2014 (9) TMI 169 - HC - Income Tax

Levy of penalty u/s 271(1)(c) - unexplained cash deposits - No entry in the cash book appeared - Distinction between the acceptability of the explanation offered for the additions made in the computation of taxable total income as against the reasonableness of such explanation in the penalty proceedings and further overlooking the explanation 1 overlooked Held that - The assessee had not offered any explanation either during the assessment proceedings or during the penalty proceedings regarding the unexplained cash deposits - The assessee had also not disclosed the income in the return filed in response to the notice issued u/s 153C of the Income Tax Act - there was no proper explanation given by the assessee with regard to the undisclosed income and the assessee had not given any details as to how he would fall within Explanation 1 to Section 271(1)(c) of the Income Tax Act - without any material, the assessee had merely stated that the source of income was from the business run by his father and the assessee will be no avail - in the absence of any material, the contention of the assessee that Explanation (1) to Section 271(1)(c) of the Income Tax Act will come to play as there is some bona fide explanation with regard to the undisclosed income, could not be accepted, as there was no proper explanation by the assessee showing that the transaction was bona fide - even after the search, the assessee had not disclosed the cash deposits in the return of income filed the order of the Tribunal is upheld decided against assessee.

Summary

Issues:
Levy of penalty under Section 271(1)(c) of the Income Tax Act for assessment years 2002-03 to 2005-06 based on unexplained cash deposits. Interpretation of Explanation 1 to Section 271(1)(c) and consideration of precedents regarding automatic levy of penalty in similar circumstances.

Analysis:
1. The appellant challenged the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act for undisclosed income related to unexplained cash deposits. The primary issue raised was the correctness of sustaining the penalty by the Appellate Tribunal, emphasizing the distinction between explanations offered during assessment and penalty proceedings. The appellant argued that the Tribunal overlooked Explanation 1 to Section 271(1)(c) and binding precedents indicating penalties are not automatic in such cases.

2. The facts revealed that during a search under Section 132, cash and documents were seized from the father's premises of the assessee. The Assessing Officer initiated penalty proceedings for undisclosed income based on unexplained bank deposits. Despite the appellant's explanation attributing the funds to his father's business, discrepancies in the cash book led to the penalty imposition upheld by the Commissioner of Income Tax (Appeals).

3. The appellant's appeal to the Income Tax Appellate Tribunal cited precedents and submitted explanations supported by cash flow statements. However, the Tribunal, referencing the Delhi High Court decision in CIT v. MAK Data Ltd, emphasized the absence of a satisfactory explanation justifying the unexplained cash deposits, leading to the penalty confirmation.

4. The Tribunal's reliance on the Delhi High Court decision was reinforced by the subsequent Supreme Court ruling, emphasizing the burden on the assessee to provide reliable evidence disproving concealment of income. In this case, the appellant failed to offer a convincing explanation during both assessment and penalty proceedings, leading to the affirmation of penalties.

5. The Tribunal's analysis highlighted the lack of material supporting the appellant's claim under Explanation 1 to Section 271(1)(c) and the failure to disclose the cash deposits in the income tax return. The authorities justified the penalty imposition as minimum required under the Act, considering the detection during the search and the absence of voluntary income surrender.

6. Ultimately, the Court found no substantial question of law warranting consideration in the appeal, emphasizing the appellant's failure to provide a bona fide explanation for the undisclosed income. The possibility of prosecution proceedings was mentioned, but leniency was advised based on the assessee's cooperation in tax payment.

7. The Tax Case (Appeals) were disposed of without costs, signaling the end of the legal proceedings related to the penalty imposition for unexplained cash deposits.