No penalty can be imposed u/s 271(1)(c) on preponderance of probabilities – ITAT

No penalty can be imposed u/s 271(1)(c) on preponderance of probabilities and Revenue has to prove that claim of expenses was not genuine or was inflated to reduce its tax liability

ABCAUS Case Law Citation:
ABCAUS 3157 (2019) (09) ITAT

Important case law relied upon by the parties:
Hindustan Steel Limited Vs. State of Orissa reported in 83 ITR 26

No penalty on preponderance of probabilities

In the instant case, the appeal was filed by the assessee against the order of Commissioner of Income Tax (Appeals) in confirming the penalty levied by Assessing Officer u/s. 271(1)(c) of the Income Tax Act, 1961 (the Act).

The assessee was an individual having income from business, salary and capital gains etc. The return of the assessee was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act inter-alia by making addition on account of income from interest on FDRs.

The AO noted that in the return of income filed by the assessee he had not offered income on account of interest income relating to FDRs. However during the course of assessment proceedings, assessee offered the interest amount to tax and also paid the taxes on such interest.

The AO was of the view that not offering the amount of income from FDRs to tax in the return of income filed by the assessee would attract penalty u/s 271(1)(c) of the Act. Accordingly, he levied penalty u/s 271(1)(c) of the Act for concealing the particulars of income.

Aggrieved by the order of AO, assessee carried the matter before CIT(A), who dismissed the appeal of the assessee. Aggrieved by the order of CIT(A), assessee was in appeal before the Tribunal.

The assessee inter-alia submitted that specific charge as to whether it was concealment of income or a case of furnishing of inaccurate particulars of income had not been mentioned in the assessment order but however in the penalty order, penalty has been levied on account of concealment of the particulars of income.

It was further stated that assessee inadvertently skipped the inclusion of interest income of FDRs in the return of income and that there was no malafide intention to hide the income more so when the bank accounts of the assessee had been disclosed in the return of income.

The assessee therefore relying on the decision of the Hon’ble Apex Court submitted that the penalty levied by the AO be deleted.

The Tribunal observed that the necessary ingredients for attracting Explanation-1 to Section 271(1)(c) are that:

(i) the person fails to offer the explanation, or

(ii) he offers the explanation which is found by the AO or the CIT(A) or the CIT to be false, or

(iii) the person offers explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same have been disclosed by him.

If the case of any assessee falls in any of these three categories, then according to the deeming provision provided in Explanation-1 to Section 271(1)(c) the amount added or disallowed in computing the total income shall be considered as the income in respect of which particulars have been concealed, for the purposes of clause (c) of Section 271(1), and the penalty follows. On the other hand, if the assessee is able to offer an explanation, which is not found by the authorities to be false, and assessee has been able to prove that such explanation is bona fide and that all the facts relating to the same have been disclosed by him, then in that case penalty shall not be imposed.

The Tribunal stated that a case for levy of penalty for concealment of income has to be evaluated in terms of provisions of Explanation 1 to Section 271(1)(c).

No penalty on preponderance of probabilities

The Tribunal also pointed out that it is well settled that the parameters of judging the justification for addition made in the assessment case of the assessee is different from the penalty imposed on account of concealment of income or filing inaccurate particulars of income and that certain disallowance/addition could legally be made in the assessment proceedings on the preponderance of probabilities but no penalty could be imposed u/s. 271(1)(c) of the Act on the preponderance of probabilities and Revenue has to prove that the claim of expenses by the assessee was not genuine or was inflated to reduce its tax liability.

The Tribunal noted that the assessee had given the reasons for not offering the interest income relating to FDRs to tax but however during the course of assessment proceedings, assessee offered the interest amount to tax and also paid the taxes on such interest. The submissions had not been controverted by the Revenue nor found to be untrue.

Considering the totality of the facts, the Tribunal opined that no case for levy of penalty u/s. 271(1)(c) of the Act had been made out.

Accordingly, the Tribunal directed the deletion of penalty u/s. 271(1)(c) of the Act.

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