1995 (10) TMI 65 - AT - Income Tax

Summary

Issues:
1. Levy of penalty under section 271(1)(c) on the assessee.
2. Explanation provided by the assessee regarding possession of high-denomination notes.
3. Consideration of penalty by the CIT(A) and confirmation of penalty under section 271(1)(c).
4. Arguments presented by the learned counsel for the assessee and the Departmental Representative (DR).
5. Application of section 69A for the addition of unexplained money.
6. Justification for the reversal of decisions and cancellation of the penalty.

Detailed Analysis:
1. The appeal before the Appellate Tribunal ITAT Bangalore was against the levy of a penalty of Rs. 95,000 under section 271(1)(c) on the assessee, which was confirmed by the CIT(A). The penalty was imposed due to the unexplained possession of high-denomination notes amounting to Rs. 1,35,000 by the assessee.

2. The assessee provided an explanation regarding the possession of the high-denomination notes, stating that the money was advanced to a cotton broker for the purchase of ginned cotton and was returned in high-denomination notes. However, the Income Tax Officer (ITO) found discrepancies in the explanation provided by the assessee, including the lack of entries in the books of accounts and inconsistencies in the transactions.

3. The CIT(A) considered the arguments presented by the assessee but ultimately confirmed the penalty under section 271(1)(c) based on the Explanation (4A) to the section, concluding that the assessee had concealed the particulars of its income related to the unexplained funds.

4. The learned counsel for the assessee argued against the levy of the penalty, contending that the high-denomination notes had become valueless after the ordinance issued by the President. The DR, on the other hand, argued that there was a deliberate attempt by the assessee to conceal income, supported by past legal precedents.

5. The application of section 69A for the addition of unexplained money was questioned by the Appellate Tribunal, noting that the high-denomination notes had lost their value and were no longer legal tender. The Tribunal found that the addition under section 69A was not justified as the notes were rendered worthless before being tendered to the RBI.

6. Considering the lack of ownership of valuable articles by the assessee at the time of the penalty imposition and the reduced value of the high-denomination notes, the Tribunal reversed the decisions of the lower authorities and canceled the penalty levied under section 271(1)(c) on the assessee. The appeal filed by the assessee was successful in this regard.