Penalty on unexplained cash deposits upheld, while recomputation follows reduced quantum addition for later year

Penalty under section 271(1)(c) was sustained for unexplained cash deposits where the assessee failed to give a satisfactory explanation, and the challenge to the penalty notice as defective was rejected because the penalty order recorded a clear basis and no prejudice was shown. For the later year, the Tribunal held that penalty had to be aligned with the quantum addition finally sustained, so the penalty could not stand on the full deposit amount when the addition itself had been restricted. Accordingly, penalty remained upheld for one year and was directed to be recomputed for the other year in line with the reduced addition.

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Issues: (i) Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable in respect of unexplained cash deposits, and whether the penalty notice was vitiated as defective for assessment year 2012-13; (ii) whether the penalty for assessment year 2013-14 required recomputation in line with the reduced quantum addition.

Issue (i): Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was leviable in respect of unexplained cash deposits, and whether the penalty notice was vitiated as defective for assessment year 2012-13.

Analysis: The addition sustained in quantum proceedings related to cash deposits for which no satisfactory explanation was furnished. The Tribunal noted that the co-ordinate bench had sustained 50% of the deposits as unexplained income, and that the assessee had not produced a valid explanation even in the penalty proceedings. The challenge based on a vague notice was rejected in view of the clear finding recorded in the penalty order and the absence of prejudice.

Conclusion: Penalty under section 271(1)(c) was upheld for assessment year 2012-13 and the notice-based challenge failed.

Issue (ii): Whether the penalty for assessment year 2013-14 required recomputation in line with the reduced quantum addition.

Analysis: The Tribunal noticed that in quantum proceedings the addition had been restricted to 50% of the cash deposits, whereas the penalty had been confirmed on the full amount. Since the penalty had to follow the addition ultimately sustained, the quantum of penalty required reworking on the basis of the reduced addition.

Conclusion: The matter was remitted for recomputation of penalty for assessment year 2013-14 in line with the quantum addition sustained.

Final Conclusion: The appeal failed for assessment year 2012-13, while relief was granted for assessment year 2013-14 to the limited extent of penalty recomputation.

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