Introduction: Harson Labs Pvt. Ltd. faced penalties under Section 271 of the Income Tax Act for alleged concealment of income and furnishing inaccurate particulars. This article delves into the case of Harson Labs vs. ACIT, where the Income Tax Appellate Tribunal (ITAT) Ahmedabad made a crucial decision regarding these penalties for Assessment Year 2015-16.
The case revolved around two key issues:
1. Fresh Deposits: The Assessing Officer (AO) claimed that fresh deposits of Rs. 13,80,000 during the year amounted to “Concealment of Income” under Section 68/41(1).
2. Interest Paid: The AO alleged that Rs. 5,10,000 paid as interest to depositors, both old and new, constituted “furnishing inaccurate particulars of income.”
The ITAT Ahmedabad reviewed these claims and found that the appellant had provided confirmations for Rs. 24,00,000 out of the total deposits of Rs. 37,80,000. The remaining Rs. 13,80,000 was considered unexplained. However, upon further examination, the ITAT determined that the trade deposits in question were genuine and not liable under Section 68 of the Act. The AO had failed to establish any concealment in this regard.
Similarly, the ITAT disputed the charge of “furnishing inaccurate particulars of income” concerning the interest paid. It concluded that the appellant’s actions were not indicative of any concealment or inaccuracies, as the interest was paid to legitimate creditors and depositors.
Conclusion: In light of the ITAT’s findings, it was established that the penalties under Section 271(1)(c) of the Income Tax Act were unjustified in the case of Harson Labs Pvt. Ltd. The appeal was allowed, and the penalties were deleted for both the fresh deposits and interest paid, reaffirming the principle that penalties should only be levied in clear cases of income concealment or inaccurate reporting.
This decision by the ITAT highlights the importance of thoroughly examining the facts and circumstances of a case before imposing penalties under Section 271 of the Income Tax Act. It emphasizes the need for clear evidence of wrongdoing to justify such penalties.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax(Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre, (in short “NFAC”), Delhi in Order No. ITBA/NFAC/S/250/2020-2 1/1031252880(1) vide order dated 05.03.2021 passed for Assessment Year 2015-16.
2. The assessee has taken the following grounds of appeal:-
“I. On Legality
1) The CIT(A) has erred both in Law and in fact in upholding provision of 274 r.w.s 271(1)( c) of the Act applies and thereby confirming Penalty of 5,84,038!- levied by Assessing Officer vide his order dated 12-3 -2 020.
2) (a) The Assessing Officer has erred both in law and in fact in invoking provisions of section 274 r.w.s 271(1)( c) of the Act and thereby levying penalty of Rs.5,84,038!- u!s.271(1)(c) of the Act.
Your appellant submits that he has not concealed any income or “Furnished Inaccurate particulars of such income” and therefore penalty is not leviable.
(b)(i) Your appellant further submits that notice issued by Assessing Officer u/s.274 r.w.s 271(1)( c) dated 20-11-2017 is inoperative and invalid in respect of Asst. Order dated 16-01-2017.
(ii) Further the said notice was vague and not precise and not certain that as to whether the proceedings were initiated for “for concealing particulars of income” or “for furnishing inaccurate particulars of such income” and therefore also penalty is not leviable.
(iii) Further also the said notice not leviable since the Assessing Officer has failed to record satisfaction of concealment before issue of Show Cause
II. On Merits
The CIT(A) has erred in confirming Penalty u/s.271(l)(c ) levied by Assessing Officer as under.
(a) Fresh deposits which was advance money towards purchase of goods was received during the year of Rs.13,80,000/- treated as “Concealment of Income” on application of sec.68/41(1), which neither applies.
(b) 5,10,000/- payable / paid interest to all depositors Old and New alleging as “furnishing inaccurate particulars of income”. Since the said amount was towards Trade Deposits was not liable to sec.68 of the Act.”
3. The brief facts of the instant case are that the Ld. Assessing Officer imposed penalty under Section 271(1)(c) of the Act in respect of the following two issues:-
“a. Fresh deposits received during the year as Rs. 13,80,000/- treated as “Concealment of Income.”
b. Rs. 5,10,000!- paid Interest to all Depositors (Old and New) as well as on ceased liability alleging as “furnishing inaccurate particulars of income”.”
4. The aforesaid additions were confirmed by the Ld. CIT(A) with the following observations:-
“6. In the next ground of appeal the appellant has challenged the levy of penalty on merit. It is observed that the AO levied penalty for addition!disallowance of following amounts:-
1. Addition u/s 68 of Rs.13,80,000!-
2. Disallowance of interest of Rs.5, 10,090!-
7. As regards, addition u!s 68 of Rs.13,80,000!- the AO has mentioned that during the year, the appellant received deposits of Rs.37,80,000!- however he could file confirmation and details of Rs.24,00,000!- only. For the remaining amount of Rs.13,80,000!- the appellant clearly admitted that he is not in a position to file confirmations and hence the addition was made. The appeal preferred by the appellant against the assessment order was also dismissed by CIT(A)-1, Vadodara vide his order dated 22-10-2018. Similarly, on the other issues of disallowance of interest of Rs.5,1 0,090!- the first appeal was dismissed as they pertain to the aforesaid unexplained deposits and as well as ceased liability.
