1993 (11) TMI 84 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Addition of Rs. 11,001 under section 69A of the Act.
3. Addition of Rs. 3 lac under section 68 of the Act.
4. Application of Explanation 1(A) below section 271(1)(c) of the Act.
5. Relevance of reference application under section 256(1) of the Act.
6. Admissibility and consideration of affidavits in penalty proceedings.

Issue-Wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The appeal was against the order of CIT (Appeals) confirming a penalty of Rs. 1,95,930 under section 271(1)(c). The penalty was levied based on the additions of Rs. 11,001 and Rs. 3 lac to the assessee's total income. The assessee argued that mere disallowance could not be the basis for the penalty and that their explanation had merely been disbelieved, not proven false. The Assessing Officer, however, did not accept this and levied the penalty.

2. Addition of Rs. 11,001 under Section 69A of the Act:
The search revealed cash of Rs. 11,001, which was added to the assessee's income under section 69A. The assessee's explanation that the cash did not belong to them was disbelieved but not found to be false. The CIT (Appeals) confirmed the penalty, stating that the explanation was treated as false.

3. Addition of Rs. 3 Lac under Section 68 of the Act:
The sum of Rs. 3 lac was added to the assessee's income as unexplained cash credit under section 68. The assessee provided a confirmatory letter and later an affidavit from the director of the creditor company, which was not considered by the Assessing Officer. The CIT (Appeals) held that the explanation was false and confirmed the penalty.

4. Application of Explanation 1(A) below Section 271(1)(c) of the Act:
The Assessing Officer did not invoke Explanation 1 below section 271(1)(c). The CIT (Appeals) reproduced Explanation 1(A) and held that the explanations regarding both amounts were false, leading to the penalty confirmation. However, the Tribunal found that the explanations were disbelieved but not proven false, thus not falling under Explanation 1(A).

5. Relevance of Reference Application under Section 256(1) of the Act:
The assessee argued that the reference application under section 256(1) made the penalty non-leviable. The Tribunal accepted that the reference application kept the matter open and could potentially lead to the deletion of the addition, thus impacting the penalty.

6. Admissibility and Consideration of Affidavits in Penalty Proceedings:
The assessee submitted an affidavit from the director of the creditor company during the penalty proceedings, which was not considered by the Assessing Officer. The Tribunal held that the affidavit was valid evidence and could not be summarily ignored, thus impacting the penalty decision.

Conclusion:
The Tribunal concluded that the explanations provided by the assessee for both the amounts were disbelieved but not proven false. Therefore, the case did not fall under clause (A) of Explanation 1 to section 271(1)(c). Consequently, the penalty under section 271(1)(c) was directed to be cancelled, and the appeal was allowed.