2016 (6) TMI 211 - AT - Income Tax

Appeal partially allowed, penalty confirmed for unexplained cash deposits. Further verification needed for deposit issue.

Amish R. Kapadia Versus ITO, Ward – 12 (3) (2), Mumbai

The Tribunal partially allowed the appeal, confirming a penalty of Rs. 2.50 lacs under Section 271(1)(c) for unexplained cash deposits. The issue of a Rs. ... Levy of penalty u/s. 271(1)(c) - withdrawal on last date of cash deposit - Held that:- in the absence of details as to cash withdrawals and deposits during the immediately preceding year, the claim as to the opening balance cannot be verified or opined upon. In fact, the cash utilized for personal/household purposes would also have to be factored there-into. Why, we wonder the assessee could not furnish, similarly, the said details for the immediately preceding year as well. Continuing further, the cash utilized for personal/household purposes for the months of April to July 2004 is admittedly at ₹ 1.90 lacs (PB pgs. 1 – 2), which we accept in-as-much as the AO has not made any addition on account of low or inadequate household/personal withdrawals. This would, accordingly, consume almost the entire withdrawal of ₹ 2.15 lacs made from during this period. In fact, another ₹ 40,000/- to ₹ 50,000/- would be required toward such monthly expenses for the month of August 2004, being generally drawn at the beginning of the month, so that the surplus of ₹ 0.25 lacs (2.15 lacs -1.90 lacs) can be regarded as toward the same. The explanation of the withdrawals being the source of the deposit would thus not hold for ₹ 2.50 lacs deposited in bank account on 30.7.2004. The explanation offered (qua this deposit) is not valid; rather, cannot be under the circumstances regarded as an explanation at all. The penalty in respect of the addition to this extent thus stands rightly levied, and is accordingly confirmed. For second block of withdrawals i.e., beginning August 18, 2004, up to 09.11.2004 the acceptability or otherwise – in whole or in part, of the assessee’s explanation thus hinges critically on this fact and the concomitant expenditure incurred thereat. It may well be that the assessee spent the surplus (Rs.2.50 lacs) or similar amount on the said treatment, depositing the balance (Rs.14 lacs) in end-December, 2004, upon full recovery, so that there was no imminent need for cash. If the operation, which is stated to be for the same problem, costs ₹ 1.02 lacs a year later, the same would cost the assessee – who is even otherwise covered by insurance, a similar amount – with we observing the assessee to have funds – despite the deposits, cash at ₹ 2.50 lacs for the purpose. The question, however, is: Why does not the assessee state so, revealing the truth of the matter? Is it that only a balance of ₹ 15,000/- was left with the assessee after the treatment, which he deposits in bank on 13/12/2004. The facts having already been taken cognizance of, would require being substantiated and cannot be overlooked or dismissed as not relevant. The matter being factually indeterminate, has been accordingly restored back, i.e., with regard to the explanation for ₹ 14.00 lacs deposited in December, 2004. - Decided partly favour of assessee for statistical purposes. Issues Involved:1. Sustainability of penalty under Section 271(1)(c) of the Income Tax Act, 1961.2. Validity of the assessee's explanation for cash deposits and withdrawals.3. Applicability of Sections 68 and 69 of the Income Tax Act.4. Procedural validity of assessment and penalty proceedings.5. Evaluation of evidence and probability in the context of unexplained cash deposits.Detailed Analysis:1. Sustainability of Penalty under Section 271(1)(c):The primary issue was whether the penalty of Rs. 6,08,170 levied under Section 271(1)(c) for the assessment year 2005-06 was legally sustainable. The penalty was imposed for the alleged concealment of income and furnishing inaccurate particulars, specifically related to unexplained cash deposits in the assessee's bank account.2. Validity of the Assessee's Explanation for Cash Deposits and Withdrawals:The assessee, a partner in a firm, deposited Rs. 16.65 lacs in his bank account, claiming it was from previous withdrawals made for emergency medical needs. The Assessing Officer (A.O.) and the Tribunal found the explanation unreliable due to inconsistencies and lack of supporting evidence. The Tribunal noted:- The disease (Varicose Veins) did not necessitate such heavy withdrawals.- The medical treatment costs were covered by insurance.- No credible evidence was provided for the claimed medical expenses.- The assessee failed to maintain a cashbook or substantiate the opening cash balance of Rs. 3.75 lacs.3. Applicability of Sections 68 and 69:The assessee argued that Sections 68 and 69 were not applicable since he did not maintain personal books of account. However, the Tribunal clarified that Section 69 was applicable given the undisputed cash deposits in the bank account. The Tribunal emphasized that the exercise of power by an authority is valid if referable to a provision that supports it, thus rejecting the assessee's argument.4. Procedural Validity of Assessment and Penalty Proceedings:The Tribunal examined the procedural aspects and found that the penalty proceedings were initiated correctly following the assessment order. It was noted that the assessee's explanation remained unsubstantiated throughout the proceedings, justifying the penalty under Section 271(1)(c).5. Evaluation of Evidence and Probability:The Tribunal scrutinized the date-wise profile of cash withdrawals and deposits, noting:- Withdrawals of Rs. 25 lacs during the year, with Rs. 16.65 lacs deposited back.- The explanation for withdrawals and subsequent deposits was not plausible.- The Tribunal found the explanation for the deposit of Rs. 2.50 lacs on 30.07.2004 invalid due to lack of evidence.- For the remaining deposits, the Tribunal considered the possibility of the withdrawals being for undisclosed purposes.The Tribunal recognized that the assessee had undergone medical treatment in August 2004, which coincided with the withdrawals. However, the lack of detailed evidence on the treatment costs necessitated further examination. The Tribunal restored the assessment for Rs. 14 lacs deposited in December 2004 to the A.O. for reconsideration, emphasizing the need for definite findings of fact.Conclusion:The Tribunal partially allowed the appeal for statistical purposes, confirming the penalty for Rs. 2.50 lacs and remanding the issue of Rs. 14 lacs for further verification. The decision underscored the importance of credible evidence and consistency in the assessee's explanations, aligning with established legal principles and case law.