2022 (11) TMI 712 - AT - Income Tax

Penalty under Income Tax Act overturned due to lack of evidence, strict interpretation emphasized

The Tribunal found that the penalty imposed under Section 271(1)(c) of the Income Tax Act was unjustified as the income was estimated based on bank ... Penalty u/s 271(1)(c) - estimation of income u/s 44AD - addition made on credit summation made by the assessee - Debatable issue - whether Merely difference of opinion does not construe that the assessee has furnished inaccurate particulars of return? - HELD THAT:- Undisputedly, assessee’s income has been estimated considering the deposits made in the bank account under section 44 A.D. of the Income Tax Act. In our view, penalty under section 271(1)(c) based on estimation of income is not justified. It was noted that Assessing Officer himself had found that said deposit was not made on a single day and, thus, it could not be said that assessee had failed to furnish complete particulars. Even otherwise, revenue had not come out with clear case of suppression of turnover and, penalty had been imposed merely on basis of enhancement of estimated income where impugned penalty would not sustain. Thus the penalty imposed by the AO u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income and confirmed by the Ld. CIT(A) is deleted. - Decided in favour of assessee. Issues Involved:1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act.2. Estimation of income based on bank deposits.3. Difference of opinion between the assessee and the Assessing Officer (AO).Detailed Analysis:1. Imposition of Penalty Under Section 271(1)(c) of the Income Tax Act:The primary issue revolves around the imposition of a penalty amounting to Rs. 39,504/- under Section 271(1)(c) of the Income Tax Act for allegedly furnishing inaccurate particulars of income. The AO levied this penalty due to the discrepancy between the declared income and the income estimated by the AO based on bank deposits. The CIT(A) upheld this penalty, concluding that the assessee failed to produce adequate documentary evidence to substantiate the nature and source of significant cash deposits in the bank account.2. Estimation of Income Based on Bank Deposits:During the assessment proceedings, the AO was dissatisfied with the explanation provided by the assessee regarding cash deposits of Rs. 43,48,500/- in the YES Bank account. The AO noted the absence of books of accounts, bills, or vouchers supporting purchases, sales, and other expenses. Consequently, the AO estimated the turnover at Rs. 66,76,816/- and applied a net profit rate of 8% under Section 44AD of the Act, resulting in an assessed income of Rs. 5,34,145/-, significantly higher than the Rs. 1,82,270/- declared in the original return.3. Difference of Opinion Between the Assessee and the AO:The assessee contended that the penalty was unjustified, arguing that the discrepancy was due to a difference of opinion rather than an attempt to furnish inaccurate particulars. The assessee maintained that the deposits in the YES Bank were merely for transferring cash from Amritsar to Raipur, not reflecting actual sales or turnover. However, the CIT(A) rejected this explanation, noting that the bank account activity indicated sales proceeds being deposited in Raipur and withdrawn in Amritsar, contradicting the assessee's claim.Tribunal's Findings:Upon reviewing the case, the Tribunal found that the penalty under Section 271(1)(c) was not justified. It emphasized that the income was estimated based on bank deposits, and the AO himself acknowledged that the deposits were not made on a single day, indicating no clear case of suppression of turnover. The Tribunal referenced the Madras High Court's decision in CIT, Chennai vs. P. Roses, which held that penalty based on income estimation is unwarranted. The Tribunal also cited the Supreme Court's ruling in CIT v. Reliance Petroproducts (P) Ltd., emphasizing that penalty provisions require strict interpretation, and mere incorrect claims do not equate to furnishing inaccurate particulars.Conclusion:The Tribunal concluded that the CIT(A)'s findings were inconsistent with the facts on record. It held that the penalty of Rs. 39,504/- imposed by the AO under Section 271(1)(c) for furnishing inaccurate particulars of income was unjustified and deleted the penalty. Consequently, the appeal filed by the assessee was allowed. The order was pronounced in the open court on 22.09.2022.