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March 29, 2022

Without proving concealment by assesse AO cannot impose penalty

by Mahesh Mara in Income Tax

Without proving concealment by assesse AO cannot impose penalty

Fact and Issue of the case

This is an appeal filed by the assessee directed against the order of the National Faceless Appeal Centre, Delhi (hereinafter called as ‘NFAC’) dated 26.11.2021 penalty of Rs.3,87,000/- levied u/s. 271 (1) (c) of the Income Tax Act, 1961 (in short ‘’the Act”) for the Assessment year 2010-11.

The brief facts of the case are the Johdinda Bhojpura Gram Sewa Sahakari Samiti Limited is a Co-operative Society is doing business of trading  of food grain and fertilizer and of mini banking and is also modal agency for payment under NAREGA, certificate for registration under Co-operative  Society and mini bank kept on record.

Taxable income of Co-operative Society for Assessment Year 2010-11 was below taxable limit therefore it has not filed any return of income of A.Y 2010-11.

The Sahakari Samiti is engaged in trading of food grain and fertilizers  and also doing work of mini bank. The Sahakari Samiti is also nodal agency for payments made under NAREGA. During the F.Y 2009-10 the Sahakari Samiti has received sum of Rs. 1,81,36,602/- from Government for payments to be made to workers under NAREGA, copies of few sanction letters is enclosed  here with. For making payments to workers Sahakari Samiti withdraws cash from bank in lumpsum and at the end of day or a period surplus amount, if any, remains with deposited back in Bank account.

For distributing the sum so received amongst the workers under Narega Scheme, during the F.Y 2009-10 the Sahakari Samiti has withdrawal sum of Rs. 2,24,27,500/- from bank, through its employee Shri Mahaveer and Shri Madan Lal. Out of withdrawals made excess sum remains in hand is deposited back in bank and during F.Y 2009-10 the Samiti has deposited sum of Rs. 12,51,000/- only, copy of bank account is enclosed herewith for your perusal. We are also submitting herewith the copy of financial statement of Sahakari Samiti of the F.Y 2009-10.

Accounts of Sahakari Samiti are also under audit of Registrar Co- operative Societies. The Registrar Co-operative Society has  audited  the accounts of F.Y 2009-10. Copy of it report is also enclosed herewith.

Since the Sahakari Samiti has deposited cash out of cash withdrawal  from and has neither concealed any income nor has furnished inaccurate particulars of income therefore penalty imposed u/s 271(1)(c) on assessee  should be delete.

The Assessing Officer also initiated penalty proceedings u/s 274 r.w.s. 271(1)(c) of the Act for concealing of particulars of income. The assessee offered the explanation in respect to the show cause notice stating that mere wrong claim does not amount to concealment of particulars of income or furnishing inaccurate particulars of income.

Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee has reiterated arguments in written submission in letter dated 09.02.2021 in page Nos  2 to 5 of the order. The CIT(A) for the reason stated in his appellant order  has  rejected arguments and submissions made by the assessee.

The Ld CIT (A) observed that the assessee has deposited cash into bank account and no explanation has been provided for the same and it is clear that the assessee has failed to justify its contention. Accordingly the penalty has  been correctly levied on the cash deposited into the bank account and the same is unexplained as the assessee as furnished inaccurate particulars of income through which reduced the income for tax. The Ld CIT (A) relied on the decisions of Hon’ble Supreme Court in the case of Union of India Vs Dharmendra Textile Processors (2008 ) 13 SCC 369 and in the case of CIT Ahmadbad Vs Reliance Petroproducts (P) Ltd (2010) 189 Taxman 322. Further CIT (A) obesreved that no further cogent evidences arguments have been put forth by the assessee during the course of penalty proceedings and it is quite clear that the assessee has furnished inaccurate particulars of income and that  the assessing officer was justified in levying the penalty u/s 271(1)(c) and dismissed the assessee appeal.

Aggrieved by the CIT(A) order, the assessee is in appeal before us. Before the CIT (A), the assessee has reiterated it that his submissions and which was not taken on record by the CIT (A). before us the Ld AR for assessee submitted a detailed Written submissions.

