2014 (6) TMI 284 - AT - Income Tax

ITAT upholds CIT (A) decision on undisclosed income addition & penalty deletion under IT Act

The ITAT dismissed both appeals filed by the Department, upholding the decisions of the CIT (A) regarding the addition of cash deposits as undisclosed ... Additions regarding non-furnishing of complete details on account of concealed income – Held that:- No return of income had been filed by the assessee for the year under consideration, contending that his income for the year under consideration was below the taxable limit - CIT (A) restricted the addition on the basis of the material available on record - after accounting for the cash deposits and the cash withdrawals, the source of the amount of Rs. 1,77,000/- as on 5.6.04, remained unexplained - CIT (A) treated this amount of Rs. 1,77,000/- as the assessee’s income from undisclosed courses – the figure was seen to work out to a profit rate of 14.9% on a turnover of Rs. 11,88,000 - This was found to be much higher than the presumptive rate of net profit applicable in terms of the provisions of Section 44AF of the Act - Revenue has not been able to successfully refute the facts duly taken into consideration and discussed in detail by the CIT (A) in the order - the approach of the CIT (A) in adopting the peak of the deposits and withdrawals during the year, to be well justified – Decided against Revenue. Deletion of penalty u/s 271(1)(c) of the Act – Held that:- CIT (A) was of the view that since no return of income had been filed, despite the assessee having taxable income as determined by the AO, the whole of the income determined by the AO represented the concealed income of the assessee and that therefore, penalty u/s 271 (1)(c) of the IT Act had rightly been imposed on the assessee - CIT (A) restricted the undisclosed income of the assessee to Rs. 1,77,000 – the CIT (A) has rightly directed the AO to re-compute the amount of penalty after giving effect to the CIT(A)’s appeal order in the quantum case - The penalty to the extent of Rs. 3,14,754/- has been rightly deleted - the provisions of Section 271 (1)(c) of the Act are not attracted – Decided against Revenue. Issues:- Appeal against addition of cash deposits as undisclosed income- Challenge to the reduction of addition by CIT (A)- Dispute over the penalty imposed under section 271(1)(c) of the IT ActIssue 1: Appeal against addition of cash deposits as undisclosed incomeThe Department filed an appeal against the order of the Ld. CIT (A) for Assessment Year 2005-06, challenging the addition of Rs. 11,88,000 as undisclosed income due to cash deposits into the assessee's bank account. The AO made the addition as the assessee failed to file a return of income and did not respond to show cause notices regarding the source of cash deposits. The Ld. CIT (A) restricted the addition to Rs. 1,77,000, leading to the Department's contention that the addition should not have been reduced. The assessee argued that the cash deposits were from legitimate cash sales in the business of selling sarees and suit fabrics, with supporting evidence of turnover and profit margins. The CIT (A) considered the incomplete bank statements and restricted the addition based on the available material, resulting in a profit rate higher than the presumptive rate.Issue 2: Challenge to the reduction of addition by CIT (A)The Department argued that the CIT (A) erred in reducing the addition without considering the lack of response from the assessee to show cause notices. The assessee maintained that the withdrawals and deposits were explained by legitimate business transactions, with detailed explanations provided for each transaction. The CIT (A) adopted the peak of deposits and withdrawals during the year to justify the reduction in the addition, which was upheld as justified by the ITAT, dismissing the Department's appeal.Issue 3: Dispute over the penalty imposed under section 271(1)(c) of the IT ActIn a separate appeal related to the penalty imposed under section 271(1)(c) of the IT Act, the Department challenged the deletion of the penalty amount of Rs. 3,14,754 by the CIT (A). The AO had levied the penalty based on the alleged concealed income of Rs. 11,88,000. However, following the reduction of undisclosed income to Rs. 1,77,000 in the quantum appeal, the ITAT held that the penalty was rightly deleted by the CIT (A) after considering the revised undisclosed income amount. Consequently, the penalty was not applicable under section 271(1)(c) of the Act, leading to the dismissal of the Department's appeal in this matter.In conclusion, both appeals filed by the Department were dismissed by the ITAT, upholding the decisions of the CIT (A) regarding the addition of cash deposits as undisclosed income and the deletion of the penalty imposed under section 271(1)(c) of the IT Act.