2014 (8) TMI 159 - AT - Income Tax

Tribunal sets aside penalty under Income Tax Act, directs fresh examination on unexplained cash credits

The Tribunal addressed issues including delay in filing appeals, treatment of bank transactions, and addition of unexplained cash credits. It set aside ... Condonation of delay - CIT(A) dismissed appeal in limine - Financial inability to engage professionals – Held that:- it is clear that the explanation furnished by the assessee for delay in filing the appeal has been substantiated by the AO itself by treating the cash sales of M/s. Deluxe Karran Imports Pvt. Ltd. Though there is an inordinate delay in filing the appeal before CIT(A) however the reasons explained by the assessee are not found as malafide or a device to cover up ulterior purpose. - Delay condoned. Estimation of income - Held that:- CIT(A) has not decided the appeal of the assessee on merits as it was dismissed in limine on the ground of limitation - the matter requires a fresh examination in view of the fact that same amount has already been treated by the AO as cash sales belonging to M/s. Deluxe Karran Imports Pvt. Ltd. and an income @ 6% has been assessed in the hand of M/s. Deluxe Karran Imports Pvt. Ltd. – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Asseessee. Penalty u/s 271(1)(c) – Held that:- Since the matter in quantum appeal has been set aside to the record of AO, the penalty would not survive - the penalty levied u/s 271(1)(c) is set aside – Decided in favour of Assessee. Issues:1. Delay in filing appeal before CIT(A) in quantum appeal.2. Addition of unexplained cash credit under section 68 of the Income Tax Act.3. Treatment of bank transactions as unexplained cash credits.4. Condonation of delay in filing penalty appeal before CIT(A).5. Confirmation of penalty under section 271(1)(c) of the Income Tax Act.Analysis:1. Delay in filing appeal before CIT(A) in quantum appeal:The assessee filed two appeals against orders of CIT(A) related to assessment and penalty under the Income Tax Act. The primary issue was the delay in filing the quantum appeal, which was dismissed by CIT(A) due to a delay of 13 months and 15 days. The assessee explained the delay was due to financial inability to engage a professional to file the appeal. The AO accepted that the bank transactions were related to another entity, M/s. Deluxe Karran Imports Pvt. Ltd., and not the assessee. The Tribunal condoned the delay, noting that the reasons provided were not mala fide, and set aside the matter for fresh examination by the AO.2. Addition of unexplained cash credit under section 68 of the Income Tax Act:The appeal challenged the addition of Rs. 19,20,62,184 as unexplained cash credit under section 68 of the Income Tax Act. The assessee argued that the deposits in the bank accounts were from regular business transactions and should not be considered unexplained cash credits. The AO treated the deposits as unaccounted sales of M/s. Deluxe Karran Imports Pvt. Ltd. The Tribunal directed a re-examination by the AO in light of the assessment of M/s. Deluxe Karran Imports Pvt. Ltd.3. Treatment of bank transactions as unexplained cash credits:The bank transactions of the assessee were linked to M/s. Deluxe Karran Imports Pvt. Ltd., which operated fictitious concerns to legalize cash sales. The AO treated the deposits in the bank accounts as unaccounted sales of M/s. Deluxe Karran Imports Pvt. Ltd. The Tribunal found that the delay in filing the appeal was justified, as the transactions were not directly related to the assessee, leading to the condonation of the delay.4. Condonation of delay in filing penalty appeal before CIT(A):In the penalty appeal, the assessee faced a delay of 204 days in filing the appeal before CIT(A). The Tribunal, based on the findings in the quantum appeal, condoned the delay and set aside the penalty as the matter was remitted back to the AO for fresh examination.5. Confirmation of penalty under section 271(1)(c) of the Income Tax Act:The penalty under section 271(1)(c) was confirmed by CIT(A) based on the addition made in the bank accounts of the assessee. However, since the matter was set aside for fresh examination in the quantum appeal, the penalty was deleted. The AO was given the liberty to take appropriate action based on the outcome of the quantum assessment proceedings.In conclusion, the Tribunal addressed the issues of delay in filing appeals, treatment of bank transactions, and the addition of unexplained cash credits, ultimately setting aside the penalty and directing a fresh examination by the AO in light of the findings related to M/s. Deluxe Karran Imports Pvt. Ltd.