2012 (11) TMI 131 - AT - Income Tax

Penalty u/s 271 (1)(C) additions u/s 68 - negative cash balance and advance receipts alleged that cash introduced in the books by way of advances amounting to Rs. 16.25 lakh was only one component of unaccounted cash available with the assessee Held that - addition made by the AO had the effect of reducing loss to the extent the additions have been confirmed by the Tribunal. It may be mentioned that the explanation does not use the words returned loss or assessed loss but uses the word has the effect of reducing loss . - Explanation 4 to section 271(1)(c). - Decided against the assessee. Validity of notice issued u/s 271(1)(c) - concealment of income - held that - it is clear that the notice was issued for concealing particulars of income. The notice is not a stand alone document. It is based on the assessment order. Without finding regarding one or the other charge, the notice cannot be issued. However, if two are read together, it is clear that the notice has been issued in respect of concealment of particulars of income. In view of these observations, it is held that the notice is not vague. Intoroduction of cash - held that - assessee failed to adduce any evidence regarding receipt of such advance or the job work actually done - assessee firm was in possession of unaccounted income by way of cash which was utilized in the course of business without paying tax thereon. Quantum of penalty - AO had made additions and initiated penalty on two grounds- (i) deficiency of cash of Rs. 8,79,204/- in the cash book, and (ii) advances for job work of Rs. 16.25 lakh. - CIT(A) combined the two additions and reduced the amount from Rs. 25,04,209/- to Rs. 18,48,039/-. - held that - the levy of penalty should be levied on the amount of Rs. 16.25 lakh.

Summary

Issues Involved:
1. Addition of Rs. 8,79,204/- due to negative cash balance.
2. Addition of Rs. 16.25 lakh as undisclosed income from job work advances.
3. Penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Addition of Rs. 8,79,204/- Due to Negative Cash Balance:
The Assessing Officer (AO) found a negative cash balance in the assessee's cash book and added Rs. 8,79,204/- to the income, rejecting the explanation provided by the assessee. The CIT (Appeals) observed that the peak negative cash balance on 19.10.2004 was Rs. 18,48,039/-, indicating that the unaccounted cash introduced was at least this amount. Consequently, the CIT (Appeals) deleted the addition of Rs. 8,79,204/- and replaced it with Rs. 18,48,039/-. The Tribunal confirmed this finding, stating that the negative peak cash balance of Rs. 8,79,204/- should be telescoped into the peak addition of Rs. 16.25 lakh, resulting in a higher addition of Rs. 18,48,039/-.

2. Addition of Rs. 16.25 Lakh as Undisclosed Income from Job Work Advances:
The AO noted that the assessee showed receipts of Rs. 16.25 lakh as advances for job work, which were returned without any job work being done. This amount was not entered in the ledger, leading the AO to conclude it represented undisclosed income. The CIT (Appeals) combined this addition with the negative cash balance and determined the total unaccounted cash to be Rs. 18,48,039/-. The Tribunal upheld this finding, agreeing that the unaccounted cash was introduced to cover negative cash balances and that the genuineness of the job work advances was not substantiated.

3. Penalty Proceedings Under Section 271(1)(c):
The AO initiated penalty proceedings under section 271(1)(c), concluding that the assessee introduced unaccounted cash in the books to cover negative cash balances and failed to provide evidence for the job work advances. The CIT (Appeals) upheld the penalty, relying on the decision in Union of India v. Dharamendra Textile Processors, which stated that mens rea is not required for civil liability penalties. The CIT (Appeals) found that the assessee furnished inaccurate particulars of income, justifying the penalty.

The assessee appealed, raising several grounds, including the lack of notice for invoking Explanation 4, the combination of additions by the CIT (Appeals), and the validity of the penalty notice. The Tribunal found that the AO was not required to specifically mention Explanation 4 in the notice and that the penalty was justified based on the concealment of income. The Tribunal also held that the penalty notice was not vague and that the CIT (Appeals) correctly combined the two additions into one.

Conclusion:
The Tribunal concluded that the assessee failed to substantiate its explanation or show that it was bona fide. The penalty was upheld for the amount of Rs. 16.25 lakh, as the CIT (Appeals) did not initiate penalty for the enhanced amount of Rs. 2,23,039/-. The appeal was partly allowed, confirming the penalty on the reduced amount.