ITAT Condones 1350-Day Delay; Deletes Addition on Cash Deposits & Penalty on Bonafide Error
Issue
Whether a massive delay of 1350 days in filing an appeal can be condoned due to business closure, personal tragedy (father’s death), and lack of knowledge of proceedings?
Whether cash deposits in a partner’s bank account can be treated as unexplained income when they are sourced from withdrawals from the firm’s audited capital account.
Whether a penalty under Section 271(1)(c) is sustainable for a wrong claim of carry-forward loss made due to an inadvertent error by a tax consultant.
Facts
Context: The assessee, a partner in M/s Euro Steels, filed two appeals for AY 2013-14: one against quantum additions and one against the penalty levy.
The Delay: There was a delay of 1350 days (approx. 3.7 years) in filing the appeals. The assessee explained that the firm suffered huge losses and closed down in 2015. Consequently, notices served at the closed premises were missed. Additionally, the assessee’s father passed away after a prolonged illness, and the COVID-19 pandemic further disrupted communication. The assessee only learned of the orders upon receiving a recovery notice.
Quantum Additions:
Rs. 8,20,000/-: Disallowance of carry-forward loss. The assessee admitted this was a mistake by the consultant, as the loss had already been claimed in an earlier year. This ground was not pressed.
Rs. 12,74,649/-: Addition for unexplained cash deposits in the assessee’s individual bank account.
Penalty: The AO levied a penalty under Section 271(1)(c) for concealing particulars of income regarding the above two additions.
Decision
Condonation of Delay: The ITAT condoned the delay of 1350 days (and 1258 days for the penalty appeal). It accepted the assessee’s affidavit citing business closure, personal tragedy, and lack of knowledge as “sufficient cause.”
On Cash Deposits (Rs. 12.74 Lakhs): The Tribunal deleted the addition. It found merit in the assessee’s submission, supported by the firm’s audited accounts and the partner’s capital account, that the cash deposited in the individual account was withdrawn from the firm’s capital account. The Revenue could not rebut this factual evidence.
On Penalty (Section 271(1)(c)):
Regarding Cash Deposits: Since the addition itself was deleted, the penalty on it was automatically deleted.
Regarding Carry Forward Loss: The Tribunal deleted the penalty here as well. It held that the wrong claim was an “inadvertent and bonafide mistake” by the tax consultant. There was no intentional claim of bogus loss or concealment. The assessee should not be punished for a consultant’s error.
Key Takeaways
Substantial Justice over Delay: Even an inordinate delay (over 3 years) can be condoned if the assessee proves that circumstances were genuinely beyond their control (e.g., business closure combined with personal tragedy).
Source Explained: Cash deposits in a partner’s personal account are explained if there is a corresponding withdrawal from the firm’s audited capital account.
Bonafide Mistake vs. Concealment: A wrong claim in a tax return (like claiming a loss twice) does not automatically attract a concealment penalty if it is proven to be a bonafide human error by a consultant, rather than a deliberate attempt to evade tax.
No Penalty on Deleted Additions: It is a settled principle that if the quantum addition is struck down, the penalty associated with it cannot survive (“no legs to stand on”).
THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH
BENCH “SMC” CHANDIGARH
Shri Rohit Jain,
Shop No. 50,BD Complex,
Mandi Gobindgarh.
Vs
The ITO,
Ward – 1,
Mandi Gobindgarh.
Source :- 1762508425-byytN8-1-TO