INCOME TAX ACT, 1961

Penalty under section 271(1)(c) - Leviability -Furnishing of particulars of income

AO observed during assessment proceedings that assessee had deposited as well as withdrawn large amount of cash on various occasions and, therefore, assessee was asked to explain reasons for such transactions. AO was not satisfied by explanation. AO drew an inference that assessee was engaged in giving hawala entries and in regard to it, he estimate income from hawala entries on basis of prevailing market practice and he observed that for giving hawala entries, assessee earned commission. AO charged 3% commission on sales and purchases and denied all expenses for allowing as deduction and meanwhile, he imposed penalty on assessee. Held: No evidence was found, which showed assessee was indulged in hawala transactions. Books of account of assessee were audited. Estimated income by AO could not be held to be concealed income as this income estimated after appeal was more or less the same as shown in profit and loss account. Liability for additional tax arose on account of non-allowability of expenses claimed in profit and loss account. The estimated income on account of commission was on the basis of disclosed sales. Therefore, penalty levied was not justified.

Income-tax Act, 1961, Section 271(1)(c)

A.Y. : 2000-01 to 2002-03
Decision: In favour of assessee.

Harnish B. Shah v. ITO