2016 (9) TMI 804 - AT - Income Tax

Penalty u/s 271(1)(c) - addition u/s 68 - non-disclosure of certain shares in the closing stock - Held that - As in the Asstt.Year 2005-06, the addition of ₹ 3.20 lakhs was made by the AO under section 68 of the Income Tax Act. The explanation of the assessee in that year was that he had withdrawn the cash from this firm, M/s.Manishkumar & Co., which was introduced in the capital account for business. This explanation of the assessee was accepted by the ld.CIT(A). According to the ld.CIT(A), the assessee has explained the source to be from the firm, M/s.Manishkumar & Co. On similar items, the explanation was not thoroughly examined by the AO in A.Y.2006-07. Thus, the explanation of the assessee was not found to be false. The assessee has given an explanation that money was withdrawn from the firm, and it was deposited in the Vijay Bank. As far as non-disclosure of certain shares in the closing stock is concerned, the stand of the assessee is that inadvertent mistake was happened at the end of the accountant. This is the item which is revenue neutral and it was not going to affect materially to the Revenue. This explanation was rejected by the Revenue authorities on the ground that it is difficult to accept as to how the accountant has committed the mistake. To my mind, this will always be a difficult question, because, there is no scientific instrument which can tests the mind of an individual as to how he has committed a particular negligence at a particular time. It is very subjective aspect, and it will always be difficult to bring demonstrative evidence of a particular state of mind while committing such mistake. But from circumstantial evidence, it can always be concluded that whether there was a mala fide intention for not including the value of particular shares in the closing tock. No such circumstance have been brought on record for falsifying the explanation of the assessee. Therefore, in view of the above discussion, it is of the view that the assessee does not deserves to be visited with penalty.- Decided in favour of assessee.

Summary

Issues: Confirmation of penalty under section 271(1)(c) for Asstt. Years 2005-06 and 2006-07.

Analysis:
1. Asstt. Year 2005-06 Penalty: The penalty was confirmed for unaccounted stock addition of &8377; 1,14,188/- as the cash credit addition was deleted by the ld.CIT(A). The explanation provided by the assessee regarding the source of cash from the firm was accepted by the ld.CIT(A), leading to the deletion of the penalty.

2. Asstt. Year 2006-07 Penalty: The penalty was initiated for two additions, including a cash credit of &8377; 25 lakhs. The AO made the addition based on the statement given by the assessee during a survey. However, the explanation provided by the assessee that the cash was withdrawn from the firm and deposited in the bank account was not thoroughly examined by the AO. The stand of the assessee during the assessment proceedings was not considered, and no verification was done regarding the availability of cash balance in the firm. The tribunal found the explanation of the assessee to be plausible and not false, hence deleting the penalty.

3. Legal Provisions - Section 271(1)(c): The section allows for penalty if the assessee has concealed income or furnished inaccurate particulars. The penalty can range from 100% to 300% of the tax sought to be evaded. The deeming provisions under Explanation 1 to the section apply in situations where the assessee fails to offer an explanation or offers a false explanation, leading to concealment of income.

4. Conclusion: The tribunal concluded that the penalty was not justified in either year. In the case of the unaccounted stock addition, the explanation was accepted by the ld.CIT(A). For the cash credit addition in the following year, the tribunal found that the explanation provided by the assessee was plausible, and there was no evidence of mala fide intent. Therefore, the penalty was deleted in both appeals.