2018 (2) TMI 1278 - AT - Income Tax

Tribunal cancels penalty, citing lack of opportunity for cross-examination and unclear notice.

Shri Sandip Shantilal Mehta Versus ITO, Ward – 7 (4), Ahmedabad

The Tribunal deleted the penalty of Rs. 4,80,525, concluding that in the given circumstances, penalty could not be levied. The appeal filed by the ... Penalty u/s 271(1)(c) - addition for outstanding expenses for purchase of goods and expenses u/s. 68 and addition of opening balance of Deposits - summons u/s.131 - Held that:- A.O. had issued summons u/s.131 to (1) Vikibhai M. Raval (2) Bakulbhai Panchal and (3) Vijay Mahasan and had recorded their statements. On the basis of such statements addition of ₹ 7,50,572/- was made. The appellant was not informed about the statements recorded u/s.131 of the I.T. Act, 1961 and despite of the fact, appellant wrote a letter to the AO on 10/07/2012 to provide copies of statements of all the parties those were examined by the ld. AO u/s.131. But neither opportunity of cross examination nor statement u/s.131 was reported by the AO and supplied to the appellant and made an addition without informing the appellant. Since AO has not given any chance to cross examines the person whose statement were recorded u/s.131. Moreover, statement of above said persons were not supplied to the appellant and same is amount to miscarriage of justice. Ld. AO ought to have supplied the statement and thereafter given him chance to cross examine the person though statement was recorded by the AO. In such circumstances penalty cannot be levied, hence deleted. - Decided in favour of assessee. Issues Involved:1. Penalty under Section 271(1)(c) for outstanding expenses for purchase of goods and expenses.2. Penalty for addition of Rs. 85,000 as unexplained cash credit.3. Non-disclosure of salary income.4. Penalty based on voluntary income surrender.5. Lack of clear finding on concealment or furnishing inaccurate particulars in the show cause notice.Issue-wise Detailed Analysis:1. Penalty under Section 271(1)(c) for Outstanding Expenses:The assessee contested the penalty upheld by the CIT (Appeals) -10, Ahmedabad concerning the addition of Rs. 10,47,627 for outstanding expenses for purchase of goods and expenses. The CIT (Appeals) confirmed the decision of the AO, considering the creditors as concealed income. The AO had issued summons to 28 creditors, out of which 7 did not appear or denied any credit to the assessee, leading to the addition of Rs. 10,47,627 to the total income. During penalty proceedings, the assessee argued that the addition was agreed upon to buy peace and tranquility, citing various judicial pronouncements. However, the AO found the submission untenable, stating that the concealment need not be intentional for penalty imposition under Section 271(1)(c).2. Penalty for Addition of Rs. 85,000 as Unexplained Cash Credit:The CIT (Appeals) also upheld the AO's decision to add Rs. 85,000 as unexplained cash credit under Section 68 of the Act. The assessee failed to provide confirmation from two depositors, Harshad V. Patel and Pravin V. Patel. During penalty proceedings, the assessee argued that the addition was made to buy peace and tranquility, referencing several judicial rulings. However, the AO issued summons to the depositors, who denied knowing the assessee or advancing any sum, leading to the conclusion that the assessee introduced unexplained funds as loans. Thus, the AO found that the assessee furnished inaccurate particulars and concealed income.3. Non-Disclosure of Salary Income:The assessee admitted to not disclosing a salary of Rs. 2,81,100 from Target Infrastructure Pvt. Ltd., which was added to the total income during assessment proceedings. The assessee argued that the omission was not intentional, citing that TDS had been deducted by the employer, making concealment unlikely. The AO, however, stated that penalty under Section 271(1)(c) applies even if the concealment is not intentional, thus rejecting the assessee's argument.4. Penalty Based on Voluntary Income Surrender:The assessee contended that the penalty should not be imposed as the income was surrendered voluntarily to avoid litigation and buy peace. The AO, however, maintained that the surrender of income does not exempt the assessee from penalty if the income was initially concealed. The AO referenced the statement recordings and the failure of the assessee to prove the genuineness of creditors, leading to the conclusion that the assessee furnished inaccurate particulars.5. Lack of Clear Finding on Concealment or Furnishing Inaccurate Particulars:The assessee argued that the penalty notice did not clearly state whether the penalty was for concealing income or furnishing inaccurate particulars, referencing the case of CIT vs. Whiteford India Ltd. The Tribunal found merit in this argument, noting that the AO did not provide the assessee with an opportunity to cross-examine the creditors whose statements were used against him. The Tribunal concluded that the lack of opportunity to cross-examine and the failure to supply statements amounted to a miscarriage of justice.Conclusion:The Tribunal deleted the penalty of Rs. 4,80,525, concluding that in the given circumstances, penalty could not be levied. The appeal filed by the assessee was allowed, emphasizing that the AO's failure to provide an opportunity for cross-examination and the lack of clarity in the penalty notice were significant factors in the decision.Order Pronounced:The order was pronounced in Open Court on 12/02/2018.