2022 (5) TMI 516 - AT - Income Tax

Penalty u/s 271(1)(c) - Addition u/s 68 - assessee failed to prove the creditworthiness of creditor and made addition under section 68 by treating the unsecured loan as unexplained cash credit - HELD THAT - Addition made in the quantum assessment attained finality. We are of the conscious of the fact that penalty proceedings are separate and independent proceedings though the observation on the addition in the quantum assessment may have bearing in the penalty proceedings. However, such observation are not conclusive. We find that the identity of creditor including PAN and details of agricultural procedure was filed by the assessee and the assessee claimed that loan amount was received through banking channel. AO has not made any independent investigation nor issued any show cause notice or summons to the creditor to bring other adverse material against the assessee. It is also fact that the assessee could not prove his contention about the unsecured loan. However, we find merit in the submission of Ld. AR of the assessee that the explanation offered by assessee has not been disproved by the Assessing Officer. The Hon'ble jurisdictional High Court in the case of National Textiles 2000 (10) TMI 19 - GUJARAT HIGH COURT and Jalaram Oil Mills 2001 (6) TMI 15 - GUJARAT HIGH COURT held that where the circumstances do not lead to the reasonable and positive inference that the assessee s Explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. In view of the aforesaid factual discussion, we are of the view that in absence of material on record to disprove the explanation offered by assessee about the creditworthiness and genuineness of transaction, the AO was not justified in levying penalty under section 271(1)(c). Therefore, grounds raised by assessee is allowed.

Summary

Issues:
Penalty under section 271(1)(c) for furnishing inaccurate particulars of income.

Analysis:

Issue 1: Penalty under section 271(1)(c) for furnishing inaccurate particulars of income

The case involved an appeal by the assessee against the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2013-14. The Assessing Officer had made an addition of Rs. 6,00,000 under section 68 of the Act, treating it as unexplained cash credit. The assessee failed to prove the genuineness of the unsecured loan received and furnish necessary documents. The Assessing Officer initiated penalty proceedings under section 271(1)(c) based on the belief that the assessee furnished inaccurate particulars of income knowingly and deliberately. The penalty was levied at 100% of the tax sought to be evaded, amounting to Rs. 1,85,400.

The assessee contended that the loan was received through an account payee cheque from an agriculturist, Shri Kishorbhai G Savani, who was not required to file an income tax return due to his income being below the tax limit. The assessee provided various documents, including bank statements, sales bills, and PAN card of the creditor, to prove the identity and genuineness of the transaction. The assessee argued that there was no intention to suppress the truth or conceal income, and the penalty was imposed due to the inability to furnish complete documents. The assessee also highlighted that not filing an appeal in the quantum assessment should not debar them from challenging the penalty. The assessee maintained that the explanation provided was bona fide and not disproved by the Assessing Officer.

Upon review, the Appellate Tribunal found that the explanation offered by the assessee had not been disproved by the Assessing Officer. The Tribunal noted that the assessee had provided documents to establish the identity and creditworthiness of the creditor, and the loan transaction was through banking channels. The Tribunal observed that the Assessing Officer did not conduct an independent investigation or issue notices to the creditor. Relying on relevant case laws, the Tribunal held that in the absence of material to disprove the explanation offered by the assessee, the penalty under section 271(1)(c) was not justified. Consequently, the Tribunal allowed the appeal of the assessee, setting aside the penalty imposed.

In conclusion, the Tribunal's decision emphasized the importance of proving creditworthiness and genuineness of transactions to avoid penalties under section 271(1)(c) of the Income Tax Act, highlighting the need for thorough documentation and substantiation in such cases.