2022 (4) TMI 673 - AT - Income Tax

Penalty u/s. 271(1)(c) - unexplained cash credit - HELD THAT - The assessee has furnished all the necessary details with respect to the credit entries which are placed on pages 12 to 44 of the paper book. Accordingly we hold that there was nothing which could lead to form believe that the assessee has concealed the particulars of income. In holding so we draw support and guidance from the judgment of Hon ble Gujarat High Court in the case of Commissioner of Income-tax v. Bhuramal Manickchand 1980 (8) TMI 41 - CALCUTTA HIGH COURT Penalty proceedings are distinct and independent to the quantum proceedings. Therefore, any addition made during the quantum proceedings cannot lead to the penalty until and unless the independent verification carried out by the authorities below during the penalty proceedings. For example, if any addition has been made under the provisions of section 68 of the Act in the absence of non-reply from the loan party during the quantum proceedings. Now, during the penalty proceedings the same exercise has also to be carried out by the revenue authorities. As such the revenue authorities cannot rely the basis enumerating from the quantum proceedings for levying the penalty. Thus order of the authorities below for levying the penalty under the provisions of section 271(1)(c) of the Act on account of concealment of income with respect to unexplained cash credit under section 68 rejected. Addition of short-term capital gain and disallowance of long-term capital loss and treating the long-term capital gain as income from other sources - Documents filed by the assessee during the penalty proceedings cannot be brushed aside for levying the penalty on the reasoning that such documents were not filed during the quantum proceedings. In the given case, the assessee has disclosed the capital gain income but failed to file the necessary documents during the assessment proceedings which were admittedly filed during the penalty proceedings in support of his transactions for the transfer of lands. As long-term capital loss declared by the assessee for ₹58,000 against the sale of properties. The property was sold at a price of ₹3 Lacs and the capital loss was calculated after claiming the index cost of acquisition of the property. But, the AO disallowed the loss shown by the assessee and treated the sale consideration of ₹3 Lacs as income from other sources. The action of the AO was based on the reasoning that the assessee failed to furnish the supporting documentary evidence. Indeed, the assessee before the learned CIT-A during the assessment proceedings has furnished the balance sheet for the year 2002-03 wherein such investment was shown. Once the assessee has filed the supporting documents, the onus is shifted upon the revenue to disprove the contention of the assessee based on the documentary evidence. However, we note that the learned CIT-A without giving any cogent reason has not considered the financial statement filed by the assessee for the year 2002-03 As the penalty proceedings are distinct and independent to the quantum proceedings, in our considered view, penalty cannot be levied merely on the reasoning that some addition was made by the AO during the quantum proceedings. There has to be independent verification by the revenue authorities with respect to the additions made during the quantum proceedings to arrive at the satisfaction that the assessee has concealed the particulars of income. But we find that, the authorities below have not done so. Addition of capital contribution made by the assessee - Penalty has been levied by the revenue authorities merely on the reasoning that there was the quantum addition made during the quantum proceedings. The penalty proceedings being distinct and independent to quantum proceedings, the additions made during quantum proceedings cannot be subject to the penalty until and unless the necessary verification is a carried out by the revenue authorities. In view of the above and after considering the facts in totality, we are not convinced with the finding of the authorities below for levying the penalty under the provisions of section 271(1)(c) of the Act. - Decided in favour of assessee.

Issues Involved:
1. Penalty for concealment of income under section 271(1)(c) of the Income Tax Act, 1961.
2. Unexplained unsecured loans.
3. Addition on account of short-term capital gain.
4. Disallowance of long-term capital loss.
5. Addition on account of unexplained capital addition.
6. Addition on account of income from other sources.

Detailed Analysis:

1. Penalty for Concealment of Income under Section 271(1)(c):
The core issue was whether the penalty of ?11,50,000 levied for concealment of income under section 271(1)(c) was justified. The penalty was based on various additions made to the assessee's income during the assessment proceedings, which were confirmed by the CIT-A and not appealed further by the assessee.

2. Unexplained Unsecured Loans:
The assessee received unsecured loans totaling ?15,01,195, which were added to the income under section 68 due to lack of satisfactory explanation. The assessee provided confirmations and ID proofs for all parties except one (M/s Hariom Auto Electric Rep. Works). The Tribunal held that the assessee had not concealed income as the loan entries were reflected in financial statements and supported by confirmations, except for one party. The Tribunal cited the Gujarat High Court judgment in Commissioner of Income-tax v. Bhuramal Manickchand, emphasizing that penalty is not automatic and requires independent verification during penalty proceedings.

3. Addition on Account of Short-Term Capital Gain:
The AO treated the entire gross sale consideration of ?13,50,000 as income under the head capital gain due to the assessee's failure to provide purchase and sale documents. The Tribunal noted that the assessee had later furnished purchase deeds and affidavits during penalty proceedings. The Tribunal emphasized that penalty proceedings are distinct and independent, and the authorities must consider documents submitted during penalty proceedings rather than relying solely on the quantum proceedings.

4. Disallowance of Long-Term Capital Loss:
The AO disallowed long-term capital loss of ?13,50,000 and treated the sale consideration of ?3,00,000 as income from other sources. The assessee had shown the investment in the balance sheet for the year 2002-03 and provided supporting documents during penalty proceedings. The Tribunal held that the revenue authorities failed to independently verify the documents during penalty proceedings, and thus, the penalty was not justified.

5. Addition on Account of Unexplained Capital Addition:
An addition of ?2,25,000 was made for unexplained capital contribution. The Tribunal found that the penalty was levied merely based on the quantum addition without independent verification during penalty proceedings. The Tribunal reiterated that penalty proceedings require distinct and independent verification.

6. Addition on Account of Income from Other Sources:
The AO treated the gross sale consideration of ?3,00,000 as income under the head other sources due to the assessee's failure to furnish purchase and sale documents. The Tribunal noted that the assessee had provided balance sheets and other documents during penalty proceedings. The Tribunal held that the revenue authorities did not independently verify these documents, and thus, the penalty was not justified.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, directing the AO to delete the penalty of ?11,50,000 levied under section 271(1)(c). The Tribunal emphasized that penalty proceedings are distinct and require independent verification, and mere additions during quantum proceedings do not automatically justify penalties.

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