No 271(1)(c) Penalty on Peak Credit Additions: ITAT Deletes Penalty After Quantum Relief on Estimated Basis

Santosh Kumar Burnwal Vs ITO (ITAT Kolkata)

No 271(1)(c) Penalty on Peak Credit Additions: ITAT Deletes Penalty After Quantum Relief on Estimated Basis

The Kolkata ITAT deleted penalty levied under Section 271(1)(c) after holding that once quantum addition itself is restricted on the basis of peak credit theory and estimated computation, penalty for concealment or furnishing inaccurate particulars cannot survive.

The assessee, Santosh Kumar Burnwal, had originally faced addition of ₹1.70 crore on account of unexplained cash deposits in an ICICI Bank account. During appellate proceedings, the assessee explained that he was acting as a middleman and the deposits largely represented funds belonging to clients from whom he collected cash for onward transactions. Details of 24 persons were also furnished before the authorities.

The CIT(A), after examining the facts in the quantum proceedings, applied the peak credit theory and drastically reduced the taxable addition to only ₹2.87 lakh. Based on the reduced peak credit addition, the Assessing Officer nevertheless levied penalty of ₹39,478 under Section 271(1)(c), alleging concealment of income.

The Tribunal held that where income is ultimately determined on estimated basis by applying peak credit theory, it cannot automatically lead to penalty proceedings for concealment or furnishing inaccurate particulars. The ITAT relied upon the Chennai Tribunal ruling in ITA No.728/2023, wherein it was held that estimated peak-credit additions do not justify levy of penalty under Section 271(1)(c).

Observing that the facts of the present case were substantially similar, the Tribunal concluded that the assessee’s explanation had been substantially accepted in the quantum proceedings and the final addition itself rested merely on estimation. Accordingly, the entire penalty was deleted.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This appeal filed by the Assessee is directed against the order dated 14.02.2023 of the National Faceless Appeal Centre (NFAC) passed under Section 271(1)(c) of the Assessment Year 2009-10 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).

2. At the very outset, it appears from the Registry the instant appeal has been filed by the assessee after a delay of 826 days. To condone the delay assessee has filed a petition supported with an affidavit. The gest of the affidavit is as below: –

That the honest and bona fide reason of said delay is though the appellant received the said appellate order on dt. 28/04/2023 only academically since no mail or msg intimations were received by the appellant about the passing and service of said appellate order in the e filing portal of the appellant. The veracity of said honest contention of the appellant is self-proven from the appellant past record of high sincerity by attending and complying both the penalty as well as the quantum appellate proceeding and furnishing all the requisitions of the Ld. Appellate authorities time to time culminated in to the big tax relief obtained by the appellant in the first quantum appeal in the Ld. CIT (A). Appellant came in to the knowledge about the passing and service of impugned appellate order only after receiving the tax and penalty recovery demand notice u/s 220(2) issued on dt. 10/09/2025 vide msg nd mail intimation first time as well as tax, penalty recovery phone call from the departmental officials and started to take necessary action for expeditious filing of the Second appeal before the Honble ITAT then and there. Therefore, there has been no wilful of culpable negligence on appellant part for said delay. All are due to technical glitches of the departmental digital system and mobile tower problem in my remote colliery mining areas.

3. The Ld. DR did not oppose the condonation petition. Keeping in view, the catena of decision that a case should be decided on merit not on technical issue and considering the facts mentioned in the affidavit delay is hereby condoned.

4. The brief facts of the case of the assessee is that assessee filed its return of income for the assessment year 2009-10 declaring total income of Rs. 14,99,30/-. The case was selected for scrutiny on account of information about cash deposit made in the ICICI Bank. An assessment order was passed by making an addition of Rs. 170,22,950/- unexplained cash deposit and penalty proceeding U/s 271(1)(c) was initiated for showing inaccurate particulars of income. Aggrieved by the order assessee preferred appeal before the CIT(A) wherein appeal of the assessee has been partly allowed directing the Assessing Officer to recompute the income of the assess by taking peak credit in the said bank account and as per the CIT(A) the peak credit stands at Rs. 2,87,166/- only. By giving effect to the order, AO has initiated a penalty proceeding by levy the penalty of Rs. 39,478 U/s 271(1)(c) of the Act.

