2019 (7) TMI 26 - AT - Income Tax

Penalty u/s 271(1)(c) - Appellant failed to disclose the details and source of cash deposits in its bank account - Investigation carried out for cash deposit as per AIR information - explanation offered in the penalty proceedings has to be considered - claim of business deposit in penalty proceeding claiming assessee is a labour contractor - HELD THAT - Assessee needs to demonstrate that these were business receipts. In order to address the issue, it may be appropriate to address the past history of the assessee on his nature of activity etc. over the years. In case the assessee is able to demonstrate by way of supporting evidences etc. for instance filing affidavits etc. of responsible people where and for whom he is stated to have performed his work, the tax authorities in such an eventuality can then well consider the feasibility of allowing relief in the penalty proceedings. As such an eventuality will enable the tax authorities to consider the prayer consistently made that the amount should have been taxed u/s 44AD. In such an eventuality, the prayer in the penalty proceedings may qualify to be a valid argument justifying the quashing of the penalty orders. However, the occasion to make such a prayer would only arise after the assessee meets the bar first i.e. the assessee needs necessarily to demonstrate that these were contract receipts. Accordingly, in the interest of substantial justice, accepting the prayer of the ld. AR made on behalf of the assessee, the impugned order is set aside back to the file of the CIT(A). While so doing it is made clear that in the eventuality of abuse of the trust reposed in the assessee, the CIT(A) would be at liberty to pass an order on the basis of material available on record. Any fresh evidence the assessee seeks to file is directed to be admitted and in case it is found to be not sufficient or incomplete, the CIT(A) would be free to give any suitable direction for production of necessary evidences considered relevant for addressing the issues. - Appeals of the assessee are allowed for statistical purposes.

Summary

Issues:
Appeals challenging penalty under section 271(1)(c) of the Income Tax Act for assessment years 2007-08 and 2008-09.

Analysis:
The appeals contested the penalty imposed by the Assessing Officer and upheld by the CIT(A) for undisclosed deposits in the bank account of the assessee, a labor contractor. The argument centered on the nature of these deposits, claimed by the assessee to be contract receipts. However, the authorities found insufficient evidence to support this claim. The CIT(A) partially allowed relief in the quantum proceedings by taxing peak amounts in the bank account, reducing the additions made by the Assessing Officer. Despite this, penalty proceedings were initiated due to the lack of evidence supporting the claim of contract receipts. The assessee failed to provide substantial evidence in both quantum and penalty proceedings, leading to the confirmation of additions as undisclosed income. The CIT(A) dismissed the argument that the penalty was wrongly levied, emphasizing the failure to demonstrate that the deposits were indeed business receipts.

In the quantum proceedings, the CIT(A) granted partial relief by considering withdrawals made and taxing peak amounts in the bank account. The orders in both assessment years highlighted the lack of evidence to substantiate the claim of contract receipts. The CIT(A) dismissed the assessee's arguments based on legal precedents and emphasized the importance of disclosing details and sources of cash deposits. The penalty order was confirmed based on the failure to prove that the deposits represented business receipts.

The judgment acknowledged the need for the assessee to provide supporting evidence to demonstrate that the deposits were indeed contract receipts. The court emphasized the importance of addressing the issue of undisclosed deposits in the bank account, especially in the context of potential misuse. The judgment highlighted the necessity for the assessee to prove that the deposits were business receipts, suggesting the submission of supporting evidence such as affidavits. The order set aside the penalty and directed the case back to the CIT(A), allowing for the submission of additional evidence. The judgment stressed the importance of substantiating the claim of contract receipts to potentially quash the penalty orders.

In conclusion, the appeals were allowed for statistical purposes, and the case was remanded back to the CIT(A) for further consideration based on the submission of additional evidence by the assessee to support the claim of contract receipts.