2011 (3) TMI 579 - AT - Income Tax

Tribunal Reduces Penalties for Unexplained Cash: Importance of Substantiated Explanations

The tribunal partially allowed the appeal, reducing or deleting penalties imposed under section 271(1)(c) of the Income-tax Act, 1961. Penalties were ... Penalty u/s 271(1)(c) - unexplained cash credit - penalty in respect of an amount of Rs. 8,85,000 found as cash at the business premises of the company - Held that:- penalty to levied only to the extent confirmed addition only.Penalty in respect of unexplained cash of Rs. 4,13,500. - Held that:- Once the quantum addition stood deleted by the Respected Co-ordinate Bench 'D' and the explanation of the assessee about the source of the said cash was found satisfactory, therefore, there is no reason to impose concealment penalty to the extent of the said amountPenalty in respect of Unexplained cash Creditors. - Held that:- this is not the case of the revenue that the above referred alleged creditors were not found recorded in the books of account of the assessee. - a system was evolved, considering the large number of transaction, to record the names only. - when the cheques are received from the different parties and after encashing those cheques the cash was paid to those very parties. Since the transaction was squared up then and there, therefore, the explanation of the assessee was that for business point of view he was not required to maintain the record of full address and identity of those persons. - Penalty to be deleted. Issues Involved:1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, on the ground of unexplained cash found during survey.2. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, on the ground of unexplained cash found during survey.3. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, on the ground of unexplained cash creditors.Issue-wise Detailed Analysis:1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, on the ground of unexplained cash found during survey:The first issue pertains to the penalty levied on an amount of Rs. 8,85,000 found as cash at the business premises of the assessee-company. The assessee explained that the cash was necessary for the business of discounting cheques and drafts. The statement recorded indicated that cash transactions were documented via kachha chits, which were later destroyed. The total cash found was Rs. 12,70,000, with Rs. 8,41,079 being accounted for in the books. The remaining amount was treated as unexplained and taxed under section 69. The ITAT 'D' Bench granted relief for Rs. 8,41,079 but confirmed the addition of Rs. 43,922. The tribunal held that affirming the penalty at this stage was premature and reduced the penalty accordingly, sustaining it only for the confirmed amount of Rs. 43,922.2. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, on the ground of unexplained cash found during survey:The second issue involved an unexplained cash amount of Rs. 4,13,500 found at the premises. The explanation provided was that the cash came from the encashment of Fixed Deposit Receipts (FDRs) belonging to an individual, which were accounted for in his books. The revenue authorities did not accept this explanation and upheld the addition. However, the tribunal deleted the addition, noting that the initial onus was discharged by the assessee by showing the withdrawal of Rs. 9,10,000 from the individual's bank account. The tribunal found no material from the revenue to disprove the explanation. Consequently, the penalty for this amount was not imposed.3. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, on the ground of unexplained cash creditors:The third issue addressed a penalty on an addition of Rs. 21,25,088, which was credited in the assessee's books under various names. The assessee failed to provide complete details and confirmations for these creditors. The explanation given was that the business involved discounting cheques and drafts, and due to the volume of transactions, detailed records were not maintained. The tribunal upheld the addition under section 68, noting that the assessee did not fulfill the requirements to prove the nature and source of the credits. However, in the penalty proceedings, the tribunal emphasized that all particulars were disclosed in the audited accounts and income tax return. It concluded that the explanation was bona fide and substantiated, and thus, the penalty for this amount was deleted.Conclusion:The appeal was partly allowed, with penalties reduced or deleted based on the substantiation and bona fide nature of the explanations provided by the assessee. The tribunal emphasized the importance of proper disclosure and substantiation of explanations to avoid penalties under section 271(1)(c) of the Income-tax Act, 1961.