Absence of Concealment or Inaccurate Particulars Bars Penalty u/s 271(1)(c): ITAT [Read Order]

The Agra Bench of the Income Tax Appellate Tribunal (ITAT) held that in the absence of concealment of income or furnishing of inaccurate particulars, penalty under Section 271(1)(c) of the Income Tax Act, 1961, cannot be levied.

The assessee, a partnership firm engaged in contract work for the Public Works Department, declared its business income by applying the presumptive taxation provisions of Section 44AD of the Income Tax Act, 1961. The assessee disclosed business income of ₹1,90,000 and claimed deduction of interest paid to partners amounting to ₹9,00,395, resulting in a business loss of ₹7,10,395. In addition, the assessee earned interest income on fixed deposits amounting to ₹6,30,895, which was offered to tax under the head “Income from Other Sources.” Consequently, the assessee returned a total loss of ₹79,500.

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During assessment proceedings, the Assessing Officer observed that the assessee had made cash deposits of ₹11,13,000 in its bank account. Further, Form 26AS reflected total receipts of ₹28,93,261. The return of income filed on 03.03.2015 declaring nil income was treated as non est by the Assessing Officer.

On appeal, the Commissioner of Income Tax (Appeals) noted that the assessee had not maintained books of account and was therefore eligible to avail the presumptive taxation scheme under Section 44AD of the Income Tax Act, 1961. The Commissioner held that only 8% of the gross business receipts of ₹28,93,261 was liable to be taxed under Section 44AD and accordingly deleted the balance addition of ₹26,61,800. However, penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961 were initiated.

Before the Tribunal, the assessee submitted that out of the total receipts of ₹28,93,261 reflected in Form 26AS, an amount of ₹5,65,022 represented interest earned on fixed deposits and could not be treated as business receipts arising from the contract business. It was further pointed out that the assessee had already offered interest income of ₹6,30,895 separately under the head “Income from Other Sources” in its return of income.

The Tribunal of M. Balaganesh, Accountant Member observed that “It is not the case of the revenue that the withdrawals by the assessee have already been spent for personal or business purposes by the assessee and that the same is not available as a cash source for explaining the cash deposit. Hence, there cannot be any allegations of concealment of income or furnishing of inaccurate particulars of income qua the assessee warranting levy of penalty under Section 271(1)(c) for the addition of Rs. 11,13,000/-.”

Accordingly, the Tribunal held that there were no grounds for the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961. It concluded that the assessee had neither concealed income nor furnished inaccurate particulars in respect of the addition of ₹11,13,000, and therefore the penalty was not sustainable.

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