2018 (3) TMI 70 - AT - Income Tax

Levying the penalty u/s 271(1)(c) - addition u/s 41(1)(a) - Held that - In case in hand the fact that the addition was made by the AO because the difference of the outstanding liability shown in the original return of income and in the revised return of income. However, the assessee has disclosed the relevant facts which was subjected to the verification of the AO and it was also brought on record that out of the opening balance of the liability of ₹ 5,14,409/- the creditor has confirmed the receipt of ₹ 3 lacs but deny the balance amount of ₹ 2,14,309/-. Therefore, the explanation of the assessee may not be acceptable however, the same is bonafide explanation then the penalty on such addition made by the AO is not leviable. Addition made u/s 41(1)(a) of the Act. Addition on account of interest income since the assessee has not contested this addition in the quantum appeal and also has not furnished any explanation for not offering the said income to tax, therefore, in the facts and circumstances of the case, we do not find any error or illegality in the orders of the authorities below levying the penalty against the said addition made by the AO. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Addition under Section 69A for unexplained cash deposits.
3. Addition under Section 41(1)(a) for cessation of liability.
4. Addition of interest income.

Detailed Analysis:

1. Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The appeal concerns the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2005-06. The assessee contested the penalty, arguing that there was no concealment of income or furnishing of inaccurate particulars. The CIT(A) upheld the penalty, and the assessee appealed to the ITAT.

2. Addition under Section 69A for unexplained cash deposits:
The AO made an addition of ?20,29,000 under Section 69A for unexplained cash deposits in the assessee's bank account. The CIT(A) restricted this addition by estimating a profit of 10% on the turnover, resulting in a sustained addition of ?2,02,900. The assessee argued that the deposits were from sale proceeds not disclosed due to a bona fide mistake. The ITAT held that the non-disclosure of sales and the bank account indicated concealment of particulars of income. The explanation of a bona fide mistake was not accepted, and the penalty was upheld.

3. Addition under Section 41(1)(a) for cessation of liability:
The AO added ?2,14,309 under Section 41(1)(a) for cessation of liability towards M/s Shree Gurukripa Stones Pvt. Ltd. The assessee initially showed an outstanding liability of ?5,14,409, which was later revised to nil. The creditor confirmed receipt of ?3,00,000, but not the remaining amount. The ITAT referenced a coordinate bench decision and held that the explanation provided by the assessee was bona fide. Thus, the penalty for this addition was deleted.

4. Addition of interest income:
The AO added ?1,913 as interest income, which was not contested by the assessee in the quantum appeal. The ITAT found no error in the penalty levied for this addition, as the assessee did not provide any explanation for not offering this income to tax.

Conclusion:
The ITAT upheld the penalty for the addition under Section 69A and the interest income but deleted the penalty for the addition under Section 41(1)(a). The appeal was partly allowed.