2022 (4) TMI 164 - AT - Income Tax

Penalty u/s 271(1)(c) - unexplained cash credits u/s.68 - HELD THAT - We are of the considered view, that though the failure of the assessee to substantiate the authenticity of the loan transactions justified the dubbing of the same as unexplained cash credits u/s.68 of the Act, but the same on such standalone basis and nothing else would not suffice for saddling the assessee with penalty u/s 271(1)(c) of the Act. We may herein observe, that the Assessing Officer had neither in the course of assessment proceedings specified the default for which the impugned penalty proceedings had been initiated in the hands of the assessee nor had clearly pointed out the same while imposing the penalty vide his order passed u/s 271(1)(c) - In so far the assessment order passed u/s.143(3) is concerned, we find that the A.O had merely stated that penalty proceedings u/s.271(1)(c) of the Act are separately initiated. Coming to the order passed by the AO u/s 271(1)(c) of the Act, we find that while imposing the impugned penalty he had stated that the assessee had concealed his income and furnished inaccurate particulars of income. In our considered view, there is a clear absence of mentioning of the specific default for which impugned penalty proceedings was initiated and also, the basis for imposition of the same. We not being able to persuade ourselves to subscribe to the imposition of penalty u/s 271(1)(c) by the A.O, therefore, set-aside the order of the CIT(A) who had upheld the same - Decided in favour of assessee.

Summary

Issues:
Penalty imposition under Sec. 271(1)(c) for unexplained cash credits u/s.68 of the Act.

Analysis:
1. The appeal was against the order passed by the CIT (Appeals) which arose from the order under Sec. 271(1)(c) of the Income-tax Act, 1961 for assessment year 2006-07. The assessee challenged the penalty imposition on various grounds.

2. A survey u/s 133A revealed excess cash and stock, which the assessee declared as income. Subsequently, scrutiny assessment was conducted, resulting in the addition of cash credits under Sec. 68. Penalty proceedings under Sec. 271(1)(c) were initiated by the Assessing Officer.

3. The Assessing Officer imposed a penalty as the assessee failed to explain the cash credits. The CIT (Appeals) upheld the penalty, leading the assessee to appeal to the ITAT. Despite the assessee's absence, the ITAT proceeded with the appeal as per the rules.

4. The Assessing Officer considered the loans claimed by the assessee as unexplained cash credits under Sec. 68 due to lack of substantiation. The assessee failed to produce necessary evidence, resulting in the addition of the amounts as unexplained cash credits.

5. While agreeing with the Assessing Officer's view on the unexplained cash credits, the ITAT noted that the mere production of income tax returns of the lenders was insufficient. Citing a Bombay High Court judgment, the ITAT emphasized that penalty cannot be imposed if the facts are consistent with the possibility that the amount does not represent concealed income.

6. The ITAT found that the Assessing Officer did not specify the default for initiating the penalty proceedings or clearly state the basis for imposing the penalty. Due to these deficiencies, the ITAT set aside the penalty imposed under Sec. 271(1)(c) and quashed the order of the CIT (Appeals).

7. The ITAT allowed the appeal, emphasizing that the failure to substantiate the authenticity of the loan transactions justified the addition as unexplained cash credits but was not sufficient for imposing a penalty under Sec. 271(1)(c).

This detailed analysis highlights the grounds of appeal, the assessment process, the reasoning behind the penalty imposition, the inadequacies in the penalty proceedings, and the ultimate decision of the ITAT to quash the penalty based on the lack of specific defaults and basis for penalty imposition.