Case Law Details
Brief of the Case
In the case of Radha Nutirents Ltd. Vs. ITO the Hon’ble ITAT held that the assesse has failed to provide the loan confirmation of the loan received from Shri Kathirase Kumar and was also unable to provide an explanation as to why such confirmation could not be filed. The submission of the assessee that the AO has not recorded satisfaction does not stand under the light of Section 271 sub-section 1B and also because the AO has clearly mentioned that the penalty has been initiated with reference to unsecured loan of Rs. 3,43,550/- raised from Shri Kathirase Kumar. Thus, it concluded that the AO has rightly penalty initiated u/s 271(1)(c) and the Ld. CIT(A) has rightly confirmed the same.
Facts of the Case
The assessee has raised various unsecured loans to the tune of Rs.1,11,94,359/-. On enquiry, it was found that no confirmation was received regarding the loan from Shri Kathirase Kumar from whom a sum of Rs.1,72,550/- and Rs.1,71,000/- was received on 29.3.2007 and 30.3.2007 respectively. The assessee could not file confirmation, etc. from this person. Therefore, unsecured loan amounting to Rs.3,43,550/- from Shri Kathirase Kumar was added to the income of the assessee under section 68 of the Income Tax Act . The penalty proceedings under sect ion 271(1) (c) of the Act were also initiated.
In reply to Show Cause Notice issued by the AO the assessee submitted that during assessment proceedings the assessee had produced the evidence that the payment has been received from the depositor who is residing at USA. The payment has been received through NEFT and banking channel and also attached the copy of the bank statement reflecting the same. Assessee also mentioned that during the assessment proceedings and thereafter it is continuously trying to contact the depositor who is an old friend of the son of the MD of the Company. The depositor shifted from USA to some other Country due to economic meltdown and the assessee came to know that he is in Australia. Assessee further mentioned that it is still trying to connect with the depositor but is unable to do so, so far.
Assessee mentioned that in order to cooperate with the department and to avoid further litigations it surrendered the amount subject to penalty. It was submitted that the assessee neither concealed any particulars of its income nor furnished inaccurate particulars of its income. The assessee has declared the cash credit in its Tax Audit Report and the said amount is also appearing in the Books of Accounts. In the view of the above the assessee prayed that the penalty proceedings may kindly be dropped or some more time be allowed to contact the depositor in order to collect the confirmation.
Contention of the Assessee
The ld. counsel of assessee submitted that the AO has not recorded satisfaction for initiating penalty proceedings. Further he reiterated explanation given during the penalty proceedings before the AO and the ld. CIT(A). It was emphasized that the assessee has given bonafide explanation and, therefore, penalty could not have been levied. He also relied upon the decision of the Hon’ble Calcutta High Court in the case of CIT Vs. Amalendu Paul (145 ITR 439) and CIT Vs. Reliance Petroproducts Pvt. Ltd., (322 ITR 158).
Contention of the Revenue
The ld. DR for the Revenue strongly supported the order of the ld. CIT (A).
Held by CIT(A)
The ld. CIT (A) did not find any force in the submissions of the assessee and confirmed the levy of penalty u/s 271(1)(c) of the Act by the AO.
Held by ITAT
The Hon’ble ITAT held that the submission of the assessee stating that the depositor is a personal friend of the assessee and residing abroad and that amount has been remitted through NEFT and reflection of the same in the bank account etc. cannot be called as explanation. This is only a fact regarding the receipt of loan. If the depositor is a personal friend then assessee was supposed to know his address. Even if it is assumed for the sake of argument that such address was not available during the assessment proceedings which was completed on 20-12-2009 then also the assessee could have obtained the address by May 2014 when the impugned order was passed by the Ld. CIT(A). Therefore, the assessee basically has not given any explanation why confirmation etc. has not been filed in respect of the said loan.
Further, Hon,ble ITAT find no force in the submission of the assessee that the AO has not recorded satisfaction. In this regard the Hon’ble ITAT pointed out that Sub-section (1B) was introduced under section 271 vide Finance Act, 2008 with retrospective effect from 1-04-1989 and reproduced sub-section 1B of Section 271 in its order. It held that a plain reading of the provision clearly shows that once penalty proceedings have been initiated in such direction as contained in the assessment order, then it shall be deemed satisfaction of the AO for initiation of penalty proceedings. Further, the AO has clearly mentioned that penalty proceedings u/s 271(1)(c) are being initiated with reference to unsecured loan of Rs.3,43,550/- from Shri Kathirase Kumar. Therefore, this would itself constitute satisfaction over initiation of penalty and no further satisfaction was required to be recorded.
Hon’ble ITAT held that non-furnishing of any explanation itself would lead to penal consequences. It stated that in the present set of facts the principle laid down by the Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. is not applicable because merely disclosure of loan is not sufficient. The assessee has the burden of furnishing the identity of the party, genuineness of the loan and capacity of the party from whom such loan was obtained, which has not been done in this case. As far as the decision of Hon’ble Calcutta High Court is concerned, that was rendered for A.Y. 1963-64 i.e. before introduction of Expenditure-1 Section 271(1)(c) of the Act.
The consequences of Explanation-1 to Section 271(1)(c) of the Act have been explained by the Hon’ble Supreme Court in the case of K.P. Madhusudhanan Vs. CIT (251 ITR 99) where it is clearly observed that after introduction of Explanation-1 to Section 271(1)(c) of the Act, there is no burden on the Revenue to prove that the assessee has concealed the particulars of Income. It is further observed that this part would be covered by the Explanation and the burden lies on the assessee to give explanation regarding particulars of entry.
Thus the Hon’ble ITAT held that the Penalty u/s 271(1)(c) has been rightly levied by the AO and confirmed by the Ld. CIT(A) as the assesse has failed to give any explanation regarding the said loan.
