1995 (8) TMI 92 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. The genuineness of cash credits.
3. The assessee's application under Section 273A.
4. The assessee's cross-objection.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The Revenue's appeal challenged the deletion of a penalty amounting to Rs. 5,77,930 levied under Section 271(1)(c). The Assessing Officer (AO) had discovered 47 cash credits during the examination of the assessee's account books, out of which 23 creditors initially denied advancing any money to the assessee firm. However, upon re-examination, these creditors claimed their initial statements were made out of fear. The AO accepted 10 cash credits as genuine based on confirmatory letters but deemed 37 cash credits unexplained, leading to an addition of Rs. 8,82,000. Penalty proceedings were initiated, and the AO imposed the penalty after obtaining necessary approval. The CIT(A) canceled the penalty, which was contested by the Revenue. The Tribunal upheld the CIT(A)'s decision, noting that the explanation provided by the assessee was plausible and not disproved by the AO. The Tribunal emphasized that suspicion, however strong, cannot replace evidence, and the surrender of Rs. 9 lacs by the assessee to avoid litigation did not justify the imposition of the penalty.

2. The Genuineness of Cash Credits:
The AO found peculiar features in the cash credits, such as all credits being in cash, no interest paid, and creditors being agriculturists. Despite these suspicions, the AO accepted 10 cash credits based on confirmatory letters. The assessee had filed confirmation letters for all 47 credits and produced 20 creditors for cross-examination, who confirmed advancing the loans. The Tribunal noted that the AO himself accepted some credits as genuine and that the remaining credits were not disproved. The Tribunal concluded that the explanation provided by the assessee was bona fide, and there was no adverse evidence to prove the cash credits were bogus.

3. The Assessee's Application under Section 273A:
The assessee had filed an application under Section 273A, surrendering Rs. 9 lacs to settle the matter and avoid litigation. The CIT dismissed this petition, but the Tribunal found the assessee's explanation for the surrender plausible. The Tribunal noted that the surrender was made to buy peace of mind amidst partner disputes and impending assessment deadlines. The Tribunal emphasized that the surrender should not be used as a basis for imposing a penalty without adverse evidence.

4. The Assessee's Cross-Objection:
The assessee's cross-objection was dismissed as it was filed late by 5 days and lacked an explanation for the delay. Additionally, the cross-objection was deemed formal and superfluous since it supported the impugned order, which the Tribunal had already upheld.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection. The Tribunal upheld the CIT(A)'s decision to cancel the penalty under Section 271(1)(c), finding the assessee's explanation plausible and noting the absence of adverse evidence against the assessee. The Tribunal emphasized that suspicion cannot replace evidence and that the surrender of income to avoid litigation does not justify the imposition of a penalty.