ITAT AHMEDABAD BENCH ‘D’
Megh Malhar Developers
Assistant Commissioner of Income-tax
IT Appeal No. 1408 (Ahd.) of 2010
[ASSESSMENT YEAR 2005-06]
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Anil Chaturvedi, Accountant Member
The present appeal is against the order of CIT (A)-II, Surat dated 26-2-2010 whereby the penalty of Rs. 2,75,400/- levied u/s. 271(1)(c ) by the A.O. for A.Y. 2005-06 was confirmed by CIT (A).
2. In this case the assessee filed return of income on 31-10-2005 declaring total income of Rs. Nil. The case was selected for scrutiny and thereafter the assessment was framed u/s. 143(3) vide order dated 20-12-2007 and the total income was determined at Rs. 16,33,000/- after making additions on account of unexplained introduction of capital and on account of unexplained cash credits. Against the addition of Rs. 7,15,000/- on account of unexplained introduction of capital, assessee carried the matter before CIT (A). Assessee did not contest the addition of Rs. 9,18,0007 made on account of unexplained cash credits. CIT (A) vide his order dated 19-9-2008 allowed the appeal of the assessee. It is on the addition of Rs. 9,18,000/- which assessee did not contest in appeal. A.O. levied penalty of Rs. 2,75,400/- u/s. 271(1)(c ) and the same was upheld by CIT (A) vide order dated 26-2-2010. It is against the aforesaid action of CIT (A), the assessee is now in appeal before us.
3. Before us, the Ld. A.R. submitted that assessee is a firm engaged as builder and developer in the construction business. During the year under appeal, the assessee was constructing 51 row houses. The assessee had shown booking advance of Rs. 9,18,000/- for one of the row house in the name of Shri Mahesh Dayabhai Patel. During the course of assessment proceedings, the assessee was asked to furnish the confirmations of booking of row houses. The assessee furnished the confirmations in all cases except in the case of Mahesh Dayabhai Patel. The ld. A.R. submitted that since the assessee could not produce either Shri Mahesh Patel or any evidence in respect of booking advance, the assessee himself offered the same as income during assessment proceedings with an intention of buying peace of mind and to avoid litigation. The ld. A.R. further submitted that A.O. had not brought any material evidence on record to show that the assessee had concealed income. He therefore submitted that the penalty levied on aforesaid addition be deleted. He further relied on the decisions in the case of CIT v. Suresh Chandra Mittal  251 ITR 9, CIT v. M.M. Gujamgadi  290 ITR 168 (Kar.)National Textiles v. CIT  249 ITR 125 and other decisions. He thus urged that the explanation offered by the assessee was bona fide and therefore the penalty be deleted.
4. On the other hand the Ld. D.R. submitted that the assessee did not furnish any evidence called for by the A.O. either before the A.O. or before CIT (A) and accordingly the assessee has not discharged the onus cast upon him. He relied on the decision of the Hon’ble Apex Court in the case of CIT v. P. Mohankala  291 ITR 278. He therefore urged that the A.O. has rightly levied the penalty and for the detailed reasoning of CIT (A), the penalty order be upheld.
5. We have heard the rival submissions and perused the material on record. The undisputed fact of the case is that the assessee is engaged in the business of construction and during the year it was constructing 51 row houses for which it had accepted the booking advance from the purchasers. During the course of assessment proceedings, in response to the query of the A.O., assessee furnished the necessary evidence called for by the A.O. with respect to the booking advance in all cases except in the case of Shri Mahesh Patel from whom the assessee had received Rs. 9,18,000/-. Since the assessee could not produce either Mr. Mahesh Patel before the A.O. or evidence in the form of confirmation, the assessee, during the course of assessment proceedings has himself offered the booking advance of Rs. 9,18,000/- received from Mr. Mahesh Patel as income and the same was accepted. The explanation of the assessee that despite its best effort it could neither produce Mr. Mahesh Patel nor any evidence from him, prima facie appears to be bona fide in view of the fact that in all other cases the assessee could furnish the necessary evidence to the satisfaction of the A.O. Nothing has been brought on record by the Revenue to controvert the explanation furnished by the assessee.
6. In the case of CIT v. M.M. Gujamgadi (supra) the Hon’ble Karnataka High Court held as under:
“A reading of sec.271 and 271(1)(c) and the Explanation appended thereto manifestly makes it clear that every addition of income by the ITO will not automatically attract levy of penalty. It is clear from Explanation 1(B) to sec. 271(1)(c) of the Act that while computing the total income of assessee, if the assessee fails to prove that such explanation is bona fide then there will be a deemed concealment by the assessee. In the instant case, in response to the notice issued by the ITO for addition of Rs. 2,01,000/-, the assessee replied that he borrowed the same from different creditors who are all agriculturists. When the assessee was asked to substantiate this claim, the assessee made attempts to secure those creditors to be examined before the ITO. Despite the best efforts of the assessee, he could not secure the creditors as witnesses to substantiate his claim before the ITO. Having no other alternative, the assessee voluntarily agreed for addition of Rs. 2,01,000/- to his income as cash credit. Accordingly, the ITO computed the total income of the assessee at Rs. 2,99,500/- vide order of assessment dated 3rd August, 1994, and on that the assessee has paid the taxes. Under these circumstances it cannot be said that the explanation of the assessee for non inclusion of an income of Rs. 2,01,000/- in his return of income is not bona fide. The explanation offered by the assessee is available on record. Bona fide failure on the part of the assessee in not substantiating his claim is also available on record. The ITO, while passing the order of penalty under sec. 271(1)(c) of the Act, has not considered the available explanation of the assessee and whether the explanation so offered is bona fide or not.”
7. Section 271 (1)(c) of the Act authorizes the A.O. or the CIT (A) to levy penalty in case of concealment of particulars of income or for furnishing inaccurate particulars of income. Explanation 1 to A sec.271(1)(c) of the Act specifies as to when the assessee fails to offer an explanation or the explanation so offered is found to be false or the explanation is not proved and when the explanation is not bona fide to treat the same as deemed concealment of income. It is a settled law that every addition of income by the A.O. will not automatically attract levy of penalty. From the reading of Explanation 1(B) to sec. 271(1)(c) it is clear that while computing the total income of an assessee, if the assessee fails to prove that the explanation is bona fide then there will be a deemed concealment by the assessee. Seen in the background of the provisions of Sec. 271(1)(c) and the aforesaid decisions of the High Court, in the present case, the explanation of the assessee cannot be said to be not bona fide. The decision relied by tne Revenue is distinguishable on the facts and therefore cannot be applied to the facts of the present case. In view of the totality of the aforesaid facts, we are of the view that no penalty is leviable in the present case. We thus direct the deletion of penalty.
8. In the result, appeal of the assessee is allowed.