2017 (10) TMI 1082 - AT - Income Tax

Penalty u/s 271(l)(c) - unexplained source of source - Held that - The penalty order is woefully silent on the issue as to how this satisfaction of concealment was arrived at. The quantum addition on which the penalty has been imposed pertains to an addition of ₹ 2 lakhs only sustained by the Ld. CIT (A) out of a total addition of ₹ 10 lakhs. It is also noteworthy that this addition was sustained on the ground that the assessee had failed to prove the source of source but how this has resulted in concealment of income/furnishing of inaccurate particulars of income is not discernible from the penalty order. CIT (A) has also not examined the issue in detail but has simply confirmed the penalty by relying on the findings of the AO and the confirmation of the addition by the Ld. CIT (A) in the quantum proceedings. Thus, there is no finding by the authorities below on the issue as to how the concealment has come to be established so as to warrant imposition of penalty. Thus, it is apparent that the penalty has been imposed as an automatic outcome of the confirmation of the quantum addition. Considering the entirety of the circumstances, in our view the impugned disallowance does not invite the provisions of Section 271(1)(c) of the Act - Decided in favour of assessee.

Summary

Issues:
Penalty imposed under section 271(1)(c) of the Income Tax Act for alleged concealment of income.

Analysis:
1. The appeal challenged the penalty imposed under section 271(1)(c) of the Income Tax Act. The appellant argued that the Assessing Officer did not record satisfaction in the assessment order regarding the concealment of income.
2. The Tribunal rejected the adjournment application by the department and proceeded ex parte. The case involved a discrepancy between the income declared and assessed, with additions made by the Assessing Officer.
3. The assessment included an addition of income from undisclosed sources due to unsecured loans not accepted by the Assessing Officer. The CIT(A) confirmed a penalty on the remaining amount, which was challenged in the appeal.
4. The appellant contended that the source of funds was demonstrated, but the creditworthiness of the lender could not be established to the satisfaction of the Assessing Officer.
5. The CIT(A) confirmed a partial addition, citing doubts about the lender's creditworthiness. The Tribunal noted discrepancies in the assessment and penalty proceedings, emphasizing the need for a fresh consideration in penalty cases.
6. Referring to legal precedents, the Tribunal highlighted the distinction between assessment and penalty proceedings. It emphasized the need for the Assessing Officer to establish concealment or inaccurate particulars independently in penalty cases.
7. The Tribunal found the penalty order lacking in explaining how concealment was established, and deemed it a result of automatic confirmation of the quantum addition. The absence of detailed examination led to the direction to delete the penalty.
8. Ultimately, the Tribunal allowed the appeal, setting aside the penalty and directing the Assessing Officer to delete it. The decision was pronounced on 4th October 2017.