The Rajasthan High Court has upheld a penalty imposed under Section 271(1)(c) of the Income Tax Act, confirming that the unexplained cash deposits were correctly added by the income tax department after considering the withdrawal benefits granted.
Justice Shubha Mehta and Justice Avneesh Jhingan observed that “The addition of the cash deposits was made after deducting the withdrawal relying upon the material available with the department and after considering the explanation of the appellant.”
Vinod Singh, the appellant, challenged the penalty in an appeal filed under Section 260A of the Income Tax Act, 1961, against the Income Tax Appellate Tribunal’s order that dismissed his appeal and upheld the penalty.
The case pertains to the assessment year 2010-2011, where the appellant initially filed a return showing an income of Rs.1,45,245. During scrutiny, it was found that Rs.25,85,000 had been deposited in the appellant’s savings bank account with Standard Chartered Bank.
Following an assessment on March 19, 2013, an addition of Rs.15,79,000 was made, as the appellant failed to explain the source of these deposits, despite considering benefits from withdrawals and opening balances. Additionally, interest of Rs.28,418 on the bank deposit and Rs.5,00,000 invested in shares and mutual funds were also added to the income.
The Commissioner of Income Tax (Appeals)[CIT(A)] partially allowed the appeal, upholding the addition of unexplained cash deposits and bank interest but granting relief on the share and mutual fund investments.
Despite this, the penalty proceedings under Section 271(1)(c) led to a penalty of Rs.6,50,000 on March 14, 2016. Subsequent appeals before the first appellate authority and the Tribunal were dismissed, leading to the current appeal.
The appellant’s counsel argued that the additions were made on an estimated basis using the peak balance method, thus challenging the sustainability of the penalty.
Conversely, the department’s counsel defended that the additions had attained finality and were based on unexplained cash deposits after considering the withdrawals. It was also pointed out that the appellant had not declared the bank deposits and the interest accrued.
The bench observed that the appellant did not file income tax returns for years preceding AY 2010-2011 and had deposited Rs.12,75,000 in cash into the bank account between June 11, 2009, and June 19, 2009, without withdrawals during that period.
It further noted that the appellant had not declared these deposits in the Standard Chartered Bank or the interest earned, and the addition made was based on the available material and after considering the appellant’s explanations.
The High Court noted that the contention raised by the appellant that the addition has been made on presumption is ill-founded. Thus, the court dismissed the appeal citing that no question of law much less substantial question of law is involved.
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