-11. The assessee contended that the penalty was unjust as the income was below the taxable limit and the cash deposits were from surplus withdrawals for NREGA payments. The Assessing Officer (AO) initiated penalty proceedings for concealing particulars of income and furnishing inaccurate particulars. The CIT(A) upheld the penalty, citing the Supreme Court decisions in Union of India Vs Dharmendra Textile Processors and CIT Ahmedabad Vs Reliance Petroproducts (P) Ltd, stating that the assessee failed to justify the cash deposits.

2. Violation of Principles of Natural Justice:
The assessee argued that the CIT(A) passed the order in a hasty manner without considering the written submissions, facts, and evidence provided. The CIT(A) allegedly did not provide an opportunity for the assessee to be heard, violating the principles of natural justice. The NFAC's order mentioned that no further cogent evidence or arguments were provided by the assessee, which the assessee disputed, claiming all necessary documentation was submitted.

3. Separate and Distinct Penalty Proceedings:
The assessee emphasized that penalty proceedings are separate from assessment proceedings and that additions made in the assessment do not automatically warrant penalty. The Supreme Court's ruling in Ananthraman Veera Singhaiah & Co. Vs. CIT was cited, which states that findings in assessment proceedings are not conclusive for penalty proceedings. The Tribunal noted that the AO did not verify whether the notices were received by the assessee and passed an ex-parte order without giving the assessee an opportunity to furnish evidence.

4. Explanation for Cash Deposits:
The assessee provided a detailed explanation for the cash deposits, stating they were from surplus withdrawals for NREGA payments. Bank statements and certificates were submitted as evidence. The Tribunal found that the AO failed to consider these explanations and documents. The CIT(A) also did not consider the evidence provided, leading to the conclusion that the penalty was not justified. The Tribunal noted that the explanation was bona fide and the facts were disclosed, thus the penalty under Section 271(1)(c) was not applicable.

Conclusion:
The Tribunal set aside the CIT(A)'s order, stating that the penalty under Section 271(1)(c) was not in accordance with the law and cancelled the penalty. The appeal of the assessee was allowed, emphasizing the need for proper consideration of evidence and adherence to principles of natural justice.