2017 (9) TMI 1653 - AT - Income Tax

Partial success in appeal against Income Tax penalty under section 271(1)(c) with turnover and cash deposit considerations

The appeal challenging a penalty under section 271(1)(c) of the Income Tax Act, 1961 was partly allowed. The penalty was confirmed to a certain extent ... Penalty under section 271(1)(c) for concealment or inaccuracy in furnishing particulars - Voluntary surrender of income - Reasonable profit on turnover as basis for partial penalty - Burden on assessee to explain non-disclosure of business income - Confirmation of penalty in part and deletion in partPenalty under section 271(1)(c) for concealment or inaccuracy in furnishing particulars - Reasonable profit on turnover as basis for partial penalty - Voluntary surrender of income - Whether the penalty levied under section 271(1)(c) for deposits treated as undisclosed income can be sustained in full, in part, or must be deleted for AY 2010-11. - HELD THAT: - Assessing Officer added cash bank deposits aggregating to Rs. 43,72,650 as unexplained income and levied penalty under section 271(1)(c). The Tribunal noted that the assessee claimed to be in small-scale business of used clothes and that the deposits represented business receipts, but the return disclosed only salary and interest and no business profits; the assessee offered no explanation for non-disclosure of reasonable profits. The Tribunal accepted that past treatment of similar deposits as business receipts lent some weight to the assessee's explanation, but held that this did not absolve him of explaining why business profits were not disclosed. Applying the principle of reasonable profit on turnover, the Tribunal held penalty justified to the extent of the addition corresponding to reasonable profit (Rs. 4,37,265) and confirmed penalty to that extent. For the balance of the addition, on account of acceptance of the deposits as business receipts to some extent, the Tribunal deleted the penalty. The Tribunal therefore confirmed the penalty in part and deleted it in part. [Paras 4, 5]Penalty under section 271(1)(c) confirmed to the extent relatable to addition of Rs. 4,37,265 and deleted for the remaining amount; appeal partly allowed.Final Conclusion: Appeal partly allowed: penalty sustained in part (relatable to reasonable profit on the deposits) and deleted in part for assessment year 2010-11. Issues:Challenge to penalty under section 271(1)(c) of the Income Tax Act, 1961 for alleged undisclosed income added under section 69 on voluntary surrender.Analysis:The appellant challenged the penalty of Rs. 13,00,990 imposed by the CIT(A) for the assessment year 2010-11. The appellant argued that the main source of income was salary and the surrender of borrowed amounts was for valid reasons, hence the penalty should be deleted. The appellant contended that the penalty should not have been levied based solely on the addition of income and that the explanation provided was not false. The appellant also argued that relevant judgments of the High Court and Tribunal were not considered, and the penalty order was illegal and invalid.During scrutiny assessment proceedings, the Assessing Officer noted cash deposits totaling Rs. 43,72,650 in the appellant's bank account based on AIR information. The appellant claimed to be in the used clothes business with a low profit margin, but the entire amount was added to the income. The Assessing Officer imposed a penalty of Rs. 13,00,990, equivalent to 100% of the tax sought to be evaded. The CIT(A) upheld the addition, stating that the appellant failed to provide a satisfactory explanation for the cash deposits.Upon hearing both sides and examining the facts, it was observed that the appellant did not disclose reasonable profits from the business he claimed to be engaged in. The penalty was considered justified to the extent of reasonable profit on the turnover reflected by the cash deposits. The penalty was confirmed for an amount related to the addition of Rs. 4,37,265, while the balance was deleted. The appellant's explanation regarding the business dealings was partially accepted for penalty purposes, resulting in the partial allowance of the appeal.In conclusion, the appeal was partly allowed, and the penalty was confirmed to a certain extent based on the turnover and cash deposits. The judgment was pronounced on September 22, 2017, by the Appellate Tribunal ITAT Ahmedabad.