RAVINDRA REDDY PALLAVALLI, HYD,HYDERABAD vs. ITO, WARD-8(2), HYDERABAD, HYDERABAD

Brief facts of the case are that the assessee, an individual, deriving income from commission and sub-contracts, filed his return of income for the A.Y 2009-10 on 26.03.2010 declaring a total income of Rs.2,85,000. During the assessment proceedings u/s 143(3) of the Act, the AO required the assessee to file certain information particularly, with regard to the deposits into the Bank A/c of the assessee in ING Vysya Bank Ltd, Khairatabad Branch, Hyderabad and also the sources for purchase of plot No.70 admeasuring 1000 sq. yards in survey No.41/Part & 43 situated at Bandlaguda Jagir Village. The

In response to the show-cause notice, the assessee filed a letter dated 21.09.2011 stating that he is a small contractor and is executing small work and the amounts deposited in the Bank A/c are nothing but the money received from his family members who are agriculturists and also that he has given loans to the farmers and the same were collected during the year. He also filed statements and cash flow statements before the AO. The AO, was however, not satisfied with the explanation given by the assessee. The assessee therefore, came forward to admit an additional income of Rs.15.00 lakhs and promised to pay taxes. As the assessee voluntarily admitted, the assessment was completed bringing Rs.15.00 lakhs also to tax. The assessee accepted the said assessment and did not file any appeal before the CIT (A).

Thereafter, the AO initiated the penalty proceedings u/s 271(1)(c) of the Act. Relying upon the judgment of the Hon'ble Karnataka High Court in the case of CIT vs. Sangameshwara Associates, wherein it was held that despite the income being offered by the assessee in the return of income filed in response to the notice u/s 148, it attracts the levy of penalty u/s 271(1)(c) of the Act, the AO levied the minimum penalty of Rs.4,90,000. Aggrieved, the assessee preferred an appeal before the CIT (A) who confirmed the order of the AO and the assessee is in second appeal before us by raising the following grounds of appeal:

The learned Counsel for the assessee submitted that the assessee had admitted additional income because the assessee did not have the necessary confirmation letters from the parties and the AO has brought the same to tax on voluntary admission of the assessee. He submitted that the penalty proceedings u/s 271(1)(c) of the Act are attracted only when there is concealment of income or furnishing of inaccurate particulars of income. According to him, the AO has not been able to find any positive evidence to hold that the assessee has furnished any inaccurate particulars of income or has concealed his income. Therefore, according to him, the penalty is liable to be deleted.

The learned DR, on the other hand, supported the orders of the authorities below and submitted that the assessee has admitted the additional income only when he was confronted and directed to produce the necessary evidence to substantiate his claim during the assessment proceedings. He submitted that the voluntary disclosure of higher income also attracts penalty u/s 271(1)(c) of the Act and relied upon the decision of the Hon'ble Karnataka High Court in the case of CIT vs.

Having regard to the rival contentions and the material on record, I find that the penalty u/s 271(1)(c) of the Act is leviable for concealment of income or furnishing of inaccurate particulars of income. In the case before us, the assessee was directed to explain the sources for the deposits into his Bank A/c and the assessee had explained that these are the amounts given to him by the family members and also the loans returned by some of the farmers to whom he had advanced the loans earlier. The assessee also filed statement before the AO. It is the case of the assessee that he could not substantiate such claim and therefore, he offered the additional income of Rs.15.00 lakhs. As rightly pointed out by the learned Counsel for the assessee, the AO has disbelieved the statement of the assessee and it is not proved that the statement given by the assessee is false or incorrect. It is settled law that every addition will not automatically attracts penalty. In the absence of any evidence that the assessee has furnished inaccurate particulars or has concealed his income, I do not agree with the penalty order passed by the AO and confirmed by the CIT (A). The decisions relied upon by the learned DR are distinguishable on facts. In the case of MAK Data (Supra), there was a survey u/s 133A on the assessee and certain documents were impounded, but the

In the case of CIT vs. Sangameshwara Associates (Supra), the Hon'ble Karnataka High Court was dealing with the case of an assessee, who had disclosed the income pursuant to a search conducted at the premises of the assessee, and it was held to be concealment of income, even in a situation where the assessee had filed a return after the search but before the receipt of a notice. The case before us is not a case of search or survey, but is a case of regular assessment, where the assessee was asked to explain the sources of cash deposits into his bank a/c and on not being able to substantiate the same, offered Rs.15.00 lakhs as his income. In my opinion, the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts reported in (2010) 322 ITR 0158, is applicable to the facts of the case before me. The Hon'ble Supreme Court had held that even an incorrect claim in the return of income will not amount to concealment of income or furnishing of inaccurate particulars of income. The relevant paragraphs are reproduced hereunder for ready reference: “7. As against this, Learned Counsel appearing on behalf of the respondent pointed out that the language of Section 271(1)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It

Respectfully following the same, the grounds of appeal of the assessee are allowed. 11. In the result, assessee’s appeal is allowed.