2022 (5) TMI 1064 - AT - Income Tax

Penalty u/s 271(1)(c) - treatment of income disclosed from income from other sources to unexplained cash credits u/s.68 - HELD THAT - We noted that there is no difference between assessed income and returned income. There is simpliciter change of head of income. The assessee declared this income under the head income from other sources as this income has been earned by assessee as interest earned on jewel loans made to various parties but could not submit the evidences. In our view, the primary condition of the provisions of section 271(1)(c) i.e., tax sought to be evaded is a must for levying penalty u/s.271(1)(c) of the Act. This issue has been dealt in the case of CIT vs. Reliance Petroproducts Pvt. Ltd 2010 (3) TMI 80 - SUPREME COURT wherein the Hon ble Supreme Court has considered the term particulars used in section 271(1)(c) of the Act, which would embrace the details of the claim made. The Hon ble Supreme Court stated that where no information given in the return was found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars nor expose the assessee to penalty, unless the case is strictly covered by the provisions, the penalty provision cannot be invoked. Hence, in the present case the result of assessing the income either under the head income from other sources or u/s.68 of the Act, the liability to pay any additional tax does not arise and once there is no tax sought to be evaded, penalty u/s.271(1)(c) of the Act cannot be levied. Accordingly, we reverse the orders of lower authorities and allow this appeal of assessee

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act on treatment of income from 'income from other sources' as unexplained cash credits under section 68 of the Act.

Analysis:
The case involved an appeal by the assessee against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. The issue revolved around the levy of penalty under section 271(1)(c) of the Income Tax Act on the treatment of income disclosed from 'income from other sources' as unexplained cash credits under section 68 of the Act. The assessee, an individual, had declared an amount under 'income from other sources' but failed to provide details, leading the Assessing Officer (AO) to treat it as unexplained cash credit and tax it under section 68. The AO initiated penalty proceedings under section 271(1)(c) based on the belief that the assessee furnished inaccurate particulars of income. The AO imposed a penalty for alleged tax evasion, which the assessee contested.

The CIT(A) upheld the AO's decision, stating that even if the returned and assessed income were the same, penalty under section 271(1)(c) could be levied as the tax sought to be evaded was determined differently for income from 'explained sources' and 'unexplained income' under section 68. The CIT(A) reasoned that the AO correctly assessed the income as unexplained under section 68, justifying the penalty imposition.

However, the Tribunal disagreed with the lower authorities' interpretation. It emphasized that the primary condition for levying a penalty under section 271(1)(c) is the existence of tax sought to be evaded. Citing the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., the Tribunal clarified that unless there is a clear case of furnishing inaccurate particulars leading to tax evasion, the penalty provision cannot be invoked. In this case, as there was no tax sought to be evaded due to the treatment of income under different heads, the Tribunal ruled in favor of the assessee, reversing the decisions of the lower authorities and allowing the appeal.

In conclusion, the Tribunal's judgment highlighted the importance of establishing tax evasion as a prerequisite for imposing penalties under section 271(1)(c) of the Income Tax Act. The case underscored the significance of accurate disclosure and the absence of tax evasion in determining the applicability of penalties, as demonstrated through a thorough analysis of the legal provisions and relevant judicial precedents.