2022 (9) TMI 655 - AT - Income Tax

Penalty u/s 271(1)(c) - Addition for unsecured loan u/s 68 - HELD THAT - Assessee claimed an amount as unsecured loan from M/s Ramfin Fortunes Pvt. Ltd., which was clearly shown in the balance sheet as well as other audited financial statements of the assessee and this fact has never been controverted by the authorities below at any stage of assessment or penalty proceedings. At this stage, it is also relevant to consider the judgement in the case of CIT vs. Baroda Tin Works 1995 (9) TMI 18 - GUJARAT HIGH COURT wherein their Lordships held that even though the addition u/s 68 was made on admission of the assessee, the Tribunal, after considering the relevant material and evidence on record drew a conclusion that the presumption under Explanation u/s 271(1)(c) stood rebutted, it was justified in deleting the penalty in the absence of any positive evidence brought by the Department. When we consider the proposition rendered by the coordinate Bench of ITAT Mumbai in the case of Pfizer Ltd. 2012 (4) TMI 261 - ITAT MUMBAI then we find ourselves in agreement with the contention of the ld. Counsel that for invoking clause (B) of Explanation 1 to section 271(1)(c) of the Act and both the conditions must be cumulatively satisfied so as to bring a case within the scope of imposing of penalty u/s 271(1)(c). If only one condition is satisfied and the other is not, the penalty would not follow. In the present case, the assessee was not found able to substantiate the explanation pertaining amount of unsecured loan from M/s Ramfin Fortunes Pvt. Ltd., but, the assessee successfully proved that the explanation is bona fide and all the material facts relating to the same was disclosed by him before the authorities below - In absence of cumulative satisfaction of both the conditions as per the requirement of clause (B) of Explanation 1 to section 271(1)(c) penalty imposed by the AO and confirmed by the ld.CIT(A) cannot be held as sustainable and, thus, the AO is directed to delete the penalty - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of penalty under Section 271(1)(c) of the IT Act, 1961.
2. Adequacy of the assessee's explanation regarding the unsecured loan.
3. Application of judicial precedents in the context of penalty imposition.

Detailed Analysis:

1. Legitimacy of Penalty under Section 271(1)(c) of the IT Act, 1961:
The primary issue revolves around whether the penalty of Rs. 9,27,000/- under Section 271(1)(c) of the IT Act, 1961, imposed by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], was justified. The AO imposed the penalty on the grounds of either "concealment of income" or "furnishing of inaccurate particulars of income." However, the assessee argued that the CIT(A) erred in upholding the penalty without considering the facts and circumstances of the case and relying on irrelevant judicial pronouncements. The assessee contended that the appellate order was arbitrary, illegal, and violated the principles of contemporary jurisprudence.

2. Adequacy of the Assessee's Explanation Regarding the Unsecured Loan:
The assessee's counsel submitted that the addition of Rs. 30 lakh was made on account of an unsecured loan from M/s Ramfin Fortunes Pvt. Ltd., which was clearly disclosed in the balance sheet and other financial statements. The counsel argued that the explanation offered by the assessee was bona fide and that all material facts were disclosed. The assessee relied on several judicial precedents, including CIT vs. Baroda Tin Works, CIT vs. MTNL, and Pfizer vs. DCIT, to support the claim that merely agreeing to an addition does not automatically attract penalty under Section 271(1)(c). The Tribunal noted that the AO did not provide positive evidence to prove that the explanation was false or that there was concealment of income.

3. Application of Judicial Precedents in the Context of Penalty Imposition:
The Tribunal relied heavily on judicial precedents to determine the applicability of the penalty. The assessee cited the Gujarat High Court's decision in CIT vs. Baroda Tin Works, where the court held that the presumption under Explanation to Section 271(1)(c) stood rebutted in the absence of positive evidence by the Department. The Tribunal also considered the ITAT Mumbai Bench's decision in Pfizer Ltd. vs. DCIT, which emphasized that both conditions under clause (B) of Explanation 1 to Section 271(1)(c) must be cumulatively satisfied for the penalty to be imposed. The Tribunal observed that the assessee successfully demonstrated that the explanation was bona fide and all material facts were disclosed, thus failing to meet the cumulative conditions required for penalty imposition.

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) was not sustainable as the assessee's explanation was bona fide and all material facts were disclosed. The AO and CIT(A) failed to provide positive evidence of concealment or furnishing of inaccurate particulars. Consequently, the Tribunal directed the AO to delete the penalty, allowing the assessee's appeal.

Order:
The appeal filed by the assessee is allowed, and the penalty imposed under Section 271(1)(c) is deleted. The order was pronounced in the open court on 12.09.2022.