2018 (3) TMI 807 - AT - Income Tax

Levying penalty u/s 271(1)(c) - addition made for clients deposit account - Held that - We do not find it a fit case to sustain the penalty u/s. 271(1)(c). It is notable that the assessment proceedings and the penalty proceedings are separate proceedings and the Assessing Officer in the penal proceedings has to prove the offense in terms of provisions of section 271(1)(c) of the Act. In the instant case, it is not in dispute that the assessee had been showing the impugned amount as liability in the client deposit account. It is also born out on record that part of the amount received from the client stood deposited by the assessee. The dispute was as to the nature of amount lying in the account whether in the nature of liability or income. In the quantum proceedings, the addition was, however, sustained as the assessee could not furnish any documentary evidence to support its claim. Relying on the decision in Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT), mere making of a claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee, particularly when the assessee had shown some the reasons for not furnishing the supporting documentary evidence in the quantum proceedings. - Decided in favour of assessee.

Summary

Issues:
Penalty imposed under section 271(1)(c) of the IT Act for the assessment year 2002-03 on grounds of addition made for client deposit account.

Analysis:
The appeal was filed against the penalty imposed under section 271(1)(c) of the IT Act for the assessment year 2002-03. The penalty was challenged based on several grounds, including the contention that the balance in the client deposit account was disclosed on the balance sheet, and therefore, no penalty should have been levied. The appellant argued that the client deposit amount could only be taxed in the year in which the debt of the appellant firm became time-barred. Additionally, it was claimed that the amount in question was offered for taxation in a subsequent assessment year, and there were no further directions from the client regarding the payment. The Assessing Officer made the addition and imposed the penalty, which was confirmed by the CIT(A) and the Tribunal. The appellant then appealed to the Tribunal against the penalty order.

The appellant argued that the amount in question was held for payment on behalf of the client and was shown as a liability in the books, not as income. It was contended that since there were no further directions from the client for a long time and the amount remained as a credit balance, it was offered for taxation in a subsequent year. The appellant relied on precedents to support the argument that the penalty should be quashed. On the other hand, the Department argued that the penalty was rightly imposed based on the confirmed addition.

After considering the submissions and the evidence on record, the Tribunal found that the penalty under section 271(1)(c) of the IT Act was not justified in this case. It was noted that the appellant had shown the amount as a liability in the client deposit account and part of the amount received was deposited. The Tribunal emphasized the distinction between assessment and penalty proceedings, highlighting that the burden of proof lies with the Assessing Officer in penalty proceedings. The Tribunal also noted that the appellant's explanation that the amount was offered for taxation in a subsequent year was not refuted by the authorities below. Relying on legal precedents, including the decision in Reliance Petroproducts case, the Tribunal concluded that the penalty for furnishing inaccurate particulars of income was not warranted in this case. Therefore, the penalty was set aside, and the appeal of the appellant was allowed.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the penalty imposed under section 271(1)(c) of the IT Act for the assessment year 2002-03 related to the client deposit account.