2015 (12) TMI 121 - AT - Income Tax

Levy of penalty u/s 271(1) (c) - addition on account of sale of paddy at lower price and on account of sale of rice at lower price- Held that - Ultimately addition has been confirmed on estimate basis and normally penalty is not attracted in such situation. See COMMISSIONER OF INCOME-TAX Versus SANGRUR VANASPATI MILLS LTD. 2008 (2) TMI 285 - PUNJAB AND HARYANA HIGH COURT - Decided in favour of assessee. Undisclosed deposit in bank - surrender of income - Held that - urrender has been made mainly on account of discrepancies found in the books of account, loose papers, found of various products etc. The cash available was only ₹ 6500/-therefore, no cash could possibly have been deposited. The assessee though incorporated the surrender amount in the P&L Account but by showing the sale of opening stock at lower price the income was again reduced to ₹ 48,054/- this clearly shows that the amount surrendered was nullified while filing return. However, later on assessee became wise and deposited the amount of ₹ 14 lacs in the bank and before us it was stated that the assessee purchased miscellaneous assets which were later on sold and the amount was deposited in the bank. There is no evidence to show the existence of any miscellaneous assets therefore explanation given by the assessee is totally false. This is not a case of full disclosure of facts therefore penalty confirmed - Decided against assessee.

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Addition due to alleged underbilling in the sale of paddy and rice.
3. Addition due to unexplained cash deposits.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The primary issue involves the upholding of a penalty of Rs. 6,53,882/- under section 271(1)(c) of the Income Tax Act, 1961. The assessee challenged this penalty on both factual and legal grounds, arguing that the penalty was based on decisions that had been reversed by the Hon'ble Jurisdiction High Court. The Tribunal noted that the penalty was imposed due to the concealment of particulars of income, relying on the Supreme Court's decision in K.P. Madhusudhanan Vs. CIT, 251 ITR 99.

2. Addition Due to Alleged Underbilling in Sale of Paddy and Rice:
During a survey, it was found that the assessee had sold paddy and rice at rates significantly lower than those of comparable cases. Specifically, the paddy was sold at Rs. 523/- per quintal against a comparable average rate of Rs. 761/- per quintal, leading to an addition of Rs. 11,62,215/-. Similarly, rice was sold at Rs. 770/- per quintal against a comparable rate of Rs. 1063/- per quintal, resulting in an addition of Rs. 7,35,595/-. The CIT(A) reduced these additions to Rs. 5,47,639/- and Rs. 34,743/-, respectively. The Tribunal confirmed these reductions, noting that the additions were made on an estimate basis and typically, penalties are not attracted in such situations. The Tribunal cited the Punjab & Haryana High Court's decision in CIT Vs. Sangrur Vanaspati Mills, 303 ITR 53, which states that penalties under section 271(1)(c) are not applicable when income is assessed on an estimate basis without concrete evidence of concealment.

3. Addition Due to Unexplained Cash Deposits:
The assessee had deposited Rs. 10,30,000/- in cash in the bank, which was claimed to be out of the income declared during the survey. However, the survey revealed that only Rs. 6500/- in cash was physically available at the time, leading to an addition of Rs. 14 Lacs. The Tribunal upheld the penalty on this addition, noting that the surrender letter indicated discrepancies in the books of account and other records. The Tribunal found the assessee's explanation for the cash deposits to be false and lacking evidence of any miscellaneous assets purportedly sold to generate the cash. The Tribunal referenced the Punjab & Haryana High Court's decision in Ramesh Chander Gupta Vs. Income Tax Appellate Tribunal and Others, 344 ITR 320, to support the imposition of the penalty.

Conclusion:
The Tribunal partly allowed the assessee's appeal, deleting the penalties related to the estimated additions for the sale of paddy and rice but upholding the penalty for the unexplained cash deposits. The Tribunal directed the Assessing Officer to levy the penalty only on the Rs. 14 Lacs addition for unexplained cash deposits. In a similar appeal (ITA No. 735/Chd/2014), the Tribunal followed the same rationale, deleting penalties related to the sale of rice and paddy at lower prices but upholding the penalty for cash deposits of Rs. 5,30,000/-.

Final Order:
The appeals of the assessee were partly allowed, with the penalties related to estimated additions being deleted and those related to unexplained cash deposits being upheld. The order was pronounced in the Open Court on 07/11/2014.