Brief Facts of the Case
During assessment, the AO found 6 undisclosed bank accounts while scrutinizing the transactions in an undisclosed bank account as the said bank account had transfer entries to other 5 bank accounts.
In addition to assessing the undisclosed income to tax as the assesse was unable to disclose the source of deposit, the AO also levied penalty under section 271(1)(c) based on the peak balance in all the 6 bank accounts amounting to 1,33,400/- for Assessment Year 1991-92 and Rs 3,88,700/- for Assessment Year 1992- 93.
The assesse claimed that the AO had made an estimate of the peak balance for levying the penalty and penalty under section 271(1)(c) cannot be levied on estimate basis. The assesse also submitted that only 1 undisclosed bank account was found by AO and other 5 bank accounts were voluntary disclosed by assesse however while levying penalty the AO considered the peak balances of all the 6 bank accounts.
Question of Law
- Whether penalty under section 271(1)(c) should be imposed based on peak balance of all the 6 bank accounts or only 1 bank account which was found by AO, as the other 5 were voluntarily disclosed by assesse?
- Whether levy of penalty in the said circumstances will amount to levy of penalty on estimate basis?
Contention of the Assesse
The assesse submitted that finding of the AO that the source of deposit in said bank accounts was not explained by the assesse is not factually correct as it would be noticed from the assessment order itself that while explaining the modus operandi it was pointed out as under:- “With initial capital contribution of several persons named above I have made investment in shares and securities of funds initially contributed in cash is employed by way of cash deposits in different bank accounts particulars whereof are disclosed with the return…”.
The assesse also submitted that by letter dated 1-12-1995 he had brought to the notice of ADIT(INV) about the existence of further bank accounts and hence the other 5 bank accounts were voluntarily disclosed by the assesse. He also submitted that had the Dept. Knowledge about the same, they would have been referred to earlier by ADIT (INV) while recording applicant’s statement which was not done.
Cases relied upon:
