2014 (8) TMI 1064 - AT - Income Tax

Tribunal overturns penalties for unexplained investments, citing lack of evidence.

Sri M. Balanarasimha Reddy Versus The Income-tax Officer And Vice-Versa

The Tribunal held that the penalty under Section 271(1)(c) was not justified for the addition of Rs. 1,17,50,000 as unexplained investment due to lack of ... Penalty u/s 271(1)(c) - period of limitation - Held that:- Time limit stipulated for passing the penalty order is 6 months from the financial year in which the order of the CIT(A) or ITAT is received on the appeal against the assessment proceedings. In this case the order of the ITAT was passed on 25.1.2012 and as such time was available to the AO for passing the penalty order up to 30.9.2012. Hence, we do not find any infirmity in the order of the CIT(A) holding that the order passed u/s. 271(1)(c) is within time u/s. 275. Unaccounted receipts - Held that:- We find that the assessee has offered explanation stating that the total amount received was only ₹ 4.9 crores and not ₹ 5.9 crores and had explained that the amount of ₹ 1 crore had been taken twice by the Assessing Officer while computing the advances given. It is also a fact that the ld. CIT(A) has deleted the addition whereas ITAT restored it. All that happened in the present case was that through a bona fide and inadvertent error the assessee failed to add the provision for gratuity to its total income. This could only be described as a human error which we are all prone to make. The calibre and expertise of the assessee had little or nothing to do with the inadvertent error. That the assessee should have been careful could not be doubted, but the absence of due care, would not mean that the assessee was guilty of either furnishing inaccurate particulars or was attempting to conceal its income. Consequently, given the peculiar facts of this case, the imposition of penalty on the assessee was not justified. - Decided in favour of assessee Unexplained investments - Held that:- As merely because the explanation furnished by the assessee was considered as un-satisfactory or unreasonable it would not ipso facto justify the invocation of clause (a) to levy penalty u/s. 271(1)(c). Hence we find no infirmity in the order of the CIT(A) in holding that penalty is not leviable on the addition of ₹ 1,17,50,000 representing unexplained investment in the hands of the assessee since no concealment is shown to have been established and additions have been made by merely disbelieving the submissions of the assessee. We confirm the order of the CIT(A) and dismiss the appeal of the Revenue. - Decided in favour of assessee Issues Involved:1. Validity of the penalty order under Section 271(1)(c) concerning the issue of limitation.2. Addition of Rs. 1,17,50,000 as unexplained investment.3. Addition of Rs. 25,00,000 as undisclosed additional investment.4. Whether the penalty under Section 271(1)(c) is justified for the additions made.Detailed Analysis:Validity of the Penalty Order under Section 271(1)(c) Concerning the Issue of Limitation:The assessee argued that the penalty order was passed beyond the time prescribed under the proviso to Section 275 of the Act, which mandates that the penalty order should be passed within one year from the end of the financial year in which the order of the CIT(A) is received. The CIT(A) clarified that the time limit for passing the penalty order is six months from the financial year in which the order of the CIT(A) or ITAT is received. In this case, the order of the ITAT was received on 25.01.2012, and the penalty order was passed on 27.09.2012, within the permissible time frame. Thus, the CIT(A) found no infirmity in the order of the AO, and the ground raised by the appellant regarding limitation was dismissed.Addition of Rs. 1,17,50,000 as Unexplained Investment:The assessee contended that the contributions for the investment were received from seven members, and the sources of these contributions were primarily agricultural income and the sale of agricultural land, all in cash. The AO disbelieved these contributions due to the lack of verifiable sources and treated the amount as unexplained investment. The CIT(A) upheld the addition, noting that the transactions were in cash and lacked written agreements or deeds. However, the CIT(A) observed that the AO's conclusion was based on the interpretation of available information and not on the complete lack of evidence. The CIT(A) concluded that the addition did not establish concealment of income, thus no penalty was leviable on the amount of Rs. 1,17,50,000.Addition of Rs. 25,00,000 as Undisclosed Additional Investment:The AO treated Rs. 25,00,000 as undisclosed additional investment based on impounded material during the survey proceedings, indicating a total payment of Rs. 5.90 crores against the assessee's claim of Rs. 4.90 crores. The AR argued that the AO had erroneously included an undated receipt of Rs. 1 crore twice. The CIT(A) initially granted relief on this addition in quantum proceedings, but the ITAT reversed it. The AR contended that where two views are possible, penalty is not leviable, citing judicial precedents supporting this stance.Justification of Penalty under Section 271(1)(c):The CIT(A) held that penalty is not leviable on the addition of Rs. 1,17,50,000 as the AO merely disbelieved the explanation of the assessee without proving concealment. The CIT(A) relied on judicial decisions indicating that disbelieving an explanation does not constitute concealment of income. For the addition of Rs. 25,00,000, the CIT(A) observed that the AO failed to establish concealment, and the penalty was not justified. The ITAT upheld the CIT(A)'s decision, emphasizing that penalty proceedings are distinct from assessment proceedings, and mere disbelieving of the assessee's explanation does not warrant penalty.Conclusion:The Tribunal concluded that the penalty under Section 271(1)(c) is not justified for the addition of Rs. 1,17,50,000 as unexplained investment due to the lack of evidence of concealment. However, the penalty on the addition of Rs. 25,00,000 was deemed unjustified as the AO failed to establish concealment. The assessee's appeal was allowed, and the Revenue's appeal was dismissed. The Tribunal's decision was pronounced in the open court on 28th August 2014.