2022 (10) TMI 346 - AT - Income Tax

Penalty u/s 271(1)(c) - denial of claim of embezzlement loss - according to the AO, since this amount was returned by H.K. Enterprise, the assessee s claim of loss on account of embezzlement to this extent was not allowable - HELD THAT - The assessee had pointed out that Revenue s contention having been returned by the party which had committed fraud on the assessee was not correct since the amount was not reflected in the bank statement of the assessee of that year. The explanation was substantiated with copy of Bank statement of the assessee. This contention of the assessee has not been controverted by the Revenue authorities. The claim of the Revenue that amount stands reflected in the bank statement of the party which has claimed to have refunded this amount to the assessee. This one-sided evidence with the Revenue does not prove that the assessee had actually received back this amount more particularly in the light of counter evidence filed by the assessee reflecting non receipt of the said amount in its bank statement. The assesses claim of embezzlement loss in these facts and circumstances, cannot be said to have been found to be false and wholly untenable. The assessee therefore, we hold, cannot be charged with having furnished inaccurate particulars or concealed particulars of income with respect to the said claim. Therefore, as far as Asst.Year 1991-92 is concerned, wherein penalty has been levied on account of this amount which has not been allowed as embezzlement loss to the assessee, we hold that there is no case for levy of penalty at all and the impugned penalty levied is therefore directed to be deleted. Asst.Year 1999-2000 penalty levied on embezzlement loss denied to the assessee - Out of this, the assessee has admitted wrong claim made with respect to an amount of Rs.50,000/- and it had fairly admitted that considering long period of time, it had to verify various documents involved and had mistakenly made a wrong claim in this regard. The assesses explanation for the mistake appears to be bonafide considering the long period of sixteen years that it took the Revenue to verify the claim of the assessee and the documents on the basis of which the claim was made being very old, the chances of some claims having been made wrongly cannot be completely ruled out. With respect to an amount remaining however, the assessee still claimed before the Revenue authorities, even in penalty proceedings, that its claim of embezzlement loss was genuine. The assessee demonstrated that it had issued these cheques to H.K. Enterprises, who in turn had allegedly embezzled this amount after crediting to its bank account. The assessee demonstrated through its bank accounts that this cheque was issued to the concerned party by it and this contention of the assessee has remained uncontroverted by the Revenue. The fact that this cheque does not figure in the bank account of other party does not by itself prove the explanation of the assessee as wrong, as long as cheque stands reflected as issued in the bank statement of the assessee, which was not proved to be false by the Revenue. Therefore the facts on record do not make out it a clear case of an incorrect claim made by the assessee - The assessee, therefore, in this case also cannot be said to have furnished any inaccurate particulars of income or concealed any income with respect remained claimed as embezzlement loss. In the result, the penalty levied u/s 271(1)(c) of the Act in both the assessment years before us, i.e A.Y 1991-92 and A.Y 1999-00 is deleted.

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Years (AY) 1991-92 and 1999-2000.
2. Denial of embezzlement loss claim amounting to Rs. 40,000 for AY 1991-92.
3. Denial of embezzlement loss claim amounting to Rs. 3,15,000 for AY 1999-2000.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The assessee filed appeals against the orders of the Commissioner of Income Tax (Appeals)-8, Ahmedabad, which confirmed the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961. The penalties were related to the denial of embezzlement loss claims for AY 1991-92 and 1999-2000. Both appeals were heard together as they involved identical issues.

2. Denial of Embezzlement Loss Claim (AY 1991-92):
The assessee claimed an embezzlement loss of Rs. 5,16,480 for AY 1991-92, which was largely allowed except for Rs. 40,000. The Assessing Officer (AO) denied this amount, noting that a cheque for Rs. 40,000 was issued in favor of the assessee by H.K. Enterprise on 19.05.1990. The AO concluded that this amount was returned, hence the loss claim was not allowable. The assessee contended that the amount was never actually received back and provided a bank statement as proof. However, the AO dismissed this, relying on the bank account of H.K. Enterprise reflecting the cheque issue. Consequently, the AO levied a penalty of Rs. 23,000 for furnishing inaccurate particulars of income.

3. Denial of Embezzlement Loss Claim (AY 1999-2000):
For AY 1999-2000, the assessee claimed an embezzlement loss of Rs. 25,08,800, out of which Rs. 3,15,000 was denied. The AO noted the lack of documentary evidence for two cheques amounting to Rs. 2,65,000 and Rs. 50,000 issued to Everest Services. During the penalty proceedings, the assessee admitted the mistake regarding Rs. 50,000 due to the long period elapsed and mixed-up documents. For Rs. 2,65,000, the assessee maintained that the claim was genuine, supported by bank statements. The AO rejected the explanation, stating the assessee failed to provide a tenable explanation, and levied a penalty of Rs. 1,10,250.

Tribunal's Findings:
The Tribunal noted that the assessee had not challenged the additions and accepted them after prolonged litigation. However, it found that the assessee had demonstrated the genuineness of its claims during penalty proceedings. For AY 1991-92, the Tribunal held that the assessee's claim of embezzlement loss of Rs. 40,000 was substantiated by its bank statement, which the Revenue did not effectively counter. Thus, there was no case for penalty.

For AY 1999-2000, the Tribunal found that the assessee's claim of embezzlement loss of Rs. 2,65,000 was supported by evidence, and the Revenue failed to disprove it. The Tribunal accepted the assessee's explanation for the Rs. 50,000 mistake as bona fide, given the prolonged period and the likelihood of document misplacement.

Conclusion:
The Tribunal directed the deletion of penalties for both assessment years, concluding that the assessee had not furnished inaccurate particulars or concealed income. The appeals were allowed, and the penalties levied under section 271(1)(c) were deleted.

Order Pronouncement:
The order was pronounced on 7th October 2022 at Ahmedabad.

← Previous Next →