2018 (2) TMI 435 - AT - Income Tax

Penalty proceedings u/s 271(1)(c) - unexplained sales made to two parties - quantum side has attained finality and therefore, penalty on such addition is justified - Held that - When, purchases, opening stock and direct expenses on debit side and gross sales, closing stock on credit side and balancing figure of gross profit and G.P. rate has not been disturbed; and books of accounts, trading results and other evidences have neither been rejected nor has any discrepancy been found. Here the nature of credit is sales and the onus that lied upon the assessee to prove the source of the sale has been proved by producing the sale bills against which it has received the amount and has shown it as part of its gross income - it cannot be a satisfaction either for initiation or for levy of penalty u/s 271(1) (c) under any of the limb of the charge. It is well settled principle that penalty proceedings are separate and distinct from the assessment proceedings and the assessee in the penalty proceedings may adduce any fresh evidence or may rely on same material or the evidence to prove that he is not guilty of either furnishing of inaccurate particulars of income or for concealment of income - entire explanation and evidence filed by the assessee is neither been found to be incorrect nor has been proved to be incorrect on the basis of any material on record as the information and the genuineness of the entries in the books of accounts of the third party has not been put to verification or cross examination by the AO. Simply relying on the account of the third party cannot be the basis for making any addition in the hands of the assessee leave alone levying the penalty u/s 271(1)(c). - Decided against revenue

Issues Involved:
1. Legitimacy of the reopening of assessment under Section 147.
2. Validity of the penalty imposed under Section 271(1)(c) for alleged unexplained sales.
3. Evidence and documentation supporting the sales transactions.
4. The role of third-party statements and cross-examination in assessing the legitimacy of sales.

Detailed Analysis:

1. Legitimacy of the Reopening of Assessment under Section 147:
The assessment was reopened twice under Section 147. Initially, the assessment was completed under Section 143(3) at an income of ?92,02,67,218/-. The first reopening was done via notice under Section 148 dated 30th March 2012, and the reassessment was completed on 1st November 2012, maintaining the same income. The second reopening was based on information received from the DDIT (Investigation) Unit-III(1), New Delhi, regarding alleged unexplained sales to M/s. Shivam Exports and Shri Satyendra Yadav. The AO believed that an income of ?42,92,465/- had escaped assessment for the assessment year 2007-08.

2. Validity of the Penalty Imposed under Section 271(1)(c) for Alleged Unexplained Sales:
The AO imposed a penalty of ?14,04,500/- under Section 271(1)(c) on the grounds that the assessee had introduced its own cash in the garb of sales. The AO's decision was based on the discrepancy between the payments shown by M/s. Shivam Exports and the assessee's records. The assessee did not appeal the addition, which led the AO to conclude that the explanation provided during the penalty proceedings was the same as during the assessment, warranting the penalty.

3. Evidence and Documentation Supporting the Sales Transactions:
The assessee provided substantial documentation to support the genuineness of the sales transactions, including:
- Summary of transactions with Shivam Exports and Satyendra Yadav.
- Ledger accounts, sale invoices, cash receipts, VAT returns, sales tax deposit challans, bank statements, and cash books.
The Ld. CIT(A) found these documents credible and noted that the sales were duly reflected in the books of accounts, which were audited and subjected to statutory scrutiny.

4. The Role of Third-Party Statements and Cross-Examination in Assessing the Legitimacy of Sales:
The AO relied on the statements made by Shri Satyendra Yadav and the records of M/s. Shivam Exports, which indicated discrepancies in the payment amounts. However, the AO did not provide the assessee with an opportunity to cross-examine Shri Satyendra Yadav. The Ld. CIT(A) observed that no information was brought on record by the AO to prove that the cash credited in the books of the assessee was actually its own money. The lack of cross-examination and reliance on third-party records without verification weakened the AO's case.

Conclusion:
The Ld. CIT(A) deleted the penalty, emphasizing that the sales were genuine and duly recorded in the books of accounts. The AO's reliance on third-party statements without cross-examination and failure to find discrepancies in the assessee's documentation led to the conclusion that the penalty under Section 271(1)(c) was not justified. The appeal filed by the revenue was dismissed, affirming the Ld. CIT(A)'s decision to delete the penalty. The judgment underscores the importance of thorough verification and cross-examination in penalty proceedings and the distinct nature of penalty and assessment proceedings.

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