2014 (7) TMI 374 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act Addition u/s 68 of the Act - Unexplained credit entries in bank account - Held that - The only ground for levying the penalty is that the CIT(A) has also upheld the addition made by the AO - This reason alone cannot be held to be the basis for levy of penalty - the findings given in the assessment proceedings alone, may not justify imposition of penalty, as the consideration that arise in the penalty proceedings are different from those in the assessment proceeding - The findings in the quantum proceedings, though have a probative value, but in the penalty proceedings the explanation and the materials have to be reappraise afresh to examine, whether the assessee is guilty of concealment of income or furnishing of inaccurate particulars. CIT(A) has also not tried to deal with the assessee s explanation in proper perspective and without considering the assessee s explanation in the objective manner - both the authorities have failed to consider the assessee s explanation - as regards the amount of income surrendered during the course of search, the assessee s explanation has been that, he has been carrying on the business of catering which he wanted to discontinue and was in the process of handing over his business to his brother, Mr. Vinod Sangoi - the assessee was under bonafide presumption that the said account has also been handed over to his brother, therefore, he did not examine the cash deposits made in the various assessment years - assessee has further submitted that the provisions of Explanation 5 to section 271(1)(c) is not applicable qua this addition on account of surrender, as he has satisfied the necessary conditions for getting the benefit under Explanation 5 - similar explanation given by the assessee in the subsequent years, wherein similar kind of deposits were found and were surrendered at the time of search, the Tribunal has dealt the assessee s explanation in detail and has confirmed the penalty - Since similar facts are permeating in this year also, the said finding will apply mutatis mutandis in this year also qua the amount of surrender thus, the levy of penalty on the addition of ₹ 3,04,500, which was declared during the course of search u/s 132(4) is upheld. Once the assessee has given the explanation, which on the facts of the case is probable explanation and also substantiates prima-facie from material on record and other attendant facts, then the onus shifts upon the AO to show that such an explanation is false or not bonafide and then only the AO can proceed to levy the penalty - after the assessee s explanation, neither the AO nor the CIT(A) has been able to rebut the assessee s explanation as false - the penalty levied is unwarranted - levy of penalty on addition made on account of credit appearing in the bank account, penalty u/s 271(1)(c) cannot be confirmed thus, the order of the CIT(A) is set aside - Thus, the penalty u/s 271(1)(c) is confirmed on the addition of ₹ 3,04,500 and penalty is deleted on the addition of ₹ 7,58,234 Decided partly in favour of Assessee.

Summary

Issues Involved:
1. Violation of principles of natural justice by the learned CIT(A).
2. Legality and validity of the order passed under section 274 read with section 271(1)(c).
3. Legality and validity of the assessment order.
4. Legality and validity of the penalty levied under section 271(1)(c) amounting to Rs. 3,22,102.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The assessee contended that the learned Commissioner (Appeals) erred in law and facts by passing the order under section 250 of the Act in gross violation of principles of natural justice. The Tribunal observed that both the Assessing Officer and the learned Commissioner (Appeals) failed to properly consider the detailed explanation and submissions made by the assessee. The Tribunal emphasized that the Assessing Officer did not provide specific reasons for rejecting the assessee's explanation, which is essential for maintaining the principles of natural justice. Therefore, the Tribunal found merit in the assessee's contention regarding the violation of natural justice.

2. Legality and Validity of the Order Passed Under Section 274 read with Section 271(1)(c):
The assessee argued that the penalty order passed by the Assessing Officer was non-speaking and lacked any reasoning for rejecting the assessee's explanation. The Tribunal agreed, noting that the penalty order merely stated that the learned Commissioner (Appeals) upheld the additions made by the Assessing Officer without independently evaluating the assessee's explanation. The Tribunal reiterated that the findings in the assessment proceedings alone do not justify the imposition of penalty, as the considerations in penalty proceedings are different. The Tribunal held that the penalty order must contain specific reasons for rejecting the assessee's explanation to be valid.

3. Legality and Validity of the Assessment Order:
The assessee challenged the assessment order on the grounds of gross violations of principles of natural justice. The Tribunal observed that the penalty proceedings were initiated based on the unexplained credit entries in the bank account and the undisclosed income declared during the search. The Tribunal noted that the Assessing Officer did not properly consider the detailed explanation provided by the assessee regarding the source of the credit entries and the surrendered income. The Tribunal found that the assessment order failed to address the assessee's explanations adequately, leading to questions about its legality and validity.

4. Legality and Validity of the Penalty Levied Under Section 271(1)(c):
The Tribunal examined the penalty levied under section 271(1)(c) amounting to Rs. 3,22,102. The assessee argued that the penalty order lacked reasons and did not consider the detailed explanation provided. The Tribunal noted that the Assessing Officer's sole reason for levying the penalty was that the learned Commissioner (Appeals) upheld the additions. The Tribunal emphasized that penalty proceedings require a fresh appraisal of the explanation and materials to determine if the assessee is guilty of concealment or furnishing inaccurate particulars. The Tribunal held that the penalty order must provide specific reasons for rejecting the assessee's explanation.

Regarding the addition of Rs. 3,04,500 declared during the search, the Tribunal confirmed the penalty, noting that similar explanations were rejected in subsequent years. However, for the addition of Rs. 7,58,233 related to unexplained credit entries, the Tribunal found the assessee's explanation plausible and not rebutted by the authorities. The Tribunal held that the penalty on this amount was unwarranted and deleted it.

Conclusion:
The Tribunal partly allowed the assessee's appeal. The penalty under section 271(1)(c) was confirmed for the addition of Rs. 3,04,500 but deleted for the addition of Rs. 7,58,233. The Tribunal emphasized the need for specific reasons in penalty orders and proper consideration of the assessee's explanations to uphold the principles of natural justice.