2019 (9) TMI 1064 - AT - Income Tax

Supreme Court Validates Tax Appeal, Rejects Penalty for Disallowed Cash Credit Claims Under Section 271(1)(c)

The SC upheld the HC's decision, affirming the CIT(A)'s deletion of penalty u/s.271(1)(c). The Tribunal ruled that mere disallowance of cash credit claims ... Penalty u/s. 271(1)(c) - addition made on account of unexplained cash credits - HELD THAT:- From the perusal of the assessment order as well as penalty order passed u/s.271(1)(c) of the Act, it is clear that the addition was made by the AO on the mere inability to substantiate cash credits received. There is no finding by the AO that any particulars filed by the assessee are found to be false. The Hon’ble Supreme Court in the case of Reliance Petro Products (P) Ltd. [2010 (3) TMI 80 - SUPREME COURT] held that mere disallowance of the claim does not amount to furnishing of inaccurate particulars of income and therefore levy of penalty is not warranted. Hence, we do not find any fallacy in the reasoning of the Ld.CIT(A) while dealing with the penalty in respect of addition of unexplained cash credit. Accordingly, we do not find any merit in the appeal filed by the Revenue. Issues:1. Appeal against deletion of penalty u/s.271(1)(c) of Rs. 30,89,062.2. Justification of deleting penalty on unexplained cash credits.Issue 1: Appeal against deletion of penalty u/s.271(1)(c) of Rs. 30,89,062The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2015-16. The grounds of appeal included contentions that the CIT(A) erred in deleting the penalty u/s.271(1)(c) of Rs. 30,89,062, failed to note the inadequacy of the assessee's explanation, and should have upheld the penalty based on Explanation 1 to Sec.271(1)(c) of the Income Tax Act, 1961. The Revenue argued that the assessee did not substantiate the explanation offered during penalty proceedings, thus failing to meet the burden under Explanation 1 (B) to Sec.271(1)(c) of the Act.Issue 2: Justification of deleting penalty on unexplained cash creditsThe appellant, engaged in trading in leather, had an assessment completed by the Assistant Commissioner of Income Tax, which included additions for unexplained cash credit and rental income. The AO initiated penalty proceedings under Sec.271(1)(c) for furnishing inaccurate particulars of income. The AO imposed a penalty of Rs. 34,48,162 for concealing income. The CIT(A) deleted the penalty related to unexplained cash credit, citing the decision of the Supreme Court in CIT vs. Reliance Petro Products (P) Ltd. The Revenue contended that the penalty should not have been deleted as the appellant concealed income. The appellant argued that the penalty was imposed for concealment, not furnishing inaccurate particulars, and referenced relevant tribunal and high court decisions.The Tribunal found that the sole issue was whether the CIT(A) was justified in deleting the penalty on unexplained cash credits. It was noted that the AO's addition was based on the inability to substantiate cash credits, not on false particulars filed by the assessee. Referring to the Supreme Court decision in Reliance Petro Products (P) Ltd, the Tribunal agreed that mere disallowance of a claim does not constitute furnishing inaccurate particulars of income, thus not warranting a penalty. The Tribunal upheld the CIT(A)'s decision based on this reasoning and dismissed the Revenue's appeal.