ITAT Rejects Technical Plea on ‘Nil Tax’ but Questions Automatic Penalty Under Section 271(1)(c)

Background

The Mumbai “D” Bench of the Income Tax Appellate Tribunal held that penalty proceedings cannot be nullified merely because the assessment order mistakenly reflected Nil tax liability. The Tribunal noted that an addition of ₹60.07 lakh under Section 69A had been made for unexplained cash deposits and the absence of tax in the computation sheet was clearly a clerical error. Hence, the argument that no “tax sought to be evaded” existed was rejected.

Cash Deposits From Members Must Be Verified Before Sustaining Penalty

On merits, the ITAT emphasized that quantum and penalty proceedings are independent. Even though the assessee did not appeal against the addition, it was still entitled to explain the source of deposits during penalty proceedings. The assessee consistently claimed that the cash represented collections from members of the cooperative society and had furnished cash flow statements, audited accounts, and passbooks. However, neither the Assessing Officer nor the CIT(A) examined this evidence. Finding lack of factual verification, the Tribunal remanded the matter to the Assessing Officer to re-examine the explanation and decide the penalty afresh after granting proper opportunity of hearing.

The appeal was allowed for statistical purposes.