Aggrieved by the said order assessee preferred appeal before the CIT(A) wherein appeal of the assessee has been dismissed.

Being aggrieved by and dissatisfied the assessee preferred appeal before us.

5. The Ld. AR challenges the very impugned order of penalty by submitting that penalty order passed U/s 271(1)(c) is illegal as no penalty could be imposed when CIT(A) by applying pick credit theory granted relief on estimated basis passed on the basis of details furnished by the assessee. The Ld. AR submits that provision of Section 271 (1) (c) has no application in the present facts of the case.He has placed reliance on the order passed by the ITAT Chennai Bench in ITA No. 728/2023.

Contrary to that Ld. DR supports the impugned order.

6. Upon hearing the submission of the counsel of the respective parties and on perusal of the impugned order, there is no dispute that in the present case during the assessment proceeding the assessee explained the deposit by stating that the amounts did not belong to him but it actually belong to his clients on his behalf he was acting as a middlemen for earning commission. The assessee has furnished a list of 24 person from whom he had collected cash on behalf of his clients and deposited it in the bank account during the period concerned. The CIT(A) after considering the submission made by the assessee during the proceeding in quantum appeal has held that the peak credits stand at Rs. 2,87,166/- only and AO has directed to recompute the assessee’s income accordingly. Assessing officers levied penalty at the 100% of tax sought to be evaded on the peak credit of Rs. 28,71,66/- and levied and penalty of Rs. 39,478/- we have gone through the cited decision and find that the Chennai Tribunal in ITA No. 728 has held thus:

6. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. During the course of assessment proceedings, the Assessing Officer noted that the assessee had a cash credit of t.25,00,000/- with BHEL Employees Cooperative Bank account and such credit was made on 03.02.2011. 04.02.2011, 08.02.2011 & 10.02.2011. Since the assessee has not offered any convincing explanation, the Assessing Officer added the entire sum of credit in the BHEL Employees Cooperative Bank account of t.25,00,000/- under section 69A of the Act. On appeal, by restricting the addition to the extent of t.12,73,250/-, the Id.CIT(A) added the peak credit of t.9,73,250/- to the declared income and moreover granted relief of 2.3,00,000/- being personal and house hold expenses, which was accepted by the assessee and no further appeal was preferred against the order of the Id. CIT(A). However, the Assessing Officer initiated penalty proceedings and levied penalty under section 271(1)(c) of the Act. which was confirmed by the Id. CIT(A).

6.1 Before us, the id. Counsel for the assessee has contended that by applying peak credit theory, the Id. CIT(A) has granted relief on estimated basis based on the details furnished by the assessee and therefore, there was no concealment of income or furnishing of inaccurate particulars and thus, the provisions of section 271(1)(c) of the Act has no application. We find force in the argument of the Id. Counsel.

Against the quantum addition, once the Id. CIT(A) has determined the unexplained cash credit by considering the peak credit amount deposited, which is nothing but an estimated credit, the Assessing Officer was not legally and factually correct to levy penalty under section 271(1)(c) of the Act. Accordingly, the penalty levied under section 271(1)(c) of the Act stands deleted.

7. In the result, the appeal filed by the assessee is allowed. Order pronounced on 28 July, 2023 at Chennai.

7. The facts of the case in hand is completely similar to the cited decision. In the present case also CIT(A) has allowed the appeal of the assessee by taking the peak credits. Respectively following the decision of the Chennai Tribunal we allowed the appeal of the assessee and penalty as imposed is here by deleted.

As a result, the appeal of the assessee is allowed.

Kolkata, the 15th May, 2026.