No concealment Penalty if assessee’s explanation not found false, but not accepted on account of substantiation with solid evidences
ABCAUS Case Law Citation:
ABCAUS 2920 (2019) (05) ITAT
The assessee was in appeal before the Tribunal against the order of the CIT(A) in confirming penalty imposed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act 1961 (the Act).
The case of the assessee had been reopened. The assessment was made made after making addition on account of unexplained cash credit. The addition was challenged upto the Tribunal, and the Tribunal ultimately confirmed the same.
Against this confirmation, the AO initiated penalty proceedings under section 271(1)(c) of the Act. In the penalty proceedings, it was explained by the assessee that the assessee has not concealed income nor furnished any inaccurate particulars of income; that the impugned represented borrowal from friends and relatives for financing his son’s visa.
The assessee furnished details of lenders with supporting evidences. Statement of the lenders have also recorded by the AO and they confirmed advancing of loan to the assessee; they also produced evidence to show earning of income from agriculture produce.
However, the AO did not accept the contentions of the assessee and imposed penalty under section 271(1)(c) by rejecting confirmations filed by the depositors on the ground that depositors were not capable of advancing such sum.
Appeal before the CIT(A) did not bring any relief to the assessee, hence, assessee was before the Tribunal.
The Tribunal observed that a bare perusal of section 271 would reveal that for visiting any assessee with the penalty, the Assessing Officer or the CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has concealed his income or furnished inaccurate particulars of income.
The Tribunal further observed that the other most important features of the section is deeming provisions regarding concealment of income. The section not only coveres the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play.
The Tribunal noted that the deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations;
(a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or CIT (Appeal); and,
(b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails, to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income.
The Tribunal explained that under first situation, the deeming fiction would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the CIT(Appeals) by giving a categorical finding to the effect that explanation given by the assessee is false.
Whereas, in the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any fact material to the computation of total income and in addition to this the assessee is not able to prove that such explanation was given bona fide and all the facts relating to the same and material to the computation of the total income have been disclosed by the assessee.
The Tribunal pointed out that these two situations provided in Explanation 1 appended to section 271(1)(c) makes it clear that that when this deeming fiction comes into play in the above two situations then the related addition or disallowance in computing the total income of the assessee for the purpose of section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished.
In the case of the assessee, the Tribunal noted that the explanation of the assessee was not accepted in the quantum proceedings, as probably he failed to substantiate his explanation.
The Tribunal stated that it is settled position of law that when the evidences and explanation furnished by the assessee in support of cash credits are not acceptable by the department, then addition under section 68 can be made, but penalty under section 271(1)(c) of the Act is not automatic.
The Tribunal opined that the explanation of the assessee was not found to be false, but it could not be accepted on account of substantiation of his claim with help of some solid evidences.
Therefore, the Tribunal held that it was not a fit case for visiting the assessee with penalty. Accordingly, the appeal of the assessee was allowed and the impugned penalty was deleted.
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