2024 (11) TMI 1200 - AT - Income Tax

Penalty for Unexplained Cash Deposits During Demonetization Quashed; Tribunal Allows Appeal for Fresh Assessment.

Sejal Nirmam Kothari Versus ITO, Ward – 19 (3) (1) Mumbai

Sejal Nirmam Kothari Versus ITO, Ward – 19 (3) (1) Mumbai - TMI Issues:Challenge to penalty under section 271AAC(1) of the Income Tax Act, 1961.Analysis:The appeal was filed by the assessee against the penalty imposed under section 271AAC(1) of the Income Tax Act, 1961. The assessee contended that the penalty was unjust as the assessment order under section 143(3) was passed without proper hearing and that the original addition made under section 69A r.w.s. 115BBE had been deleted in reassessment proceedings. The main contention was against the levy of penalty under section 271AAC(1) of the Act.The facts of the case revealed that the assessee, an individual, had deposited cash amounting to Rs. 20 lakh during the demonetization period. Despite multiple opportunities, the assessee failed to explain the nature and source of the cash deposit, leading to the assessment being concluded on the basis of best judgment assessment under section 144 of the Act. The AO made an addition of Rs. 20 lakh to the total income of the assessee at a special rate under section 115BBE. The appeal filed by the assessee before the CIT(A) was dismissed on account of non-prosecution.In a quantum appeal, the Tribunal set aside the order passed by the CIT(A) and remanded the matter to the AO for fresh assessment after providing an opportunity to the assessee. Meanwhile, a penalty under section 271AAC(1) was imposed by the AO, which was upheld by the CIT(A). However, the Tribunal held that since the matter was remanded for fresh assessment, the penalty did not survive and was set aside.Subsequently, in the second round of assessment proceedings, the AO accepted the total income declared by the assessee in the return of income, and no addition was made. Therefore, the Tribunal concluded that the penalty under section 271AAC(1) was not sustainable and quashed it. The impugned order was set aside, and the grounds raised by the assessee were allowed.In conclusion, the appeal by the assessee challenging the penalty under section 271AAC(1) was allowed, and the penalty was deemed not sustainable in light of the fresh assessment proceedings.