2018 (4) TMI 997 - AT - Income Tax

Penalty u/s 271(1)(C) - unexplained cash credit - Held that - It is not logical to make addition only in respect of deposits without giving credit to the withdrawals made earlier. Particularly in the absence of any other material suggests that the earlier withdrawals have been spent away. AO has given a credit to the extent of 77, 43, 204/- relating to the sales amount. On appeal the Ld.CIT(A) adopted the methodology of amounts deposited within 3 days and withdrawals and accordingly deleted the further addition to the extent of 54, 45, 920/-. On appeal the ITAT further granted relief on the basis of estimation and directed the AO to make addition of 5, 00, 000/-. Ultimately the addition sustained in this case only on the basis of estimation. Therefore the AO is not able to establish in this case the assessee concealed income by furnishing inaccurate particulars. It is not a fit case to impose penalty u/s 271(1)(C) of the Act. Accordingly the penalty is deleted and the appeal filed by the assessee is allowed.

Summary

Issues involved:
Assessment of unexplained cash credit, Penalty under section 271(1)(C)

Assessment of unexplained cash credit:
The assessee, engaged in the liquor business, deposited significant amounts in bank accounts for participating in an excise license auction. The Assessing Officer (AO) scrutinized the deposits and found discrepancies in the explanations provided by the assessee regarding the source of funds. The AO accepted credit for reported sales but treated the remaining amount as unexplained cash credit. On appeal, the CIT(A) granted relief for deposits made within three days of withdrawals. The ITAT analyzed the transactions and observed a pattern where cash deposits were followed by demand drafts, suggesting possible routing of sales proceeds through the bank accounts. The ITAT extended the time limit for considering deposits and withdrawals, ultimately estimating a profit on the unexplained deposits and directing the AO to make a specific addition. The ITAT concluded that the addition was based on estimation and not on concealment of income, leading to the allowance of the appeal and deletion of the penalty under section 271(1)(C).

Penalty under section 271(1)(C):
Following the estimation of income by the ITAT, the AO initiated penalty proceedings under section 271(1)(C) for alleged concealment of income. The assessee argued that since the income was estimated by the ITAT, no penalty should be levied. However, the AO contended that the estimation did not negate the concealment of income. The CIT(A) upheld the penalty, but the ITAT, after considering the facts and orders of the lower authorities, including its own, concluded that the addition was solely based on estimation and not on deliberate concealment of income. Consequently, the ITAT allowed the appeal, deleted the penalty, and held that it was not a suitable case for imposing a penalty under section 271(1)(C) of the Income Tax Act.

In summary, the ITAT's judgment revolved around the assessment of unexplained cash credit, where it analyzed the transactions, extended time limits, estimated profits, and directed a specific addition based on the estimation. The ITAT ultimately concluded that the addition was not due to concealment of income, leading to the allowance of the appeal and deletion of the penalty under section 271(1)(C).