Levy of penalty for unexplained cash deposits: remand for fresh examination of member contributions and documentary proof, appeal allowed.

Levy of penalty under section 271(1)(c) for unexplained cash bank deposits is considered against the principle that penalty and quantum proceedings are separate and independent; therefore an absence of appeal against quantum does not bar adducing explanations in penalty proceedings. The assessee consistently maintained deposits were contributions from members and produced documentary support; neither the AO nor the CIT(A) made specific findings on that explanation. The matter is remitted to the assessing officer to examine the furnished evidence and decide the penalty afresh, resulting in allowance of the assessee's appeal on the penalty issue.

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Issues: Whether the penalty under section 271(1)(c) of the Income-tax Act, 1961, levied in respect of addition under section 69A for AY 2015-16 is sustainable where the assessee contends that the cash deposits are from members (supported by documentation) and the assessment computation shows nil tax liability due to an apparent arithmetical mistake.

Analysis: The appeal arises from confirmation of penalty by the Commissioner (Appeals) against the assessee where an addition of Rs. 60,07,700/- was made under section 69A. The assessing officer treated the addition as income and initiated penalty proceedings under section 271(1)(c). The assessment record includes a computation sheet showing no tax liability, which the Tribunal found to be an arithmetical/mathematical error rather than a substantive finding of nil tax by the AO. It is a settled proposition that quantum and penalty proceedings are separate and the assessee may place explanations and supporting material in penalty proceedings even if no appeal was filed against the quantum order. The assessee consistently explained that the cash deposits were collections from members and furnished detailed supporting documentation which neither the AO nor the Commissioner (Appeals) recorded specific findings upon. Given the absence of a considered finding on the assessee's explanation and documentary evidence in the penalty proceedings, the matter required re-examination by the assessing officer with an opportunity to the assessee.

Conclusion: The appeal is allowed in favour of the assessee and the penalty order is set aside and remitted to the assessing officer for fresh consideration of the explanation and supporting documents regarding the cash deposits and levy of penalty under section 271(1)(c), after affording the assessee a reasonable opportunity of being heard.

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