2018 (12) TMI 811 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Addition made of unsecured loans taken by the assessee, the genuineness of which remained unproved - no documents proving the genuineness of the said loans was filed by the assessee - addition u/s 68 - admission of additional evidence - Held that - Additional evidences now filed by the assessee, we hold, cannot be rejected for admission simply following the order of the ITAT in quantum proceedings in this regard, holding them to be wholly irrelevant for the purpose of determining whether the assessee had concealed/furnished inaccurate particulars of income so as to levy penalty u/s 271(1)(c). The said evidences do show that the transactions took place through banking channels, that the loans were repaid also in later years, that interest was also paid on the same and TDS was deducted by the Government also. The assessee had also filed confirmations from four parties which had not been filed to the I.T.A.T. in quantum proceedings. The aforesaid documents therefore throw some light on the fact that loans had been taken by the assessee, though they may not be sufficient enough to conclusively prove the genuineness of the transactions. Unsecured loans shown to be taken by the assessee cannot be categorically held to be a bogus transaction, though it may be sufficient for making addition u/s 68. The documents therefore are relevant for the purpose of determining whether the assessee had concealed /furnished any inaccurate particulars of income, for the levy of penalty - decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Admission of additional evidence in penalty proceedings.
3. Distinction between quantum proceedings and penalty proceedings.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in this case was the imposition of penalty amounting to ?7,72,271/- under section 271(1)(c) of the Income Tax Act, 1961. The penalty was levied due to the addition of unsecured loans amounting to ?21,59,000/- to the income of the assessee, which were deemed unproven. The Assessing Officer (AO) had initially added unsecured loans totaling ?41,59,000/- to the assessee's income due to the absence of documents proving the genuineness of these loans. The CIT(A) later reduced this amount to ?21,59,000/-. The AO levied a penalty at 100% of the tax evaded on the confirmed addition. The CIT(A) upheld the penalty, stating that the assessee had failed to establish the genuineness of the loans before the AO, CIT(A), and ITAT in quantum proceedings.

2. Admission of Additional Evidence in Penalty Proceedings:
The assessee argued that additional evidence, which included details of receipt of loans, bank statements, accounts showing repayment of loans, TDS certificates, and confirmations from four parties, should be admitted in penalty proceedings. The CIT(A) refused to admit these additional evidences, following the ITAT's decision in quantum proceedings, which had rejected these documents as insufficient to prove the loans under section 68 of the Act. The CIT(A) also issued summons to four persons who had given unsecured loans, but these were returned unserved, and the assessee was unable to produce these persons or provide their addresses.

3. Distinction Between Quantum Proceedings and Penalty Proceedings:
The ITAT emphasized that assessment proceedings and penalty proceedings are independent and different. The standard of proof for making an addition or disallowance in quantum proceedings differs from that required for levying a penalty, which necessitates conclusive findings that wrong particulars of income were furnished or income was concealed. The ITAT noted that the rejection of additional evidence in quantum proceedings should not automatically lead to the same rejection in penalty proceedings. The ITAT held that the additional evidence submitted by the assessee, which indicated transactions through banking channels, repayment of loans, payment of interest, and TDS deductions, could not be wholly dismissed as irrelevant for penalty purposes.

Conclusion:
The ITAT concluded that the additional evidence provided by the assessee, although not conclusively proving the genuineness of the loans, indicated that the transactions were not categorically bogus. Therefore, the penalty under section 271(1)(c) was not justified. The ITAT set aside the CIT(A)'s order and directed the deletion of the penalty amounting to ?7,72,271/-. The appeal of the assessee was partly allowed, and the grounds related to the penalty were upheld in favor of the assessee.