2015 (9) TMI 320 - AT - Income Tax

Validity of assessment order u/s.153 C r.w.s.153 A - penalty u/s.271(1)(c) - Held that - A Although various additions were made we are confined to the penalty levied on addition of ₹ 11,50,000/- made by the Assessing Officer u/s.68 of the I.T. Act and proportionate interest thereon amounting to ₹ 2,53,000/-. Admittedly, apart from the addition of ₹ 5 lakhs no other addition has been made on the basis of incriminating material found and seized from the premises of Shri Shreeram H. Soni which relates to the assessee. The loan amount of ₹ 6,50,000/- obtained from different persons are already appearing in the balance sheet filed in the original return of income and nothing was detected due to the search. Further, the Assessing Officer in the assessment order has made addition on the ground that although the assessee filed the confirmation letters, however, the assessee could not file the PAN numbers, and addresses of the concerned loan creditors. This in our opinion may be sufficient for making addition in the quantum proceedings but certainly not in the penalty proceedings for levy of penalty u/s.271(1)(c) of the I.T. Act in an assessment framed u/s.153C r.w.s. 153A. In this view of the matter we hold that the assessee is not liable to penalty u/s.271(1)(c) of the I.T. Act on the amount of ₹ 6.50 lakhs since the same was not based on any incriminating material found during the course of search and the addition was based on the basis of loan creditors found from the balance sheet already filed prior to the search along with the original return of income. We accordingly set aside the order of the CIT(A) and direct the AO to cancel the penalty levied on addition of ₹ 11,50,000/- and proportionate interest thereon. The grounds raised by the assessee are accordingly allowed. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Validity of the assessment order under Section 153C read with Section 153A of the Income Tax Act, 1961.
2. Confirmation of penalty on alleged unproved loan of Rs. 11,50,000.
3. Confirmation of penalty on interest of Rs. 2,53,000 on the alleged unproved loan of Rs. 11,50,000.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order under Section 153C read with Section 153A:

The appeal was filed against the order of the CIT(A)-II, Pune, relating to the Assessment Year 1998-99. The assessment was based on a search conducted under Section 132(1) at the premises of Shri Shreeram H. Soni, where documents related to money lending business were found. These included blank promissory notes and undated cheques signed by borrowers, including a promissory note and cheque for Rs. 5 lakhs related to the assessee firm. Based on this, the Assessing Officer issued a notice under Section 153C read with Section 153A. The assessee filed its return of income, but failed to provide loan confirmations for Rs. 5 lakhs taken from Shri Shreeram H. Soni and other loans totaling Rs. 21,20,000. Consequently, additions were made under Section 68 of the Income Tax Act, and further disallowances were made, leading to a total income determination of Rs. 19,28,545.

2. Confirmation of Penalty on Alleged Unproved Loan of Rs. 11,50,000:

The CIT(A) sustained the penalty on the addition of unexplained cash credit of Rs. 11,50,000, comprising Rs. 5 lakhs from Shri Shreeram H. Soni and Rs. 6,50,000 from other parties. The assessee argued that the loans were disclosed in the original return and that no incriminating materials were found during the search. The Tribunal noted that the loan from Shri Shreeram H. Soni was already reflected in the balance sheet filed with the original return of income, and merely because the assessee did not contest the addition, penalty under Section 271(1)(c) was not leviable. Therefore, the Tribunal directed the AO to cancel the penalty on Rs. 5 lakhs and proportionate interest.

3. Confirmation of Penalty on Interest of Rs. 2,53,000 on the Alleged Unproved Loan of Rs. 11,50,000:

For the remaining Rs. 6,50,000, the Tribunal found that the loans were already shown in the balance sheet as on 31-03-1998, and no incriminating material was found during the search. The addition was based on the ground that the assessee could not provide PAN numbers and addresses of the loan creditors, which may be sufficient for making an addition in quantum proceedings but not for levying penalty under Section 271(1)(c) in an assessment under Section 153C read with Section 153A. Thus, the Tribunal held that the assessee was not liable for penalty on the amount of Rs. 6.50 lakhs and directed the AO to cancel the penalty levied on the addition of Rs. 11,50,000 and proportionate interest thereon.

Conclusion:

The Tribunal set aside the order of the CIT(A) and directed the AO to cancel the penalty levied on the addition of Rs. 11,50,000 and proportionate interest thereon. The appeal filed by the assessee was partly allowed.