No Penalty for Estimations Using Peak Credit Theory.

During the assessment year 2011-12, Edward Sam, a retired BHEL employee, found himself under scrutiny for his assessment year 2011-12 year return, showing an income after certain deductions.

The primary concern was a cash deposit of ₹.27,31,700/- in the BHEL Employees Co-operative Bank Ltd., Trichy. The Assessing Officer, after a detailed assessment, added ₹.25,00,000/- under section 69A for these cash deposits. However, the story took a turn when the CIT(A) intervened.

The CIT(A) partly allowed Edward Sam's appeal by considering the peak credit and personal cash consumption, reducing the addition significantly. This adjustment was based on the peak credit theory, an estimation method.

Following this, the Assessing Officer initiated penalty proceedings under section 271(1)(c) for the said assessment year. The contention was that there was a concealment of income.

But was concealment there?

The ITAT Chennai, after a thorough review, sided with Edward Sam.

The Tribunal highlighted that the CIT(A) had already made adjustments using the peak credit theory, an estimation, for the assessment year 2011-12. This meant that the exact income was not concealed but estimated. Therefore, levying a penalty under section 271(1)(c) for concealment did not stand ground.

For those navigating the assessment year 2011-12 and similar situations, if your income is adjusted using the peak credit theory, remember, the penalty provisions under section 271(1)(c) might not apply to you. It's always about the details and the methodology used.

Court Name :  ITAT Chennai

Parties : Edward Sam Vs ITO

Decision Date : 28 July 2023

Judgement ref : I.T.A. No. 728/Chny/2023

O R D E R

PER V. DURGA RAO, JUDICIAL MEMBER:

This appeal filed by the assessee is directed against the order of

the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal

Centre [NFAC], Delhi dated 29.04.2023 for the assessment year 2011-12.

2. Brief facts of the case are that the assessee is a retired employee

of BHEL and filed his return of income for the assessment year 2011-12

on 06.07.2011 admitting an income of ₹.5,92,178/- after deducting house

property loss of ₹.53,981/-. The case has been selected for scrutiny since

the assessee had a cash deposit of ₹.27,31,700/- in BHEL Employees

Co-operative Bank Ltd., Trichy. After considering the submissions and

details against statutory notices, the Assessing Officer has completed the

assessment under section 143(3) of the Act dated 27.02.2014 assessing

total income of the assessee at ₹.29,92,180/- by making addition of

₹.25,00,000/- under section 69A of the Act. Against the quantum addition,

the assessee had preferred an Appeal before the ld. CIT(A). After

considering the submissions of the assessee, the ld. CIT(A) partly

allowed the appeal of the assessee by sustaining the addition to the

extent of ₹.9,73,250/- as peak credit and ₹.3,00,000/- as personal cash

consumption and directed to recompute the income.

3. Subsequently, the Assessing Officer has initiated penalty

proceedings under section 271(1)(c) of the Act by issuing a letter on

16.10.2019 seeking explanation from the assessee as to why a penalty

shall not be levied. Since the assessee could not respond to the notice,

based on the details, the Assessing Officer levied penalty of ₹.3,95,137/-

under section 271(1)(c) of the Act. On appeal, the ld. CIT(A) confirmed

the penalty levied under section 271(1)(c) of the Act.

4. On being aggrieved, the assessee is in appeal before the Tribunal.

The ld. Counsel for the assessee has submitted that against quantum

addition, by applying peak credit theory, the ld. CIT(A) has granted relief

on estimated basis based on the details furnished by the assessee and

therefore, provisions under section 271(1)(c) of the Act has no application

and prayed for deleting the penalty levied by the Assessing Officer and

confirmed by the ld. CIT(A).

5. On the other hand, the ld. DR has supported the orders of

authorities below.

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 ₹.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

₹.25,00,000/- under section 69A of the Act. On appeal, by restricting the

addition to the extent of ₹.12,73,250/-, the ld.CIT(A) added the peak credit

of ₹.9,73,250/- to the declared income and moreover granted relief of

₹.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 ld. 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 ld. CIT(A).

6.1 Before us, the ld. Counsel for the assessee has contended that by

applying peak credit theory, the ld. 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 ld. Counsel. Against the quantum

addition, once the ld. 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 28th July, 2023 at Chennai.

Sd/-

(MANOJ KUMAR AGGARWAL)

ACCOUNTANT MEMBER

Sd/-

(V. DURGA RAO)

JUDICIAL MEMBER

Chennai, Dated, 28.07.2023

------------------------------------------------------------------------

IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI

ŵी वी. दुगाŊराव, Ɋाियक सद˟ एवं ŵी मनोज कु मार अŤवाल, लेखा सद˟ के समƗ ।

Before Shri V. Durga Rao, Judicial Member &

Shri Manoj Kumar Aggarwal, Accountant Member

आयकर अपील सं./I.T.A. No. 728/Chny/2023

िनधाŊरण वषŊ/Assessment Year: 2011-12

Edward Sam,

4/189, Priyanka Nagar,

Kattur Post, Trichy 620 019.

[PAN:AAAPE2757N]

Vs. The Income Tax Officer,

Ward -2(2),

Trichy.

(अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent)

अपीलाथŎ की ओर से / Appellant by : Shri S. Girish Kumar, Advocate

ŮȑथŎ की ओर से/Respondent by : Shri D. Hema Bhupal, JCIT

सुनवाई की तारीख/ Date of hearing : 26.07.2023

घोषणा की तारीख /Date of Pronouncement : 28.07.2023