8. On a perusal of the aforesaid facts which forms the basis for levy of penalty it is clear that the appellant failed to discharge its onus with regard to cash credits as required u!s 68 of the I.T. Act. The appellant failed to file even the primary confirmations. Even on the point of disallowance of interest, the appellant could not discharge its onus as required u!s 37(1) of the I. T. Act. I therefore find no reason to interfere with the order of assessing officer and hence the order passed by him u!s 271(1)(c) in levying penalty amounting to 5,84,038!- is Confirmed.
9. Therefore, the appeal is Dismissed.”
5. The assessee is in appeal before us against the aforesaid order passed by the Ld. CIT(A) confirming the levy of penalty under Section 271(1)(c) of the Act. The Counsel for the assessee submitted that so far as the addition under Section 68 of the Act amounting to Rs. 13,80,000/- is concerned, the ITAT Ahmedabad in the assessee’s own case in ITA No. 2363/Ahd/2018 for A.Y. 2015-16 vide order dated 30.01.2023 has allowed the appeal of the assessee and had deleted the aforesaid addition under Section 68 of the Act. Accordingly, to this extent there is no question of levy of penalty. So far as the levy of penalty amounting to Rs. 5,10,000/- is concerned, the Counsel for the assessee submitted that the aforesaid amount represented interest paid / credited to respective creditors / depositors. Accordingly, there is no question of either furnishing of inaccurate particulars of income or concealment of income so as to invoke to provision of Section 271(1)(c) of the Act, looking into the instant set of facts.
6. In response, Ld. D.R. placed reliance on the observations made by the Assessing Officer and Ld. CIT(A) in their respective order.
7. We have heard the rival submissions and perused the material on record. On going through the records of the case, we observe that during the course of assessment, the Assessing Officer observed that the assessee had received deposits of Rs. 37,80,000/- during the year. The assessee submitted confirmations totaling of Rs. 24,00,000/-. For the remaining confirmations the assessee submitted that he was unable to obtain the confirmations due to various reasons. Therefore, the Assessing Officer held that assessee failed to explain the deposits received during the year under consideration amounting to Rs. 13,80,000/-. The Assessing Officer held that the deposits amounting to Rs. 13,80,000/- are sham and the same are treated as cash credit within the meaning of Section 68 of the Act. Further, the Assessing Officer observed that the assessee has also credited / paid interest on these cash credits as well as seized liability amounting to Rs. 5,10,090/-. Accordingly, the Assessing Officer held that the assessee has furnished inaccurate particulars of income to Rs. 5,10,090/-. Accordingly, the Assessing Officer initiated proceedings under Section 271(1)(c) of the Act in respect of aforesaid two additions. We observe that in appeal, the ITAT has allowed the appeal of the assessee and deleted the additions amounting to Rs. 13,80,000/- with the following observations:-
“8. Heard both the parties and perused all the relevant material available on record. The additional evidences per se was not actual additional evidence but was the extended evidence to support assessee ’s case which was already on record before the Revenue Authorities. Therefore, the same is taken on record and is admitted herein. It is pertinent to note that the assessee ’s books, at no point of time, was rejected by the Assessing Officer. The Assessing Officer at no point of time stated that the trade deposits were not that of trade depositors but has element of liabilities except to that of business of the assessee. The contention of the assessee that the assessee has not paid the amount in respect of these trade depositors as it being amount received as trade deposits from trade merchants who are known and identifiable persons and the amount received during the course of business and creditworthiness is already proved through the full name, address, PAN and the amount of deposits as well as the customers usage and practice of business with these trade merchant. Merely not filing confirmation will not shun away that the trade credits and deposits were for purchase of goods and that recovery of the said amount has not become impossible and, therefore, the same was not being written off by the assessee in the books of account as element of these amounts were not coming under the purview of Section 41(1) of the Act. Thus, the ground nos.1, 2(a), 2(b) & 3 are allowed.
9. In the result, appeal of the assessee is allowed.”
8. Therefore, in view of the aforesaid decision of ITAT wherein the addition of Rs. 13,80,000/- has been deleted by the ITAT, no penalty can be levied on the aforesaid amount. Further, we observe that the sum of Rs. 5,10,090/- was the interest paid / credited on the aforesaid cash credits as well as seized liability and therefore, since this issue has been decided in favour of the assessee by the Hon’ble ITAT, we are of the considered view that this is not a fit case for levy of penalty under Section 271(1)(c) of the Act. Further, in the instant facts, it is also observed that this is not a case where the assessee has concealed the particulars of income or has furnished inaccurate particulars of income so as to levy of penalty under Section 271(1)(c) of the Act. In light of the above observation, the appeal of the assessee is allowed.
9. In the result, the appeal of the assessee is allowed.