Explanation of assessee though rejected in assessment, accepted by ITAT in penalty proceedings

Assessee’s explanation may not be sufficient for deleting addition on merit, however, in penalty proceedings it deserves to be accepted – ITAT deletes concealment penalty imposed for addition made due to unserved summons on debtors

ABCAUS Case Law Citation:
ABCAUS 2591 (2018) (10) ITAT

The instant appeal was filed by the assessee against the order passed by the CIT(A) in upholding the imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 (the Act).

The assessee was required by the Assessing Officer (AO) to explain the cash deposits in his bank account.

The assessee explained that the deposits were made out of payment received from the debtors of his old business of commission agent.

The AO issued summons to 13 debtors at the address given by the assessee. However in 6 cases, these returned unserved. Consequently, the AO made the addition in view of the fact that the said 6 parties were not produced by the assessee.

In the penalty proceedings, the assessee offered the same explanation which was made in the assessment proceedings. The assessee as submitted that the debtors were farmers and they were dealing with him when he was running commission business. The payments were actually received from them which were outstanding since long. However, those debtors denied to have made these payments just to avoid enquiries by the Income Tax Department of the source of these payments.

The Tribunal noted that the said explanation was found to be not tenable leading to the addition which was sustained by the CIT(A) also.

The Tribunal opined that the explanation of the assessee may not be sufficient for deleting the addition on merit, however, as far as the penalty proceedings are concerned, in the peculiar facts and circumstances of the present case, the assessee had explained that these farmers have avoided being present being reluctant to come before the AO and face questions and thus, he had not been able to persuade them.

Accordingly, the Tribunal considering the peculiar facts and circumstances, opined that the said explanation deserved to be accepted and the penalty was directed to be deleted.

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