2018 (12) TMI 811 - AT - Income Tax

ITAT overturns penalty decision under Income Tax Act, deems evidence not conclusive.

M/s Aggarwal Sales Versus The A.C.I.T., Central Circle, Patiala

M/s Aggarwal Sales Versus The A.C.I.T., Central Circle, Patiala - TMI Issues Involved:1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.2. Admission of additional evidence in penalty proceedings.3. Distinction between quantum proceedings and penalty proceedings.Detailed Analysis:1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:The primary issue in this case was the imposition of penalty amounting to Rs. 7,72,271/- under section 271(1)(c) of the Income Tax Act, 1961. The penalty was levied due to the addition of unsecured loans amounting to Rs. 21,59,000/- to the income of the assessee, which were deemed unproven. The Assessing Officer (AO) had initially added unsecured loans totaling Rs. 41,59,000/- to the assessee's income due to the absence of documents proving the genuineness of these loans. The CIT(A) later reduced this amount to Rs. 21,59,000/-. The AO levied a penalty at 100% of the tax evaded on the confirmed addition. The CIT(A) upheld the penalty, stating that the assessee had failed to establish the genuineness of the loans before the AO, CIT(A), and ITAT in quantum proceedings.2. Admission of Additional Evidence in Penalty Proceedings:The assessee argued that additional evidence, which included details of receipt of loans, bank statements, accounts showing repayment of loans, TDS certificates, and confirmations from four parties, should be admitted in penalty proceedings. The CIT(A) refused to admit these additional evidences, following the ITAT's decision in quantum proceedings, which had rejected these documents as insufficient to prove the loans under section 68 of the Act. The CIT(A) also issued summons to four persons who had given unsecured loans, but these were returned unserved, and the assessee was unable to produce these persons or provide their addresses.3. Distinction Between Quantum Proceedings and Penalty Proceedings:The ITAT emphasized that assessment proceedings and penalty proceedings are independent and different. The standard of proof for making an addition or disallowance in quantum proceedings differs from that required for levying a penalty, which necessitates conclusive findings that wrong particulars of income were furnished or income was concealed. The ITAT noted that the rejection of additional evidence in quantum proceedings should not automatically lead to the same rejection in penalty proceedings. The ITAT held that the additional evidence submitted by the assessee, which indicated transactions through banking channels, repayment of loans, payment of interest, and TDS deductions, could not be wholly dismissed as irrelevant for penalty purposes.Conclusion:The ITAT concluded that the additional evidence provided by the assessee, although not conclusively proving the genuineness of the loans, indicated that the transactions were not categorically bogus. Therefore, the penalty under section 271(1)(c) was not justified. The ITAT set aside the CIT(A)'s order and directed the deletion of the penalty amounting to Rs. 7,72,271/-. The appeal of the assessee was partly allowed, and the grounds related to the penalty were upheld in favor of the assessee.