Assessee gets ‘Benefit of Doubt’, ITAT deletes Penalty [Read Order]

In the Case, Urvi M. Kothari vs Income Tax Officer (ITO), Ahmedabad bench of Income Tax Appellate Tribunal (ITAT) recently held that Assessee gets the ‘benefit of the doubt’ and also deleted the penalty imposed by the Assessing Officer (AO).

The assessee in the present case is an individual has filed his return of income for the relevant assessment year and declared a total income at Rs. 3,78,850. While completing the assessment under section 143(3) of the Income Tax Act 1961, the Assessing Officer (AO) recomputed the total income of the Assessee at Rs. 36,11,254 and he has made an addition of Rs. 32,32,404 on account of unexplained investment from undisclosed sources regarding the payment received towards the services rendered by the Assessee. Penalty proceedings under section 271(l)(c) of the Act were also initiated by the AO.

On appeal, CIT(A) dismissed the appeal filed by the Assessee and confirmed the penalty imposed by the AO. However, Assessee carried the matter before the Tribunal on further appeal.

Before the bench counsel for the Assessee Advocate Urvashi Sodhan submitted that there is no dispute in the regard that the Assessee entered into agreements with various parties but the contracts were terminated before the expiry of the contract period and the Assessee had not received or accrued any payment towards the services rendered. Out of five parties agreement in respect of three parties were expired and there was no agreement with the remaining parties. As per the AO, the agreed amount was Rs.32,32,404 and the AO made the addition of the same as undisclosed income only on the basis of assumption and without made any enquiry.

After analyzing the above-narrated facts and circumstances, the Tribunal bench comprising of Judicial Member Mahavir Prasad and Accountant Member Pradip Kumar Kedia observed that “the finding of the lower authorities are ill-founded and cannot be sustained. As no contrary material has been placed by the Revenue and gathered any material by making enquiry in this respect and there was a fact existing in the present case is that the AO made the addition only on an assumption basis”.

The division bench further observed that “there is sufficient ambiguity exist in the interpretation of cancellation agreement. Therefore the benefit of the doubt should be given to the assessee and discretion for non-imposing the penalty should be exercised in favour of the assessee”.

Consequently, the bench directed the AO to delete the penalty imposed by him under Section 271(l)(c) of the Income Tax Act.