SMT. ISHRAT BEGUM,MEERUT vs. ITO, MEERUT

Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.

The relevant facts assessee that during the course of assessment proceedings the assessee was asked to explain the source of deposit of Rs.10,80,303 in her bank account. The assessee tried to explain by stating 2 that she is engaged in the business of purchase and sale of cloth. She had purchased clothes from one Mr. Azhar Khan to whom payment of Rs.7 lacs through cheque was made. The cash received from sale proceeds was thus deposited in her bank account. The Assessing Officer summoned Mr. Azhar Khan who in his statement stated that he never sold any cloth to the assessee. Thereafter, the assessee revised her return of income and offered Rs.5 lacs as additional income from gifts. The Assessing Officer thus treated Rs. 5 lacs surrendered by the assessee as her unaccounted income and initiated penalty proceedings and levied penalty under sec. 271(1)(c) of the Income-tax Act, 1961 at the rate of 300% resulting into Rs.3,12,477. The Learned CIT(Appeals) has restricted the same at the rate of 100% sustaining the penalty at Rs.1,04,159.

In support of the ground, the Learned AR submitted that the assessee is an illiterate lady doing purchase and sale of power loom cloth business on retail basis since financial year 2003-04. She had been filing her income-tax return for the assessment years 2005-05 & 2007-08. During the year, her accountant prepared statement of affairs on estimated basis. In the statement of affairs, the assessee had shown only business transaction. However, payment through cheques of Rs.3 lacs on 21.2.2009 and Rs. 4 lacs on 3 12.3.2009 were related to capital nature because the assessee had advanced the above cheque amount to her husband Shri Khurshid Alam who had purchased a house property in his own name. Both the above cheques were duly reflected in her saving account with ICICI Bank Ltd., Meerut. Due to misinterpretation, the assessee, however, explained that the above two cheques probably related to purchase of cloth. In absence of regular books of account, this mistake was done by assessee’s accountant by giving irrelevant explanation. The assessee, thereafter, corrected the mistake by filing revised computation of income, capital account, balance sheet and deposited challan of Rs.1,67,350. The Learned AR submitted that out of sale-proceeds of cloth, brought forward of capital and loan taken from Mr. Iqbal Mahmod at Rs.1,50,000, the assessee deposited Rs.10,80,303 in cash in her saving bank account with ICICI Bank Ltd., Meerut. He submitted that the assessee also withdrew most of the cash amount from her saving bank account for purchase of cloth. Thus, the assessee was not having any unexplained cash credit. It was thus requested that the return of the year may be treated as revised and accordingly income of the assessee shown at Rs.6,63,750 be accepted. The Assessing Officer accepted the revised return and assessed the total income at Rs.6,63,750 as offered by the assessee. Since the assessee herself had revised its return of income and had voluntarily surrendered Rs. 4 5 lacs on account of gift, hence, the assessed income should not be subjected to the levy of penalty under sec. 271(1)(c) of the Act. He placed reliance on the following decisions: i) CIT vs. Reliance Petro-products Pvt. Ltd. – 322 ITR 158 (SC); ii) CIT vs. Balbir Singh – 164 Taxman 65 ( P&H ); iii) K.C. Builders Vs. ACIT (2004) – 265 ITR 512 (SC); iv) CIT vs. Saran Khansari Sugar Works- 246 ITR 216 (P&H); v ) CIT vs. Ganesh Rice Mills – 12 Taxmann.com 274 (All.). vi) Northland Dev. & Hotel Corporation vs. CIT (2012) – 25 Taxmann.com 369 (SC).