Unexplained money penalty where taxpayer acted as bank agent leads to deletion of addition and consequent penalty set aside

Penalty under tax provisions was imposed based on an addition for unexplained money attributed to the taxpayer; the deletion of that addition was sustained on the ground that the taxpayer acted as an agent of the bank, a fact corroborated by the bank branch manager, and therefore the deposited funds pertained to the bank. Because the primary addition was negated on the merits, the consequential penalty founded on that addition could not subsist and the Revenue's grounds challenging deletion and penalty were rejected.

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Issues: Whether the penalty under Section 271AAC(1) of the Income-tax Act, 1961, levied on account of addition made under Section 69A, survives where the underlying addition has been deleted in the quantum proceedings.

Analysis: The Tribunal noted that in the connected quantum appeal the addition made by the Assessing Officer under Section 69A was deleted after accepting that the assessee acted as a banking correspondent/agent for the bank and that the cash deposits pertained to the bank. The Tribunal relied on contemporaneous material including the bank's confirmation accepting the assessee's role as agent and found that the Assessing Officer had not made further inquiries or obtained bank records before making the addition. Given that the impugned tax addition was reversed in the quantum appeal on the basis that the amounts belonged to the bank and not to the assessee, the penalty imposed under Section 271AAC(1) which was predicated on that addition lacked the foundational basis required for its sustenance.

Conclusion: The penalty under Section 271AAC(1) does not survive once the underlying addition under Section 69A is deleted; the Revenue's grounds are rejected and the appeal is dismissed in favour of the assessee.

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