The Ld AR for assessee submitted that all the evidences were furnished by the assessee before the CIT (A)/NFAC relating to deposit of cash.  He  further submitted that the assessee in his letter dated 22.07.2021 duly explained the source of cash deposit .The Bank  statements and Bank certificate which  was enclosed in paper book. Further the Ld AR for assessee submitted that the taxable income of co operative Society for Assessment Year 2010-2011was below taxable limit therefore it has not filed any return of income for AY 2010- 2011. Further he submitted that a copy of audited report was provided during  the proceedings.

The Ld. DR, on the other hand strongly supporting the order of the CIT(A) submitted that there is no merit in arguments taken by the  Ld. AR of  the assessee and the AO has rightly taken has a fit case for imposition of  penalty U/S 271(1)c.

Observation of the court

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The Ld AR for assessee submitted documentary evidence in the compilation of Paper Book and Written submission before us.

The AO has failed to consider the fact that all the notices were send by speed post and have been received by member of Sahakari  Samiti.  He explained that the members who received those notices failed to communicate the same to the executives of Sahakari Samiti.Where they could not comply with any notices issued by the Ld AO. In our opinion, considering the facts and circumstances of the case, the AO has erred in passing Ex-party order without giving opportunity to the assessee in furnishing  the documentary  evidences. The AO has not verified whether the notices sent was received by the assessee. If the disclosure of facts is incorrect or false and to the knowledge of the assessee and it is established, then such disclosure cannot take it out from the purview of the act of concealment of particulars or furnishing inaccurate particulars, thereof for the purpose of levy of penalty. The penalty u/s 271(1)(c) is liveable, if the Assessing Officer is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In the present case, the AO passed ex-parte order and has levied penalty for concealment of such income or non furnishing of particulars u/s 271(1)(c). Rightly pointing the issue is that the assessee has not replied or non compliances for the notice issued by the AO, where the penalty should be levied u/s 271(1)(b).

The learned Commissioner of Income-tax (Appeals) erred in holding  that penalty u/s 271(1)(c) is liveable. It is submitted that the facts and circumstances of the case that there is neither concealment of income nor furnishing of any inaccurate particulars and hence provisions of section 271(1)(c) is not applicable without considering the evidences furnished before the CIT(A).

The learned Commissioner of Income-tax (Appeals)  erred  upholding the order by the AO, Where the assessee made an attempt to explain and submitted detailed written submissions before CIT(A) and produced the evidences of Bank Accounts, Bank certificate and details of cash deposits also.

The learned Commissioner of Income-tax (Appeals) erred in relying on the decisions of Hon’ble Supreme Court in the case of Union of India Vs Dharmendra Textile Processors (2008 ) 13 SCC 369 and in the case of CIT Ahmadbad Vs Reliance Petroproducts (P) Ltd(2010) 189 Taxman 322 ,which is not applicable to this instant case.

The learned Commissioner of Income-tax (Appeals) erred in upholding AO order rather it could have remand back to AO for assessing of Income.

Taking in consideration of the fact and circumstances and evidences furnished by the Ld AR for assessee before us. With careful consideration and perused the documents in Paper book (pages 1 to 37 pages) dated 14.02.2021 and Written submission dated 18.02.2022. There is no failure on part of the assessee in explaining the source of cash deposit, the Bank Statement, Bank certificate

The learned Commissioner of Income-tax (Appeals) erred in not considering the assessee submission that the quantum appeal is pending before the CIT (A). It is well-settled that assessment proceedings and penalty proceedings are separate and distinct and as held by the Supreme Court in the case of Ananthraman Veera singhaiah & Co.Vs. CIT [1980] 123 ITR 457, the finding in the assessment proceedings cannot be regarded as conclusive for the purposes of the penalty proceedings. It is, therefore, necessary to reappreciate and      reconsider the matter so as to find out as to whether the addition made   in the proceedings actually represents the concealment on the part of the assessee as envisaged in section 271(1)(c) and whether it is a fit case to impose the penalty by invoking the said provisions.

We find that there is no finding of the AO based on some contradictory evidence to disapprove that explanation offered by the assessee was false or the assessee was not able to substantiate the explanation furnished or fails to prove that such explanation is not bona fide and that all the facts relating to the same and material to the computation of his total income has not been disclosed by him. Therefore the order on the CIT(A) is accordingly set aside and thus penalty u/s 271(1)(c) levied by the AO is not in accordance with law therefore same is cancelled.


The Court allowed the appeal of assesse.

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