Penalty u/s 271B treating cash deposits in bank as turnover u/s 44AB upheld by Tribunal

Penalty 271B treating cash deposits in bank as turnover u/s 44AB upheld by Tribunal when assessee could not explain source of deposit in bank accounts 

The instant appeals were filed by the assessee against the order of the CIT(A) confirming the penalty levied under section 271B of the income tax act 1961 (the Act).

ABCAUS Case Law Citation
ABCAUS 2373 (2018) 06 ITAT

During the course of a search operation at the office and residential of the appellant assessee, it was found that he along with other persons had made huge cash transactions for the last several years in the more than 66 different firms and concerns operated from several addresses. None of the firms was found existing there neither at the time of the search or at the time of assessment proceedings. Therefore notices under section 153A were issued for filing return of income to the assessee and consequently assessment was completed by adding cash deposits in bank account as unexplained income of the assessee u/s 69 of the Act.

The Assessing Officer (AO) treated the cash deposits in bank as turnover of the assessee and since it was more than amount specified under section 44AB of the act, notice under section 271B was issued. The assessee submitted that he was a commission agent and his turnover could not include turnover on behalf of his principals, therefore the penalty under section 271B cannot be levied.

The AO rejected the submission of the assessee as he could not show any principal. The AO was of the view that since the gross receipts or credits in the bank account exceeded the prescribed limit under section 44 AB of the act the assessee was supposed to get his accounts audited. Accordingly the AO levied penalty u/s 271B of the Act calculated at the rate of 0.5% of the turnover.

Before the CIT (A), the assessee reiterated the same submissions stating that he was not carrying any business or profession and further submitted that the assessee cannot anticipate any addition and then file the tax audit report. He therefore requested for the deletion of the penalty.

The CIT (A) held the AO had levied penalty under section 271B by giving a finding that the undisclosed deposits in the bank represented the turnover of the appellant. He further stated that the explanation given by the assessee was not correct and was evasive. He further held that the claim of the assessee that he had not carried on any business or profession cannot be accepted because he was not able to come out with any committal reply regarding the source of deposits before the AO. He therefore confirmed the penalty.

The Tribunal observed that penalty us/ 271B could only be not levied if the AO was shown a reasonable cause for such failure by the assessee. In the instant case, the amount deposited in the bank account of the assessee was treated as the turnover of the assessee as he had failed to explain the source of such cash deposits.

It was observed that the assessee had merely given an explanation that he was a commission agent and the money belongs to the principle. However, he did not specify who the principles are and who are the beneficiaries of the cheque issued from that bank account. The assessee explained that he cannot anticipate the addition to be made by the Income Tax Officer and therefore the accounts were not audited. The Tribunal opined that the explanation had rightly been rejected because the assessee was found to be depositing huge cash in his bank accounts and therefore it was his duty to explain the source of cash deposit in bank accounts which he failed to do so, and therefore they had been taxed in the hands of the assessee, even otherwise the above explanation could not stand the test of reasonable cause because it was the duty of the assessee to show that amount credited in the bank account in cash in such a huge magnitude came from where and whom the cheques were issued after depositing such Cash.

The Tribunal opined that in view of the facts described by the AO in the penalty order, the assessee along with others was operating more than 66 concerns from the address, which were not found existing. Therefore, the activities of the assessee were dubious and did not inspire any confidence in the explanation given by the assessee.

The Tribunal held that as the amount credited in the bank account of the assessee was higher than the maximum amount specified under section 44AB of the act,  there was a clear-cut default without reasonable cause committed by the assessee for not getting his accounts audited under section 44AB of the income tax act leviable for penalty under section 271B of the income tax act.

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