Case Law Details

Case Name : Naranbhai S.Patel. Vs ITO (ITAT Ahmedabad)
Appeal Number : ITA NO.1272 & 1273/Ahd/2011 M.A. No.144 & 145/Ahd/2014
Date of Judgement/Order : 19/06/2015
Related Assessment Year :
Courts : All ITAT (4348) ITAT Ahmedabad (328)

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

  1. 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?
  2. 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:

  • Murarilal Ratanlal Agarwal Vs. ACIT in IT(SS)A No. 573 & 615/Ahd/2012 Assessment Year 2004- 05 order dated 05.07.2013
  • Shri Ojas Ashokbhai Mehta Vs. ITO in ITA No. 296 & 297/Ahd/2013 Assessment Year 2008-09 order dated 23.08.2013.

Contention of the Revenue

The Department submitted that the six bank accounts with reference to which addition was made by the Assessing Officer were not disclosed by the assessee in its return of income. The source of deposit in the said bank accounts could not be explained by the assessee. In the above circumstances, the addition of peak balance in the said bank accounts cannot be held as an addition made merely on estimate basis without relevant materials. The two decisions relied upon by the Authorized Representative of the assessee are found to be distinguishable on facts in as much as in those cases penalty was levied only on difference between the peak balance declared by the assessee and the peak balance were estimated by the Department whereas in the instant case, the addition was made on actual peak balance in the bank account for which no plausible explanation about the source of the same could be given by the assessee. Therefore, such decisions are found to be not applicable in the instant case.

Further, the Department also submitted that the other five bank accounts which were also not disclosed in the return had transfer entries to the one undisclosed bank account which was already detected by the Department. Thus, the disclosure of the other five undisclosed bank accounts by the assessee cannot be held as voluntary disclosure by the assessee on the facts of the instant case. The disclosure came up because the Department already detected one undisclosed bank account which contained transfer entries of the remaining five undisclosed bank accounts.

Held by the ITAT

According to the Authorised Representative of the assesse, the assessee explained the source of deposit in its 6 undisclosed bank account and the same is evidenced by finding the disclosure mentioned in the assessment order. However, we find that no such observation is stated in either of the assessment orders for the two years which are under consideration. Thus we do not find any error in the order of the Tribunal in this respect.

We find that it is not in dispute that the undisclosed bank account which was detected by the department contains transfer entries to other 5 undisclosed bank accounts maintained by the assessee. In view of this fact the Tribunal concluded that the subsequent disclosure of the assessee of existence of the said 5 bank accounts cannot be held as voluntary. We do not find any error much less an apparent error in the above finding of the Tribunal.

Further, in the case lasws relied upon by the assessee the penalty was levied in respect of difference in peak deposit as disclosed by the assessee and peak deposit as estimated by the department in undisclosed bank account and in the instant case no penalty was levied in the difference between the peak deposit as disclosed by the assessee and peak deposit as estimated by the department.

We find that in those cases it was not at issue that whether penalty u/s. 271(1)(c) is leviable in respect of the income which has been added to the total income of the assessee on the basis of actual peak balance in undisclosed bank account which is the issue in the instant case before the Tribunal. In the instant case it was not the issue that there was difference in the peak balance as disclosed by the assessee and the peak balance as estimated by the Department and only in respect of the difference the penalty was levied by the Department under Sec. 271(1)(c) of the Act. Thus, we find no error in the finding of the Tribunal in this respect.

We therefore, do not find any merit in these Miscellaneous Applications of the assessee, accordingly the same are dismissed.

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Category : Income Tax (25355)
Type : Judiciary (10123)

0 responses to “271(1)(c) : Penalty can be imposed on undisclosed bank accounts based on peak credits theory”

  1. ketan says:

    Dear Sir,

    Govt. made it mandatory for all taxpayer if IT that to show all banks details.

    Pls let me know what if not showing all the banks details.

    BR,

    Ketan

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