2016 (7) TMI 618 - AT - Income Tax

Penalty u/s. 271(1)(c) - addition towards the film Annaya Attachar - Held that - Trial Balance prepared up to 10.02.2005 admittedly contained substantial balance towards sundry creditors advance received from sundry debtors which are admittedly not revenue receipts unless proved otherwise. It is not the case of the Ld. AO that the sundry creditors reflected thereon and advance received from the customers (sundry debtors) are non-existent liabilities and bogus in nature. This can be proved from the very fact that the Ld. AO had not made any separate addition thereon in respect of those two items. Moreover, we find that the Balance Sheet has been prepared up to 31.03.2005 which has been completely ignored by the Ld. AO and also by the Ld. CIT(A) wherein all the deficiencies pointed out by the Ld. AO have been properly rectified and there is no need to make any addition towards film of Annaya Attachar in the assessment. However, the assessee is not in appeal before us on the quantum addition. We also find that the total cost of production including the printing cost and publicity cost of the film Annaya Attachar has been accepted by the Ld. AO without making any addition thereon. We are also in agreement with the argument of Ld. AR that just because no explanation has been offered by the assessee during the penalty proceedings the Ld. AO cannot automatically proceed to levy penalty as admittedly penalty proceeding is independent of assessment proceedings. Under these circumstances, we have no hesitation in directing the Ld. AO to cancel the penalty levied in respect of the addition towards the film Annaya Attachar. Apropos the film Cheeta, we find that an addition has been made only on estimate basis. Hence, we have no hesitation in cancelling the penalty levied on the same and we direct the AO accordingly. Penalty levied on the addition made towards cash balance, we find that the assessee has filed Balance Sheet up to 31.03.2005 which has not been properly considered by the Ld. AO and the cash balance found on the date of survey have been duly explained in the said Balance Sheet filed before the Ld. AO up to 31.03.2005. Hence, there is no case of any concealment of income or furnishing of inaccurate particulars of income on the part of the assessee. Accordingly, we have no hesitation in deleting the penalty levied in respect of the said addition. - Decided in favour of assessee.

Summary

Issues:
- Whether penalty u/s. 271(1)(c) of the Income Tax Act could be levied in the facts and circumstances of the case.

Analysis:
1. The appellant, a film production house, disclosed profit from two films. The AO made additions to the disclosed profits based on a survey u/s. 133A, resulting in undisclosed income. The AO imposed penalties u/s. 271(1)(c) for the additions.

2. The appellant contested the penalties, arguing that the AO erred in considering the Trial Balance as revenue receipts, leading to unwarranted additions. The AR highlighted that certain entries did not constitute revenue receipts. The AO's additions were based on improperly updated books, and no concealment or inaccurate particulars were involved.

3. The AR contended that no expenditure was claimed for one film, and the loss was treated as "deficiency recoverable." The AO's estimated addition without basis did not warrant a penalty. Regarding unaccounted cash found, the AR explained the entries in the Balance Sheet up to 31.03.2005, which the AO ignored.

4. The DR argued that the appellant failed to offer explanations during penalty proceedings, shifting the onus on the appellant to comply with the law.

5. The Tribunal agreed with the appellant, noting that the Trial Balance included non-revenue items, and the AO overlooked the final Balance Sheet. The penalties on additions for the films were canceled. The penalties on estimated cash addition were also deleted as the cash balance was explained in the filed Balance Sheet.

6. The Tribunal emphasized that penalty proceedings are separate from assessments, and lack of explanation during penalty proceedings does not automatically warrant penalties. The appeal was allowed, and penalties were deleted.

Judgment:
The Tribunal allowed the appeal, canceling the penalties imposed under section 271(1)(c) for the additions made by the AO, considering the discrepancies in revenue receipts, lack of proper consideration of Balance Sheets, and absence of concealment or inaccurate particulars.