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Facts
The appellant was aggrieved by a penalty levied under section 271(1)(c) for not explaining the source of cash deposits of Rs. 31,50,001/-. The appellant, a small trader dealing in hardware tools, claimed not to maintain books of account due to a turnover below Rs. 40 lakhs. The ITAT confirmed the addition made by the AO, stating no proof of business was provided.
Held
The Tribunal held that the penalty was not leviable. The appellant consistently maintained a stand of being a small businessman, admitting a profit of Rs. 1.5 lakhs on a turnover of Rs. 31.5 lakhs. The Revenue treated all cash deposits as income without considering withdrawals. Reliance Petroproducts case was deemed applicable, and the appellant had already paid tax and interest on the deposits.
Key Issues
Whether the penalty under section 271(1)(c) is leviable when the assessee is a small businessman who has declared income based on an estimate of profit on turnover, and not in the nature of concealment.
Sections Cited
271(1)(c)
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Income Tax Appellate Tribunal, Mumbai “B” Bench, Mumbai.
Before: Shri Pavan Kumar Gadale (JM) & Shri Omkareshwar Chidara (AM)
In the above cited appeal of the appellant, the appellant was aggrieved by penalty levied by the learned Assessing Officer (Ld. AO for short) u/s. 271(1)(c) of the Income Tax Act (the Act for short) for not explaining the source of cash deposits in his bank account to the extent of Rs. 31,50,001/-. The explanation of Ld. AR of the appellant that the appellant is a small trader dealing in hardware tools and not maintained books of account as he was not required to maintain the same as the turnover of the business is less than Rs. 40 lakhs. The appellant has stated during the appeal proceedings before the ITAT that he filed return of income admitting an income of Rs. 1,45,370/- and no books of account were maintained. But, not satisfied with the explanation of appellant, the Hon'ble ITAT confirmed the addition made by the Ld. AO and confirmed by the learned Commissioner of Income Tax (the
2 Murtuza Kutubbudin Khambati Ld. CIT(A) for short) stating that there is no proof of any business done by appellant and hence all cash deposits were treated as income.
As the addition was confirmed by Hon'ble ITAT, penalty was levied by the Ld. AO u/s. 271(1)(c) of the Act reiterating the stand of the Department taken at the time of assessment. The Ld. CIT(A) also confirmed the penalty imposed by the Ld. AO, stating that there is no proof of business done by the appellant.
Aggrieved by the penalty order confirmed by the Ld. CIT(A), the appellant filed an appeal before the ITAT, Mumbai with the following grounds of appeal:-
i) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the penalty U/s. 271(l)(c) of Rs.10,12,461/- on the ground that the appellant had furnished inaccurate particulars of income. ii) On the facts and in the circumstances of the case and in law, the learned C.I.T.(A) erred in rejecting the appellant submissions that in the absence of books of accounts being maintained by the appellant income was returned on estimate basis estimating income @ 3% on the total turnover of Rs.31,50,001/-, and, therefore, ought to have held that there was no furnishing of inaccurate particulars of income by the appellant. iii) On the facts and in the circumstances of the case and in law, the learned C.I.T.(A) erred in confirming the Assessing Officers finding that the provisions of Explanation 1 to section 271(l)(c) were applicable in the facts of the case as the Explanation given by the appellant was bonafide and true to the best of his knowledge.
During the hearing proceedings before the ITAT, the Ld. AR of the appellant has stated that originally the Income Tax Department informed him that there is a cash deposit of Rs. 3.51 crore in his bank account and asked him to explain the sources. Then, the appellant got the copy of bank account and established that the total deposits are only 31.5 lakhs. The appellant has been consistently taking a stand that he is a small trader doing the business
3 Murtuza Kutubbudin Khambati of hardware tools and not maintaining books of account and hence some estimate of profit on total turnover may be determined, but the Income Tax Department treated all the cash deposits as his income, without looking into consequent withdrawals from time to time. The Ld. AR of the appellant has also relied on the following cases-law : a) In the case of Reliance Petroproducts Ltd. 322 ITR 158 (SC), Hon'ble Supreme Court has held that making an incorrect claim does not amount to furnishing incorrect particular of income and hence will not automatically attract penalty. b) Non-acceptance of claim of appellant does not amount to furnishing inaccurate particulars and penalty is not leviable. Gieseke & Devrient India Pvt. Ltd. (TS 629-HC-2021 DEL).
In view of the above, penalty order confirmed by the Ld. CIT(A) may be reversed, submitted the Ld. AR of the appellant.
Ld. DR relied on the penalty order of Ld. AO and the Ld. CIT(A). It was argued by Ld. DR that since the highest fact finding authority, ITAT has confirmed the addition made by the Department, the penalty has to be confirmed.
After hearing both sides and pursing the assessment order, penalty order, ITAT order and cases-law on record, we are of the view that penalty is not leviable in the facts and peculiar circumstances of the case for the reasons mentioned below :- a) The appellant from the beginning taking a consistent stand that he is a very small businessman and not required maintain regular books of account as the turnover is below Rs. 40 lakhs and he has admitted the profit of approximately Rs. 1.5 lakhs, nearly 4% on the total turnover. This is a case of non-acceptance of appellant’s explanation, but not a case of Department’s action of finding out any concealment. b) The Revenue has not considered the withdrawals, but all the cash deposits were treated as income.
4 Murtuza Kutubbudin Khambati c) The case of Reliance Petrochem relied on by the appellant is applicable to him and penalty is not leviable. d) The appellant has paid tax of almost of Rs. 13 lakhs (with interest) on the total cash deposits of Rs. 31.5 lakhs. e) Originally, the Revenue has asked the appellant to furnish the cash deposits of Rs. 3.51 crores based o n AIR information. But, when the bank account was verified, cash deposits to the extent of Rs. 31.5 lakhs only was made by the appellant.
In view of the above, the penalty levied by the Revenue is deleted.
The appeal of the appellant is allowed.
Order pronounced in the open court on 30th September, 2024.