2010 (6) TMI 641 - AT - Income Tax

Penalty levied u/s 271(1)(c) - jewellery found in search did not match with the reconciliation chart in respect of weight and description of items - as per CIT(A) Order of penalty is passed only because the assessed income is higher than the returned income. However, penalty cannot be treated as a mandatory act in consequence of such difference, thus cancelled penalty levy. HELD THAT - As in S.D.V. Chandru s case 2003 (12) TMI 40 - MADRAS HIGH COURT , as well as in Kanhaiyalal s case 2007 (12) TMI 46 - RAJASTHAN HIGH COURT after considering the provisions contained in Explanation 5 to section 271(1)(c) held in favour of the assessee to the effect that the immunity under Explanation 5 to section 271(1)(c) is available even in respect of income disclosed for the years earlier to the date of search. Therefore, find no infirmity in the order passed by the learned CIT (A) and the same is hereby upheld as the law is well settled that even when two views are possible, the view which is favourable to the assessee be taken. The revenue s appeals are dismissed.

Issues Involved:
1. Deletion of penalty levied under section 271(1)(c) for the assessment year 2005-06.
2. Deletion of penalty levied under section 271(1)(c) for the assessment year 2006-07.

Detailed Analysis:

1. Deletion of Penalty Levied under Section 271(1)(c) for the Assessment Year 2005-06

Facts of the Case:
A search and seizure operation under section 132 of the Act was conducted on 16-11-2005. The original return was filed on 30-7-2005 declaring a total income of Rs. 9,52,738. In response to a notice under section 153A, the assessee filed a return on 13-3-2007 declaring a total income of Rs. 17,98,360, which included an undisclosed income of Rs. 8,45,625. The assessment was completed under section 153A on 10-12-2007 on a total income of Rs. 18,05,390. The Assessing Officer initiated penalty proceedings under section 271(1)(c) for concealing an income of Rs. 8,45,625.

Assessing Officer's Contention:
The original return did not disclose the income of Rs. 8,45,625, which was revealed only due to the search and seizure operation. Hence, the penalty was imposed for concealing particulars of income and furnishing inaccurate particulars.

Assessee's Defense:
The assessee argued that the additional income was disclosed during the search under section 132(4) and was included in the return filed under section 153A. There was no concealment of facts, and thus, the penalty should not be imposed.

Commissioner of Income-tax (Appeals) Decision:
The Commissioner of Income-tax (Appeals) held that the second exception to Explanation 5 of section 271(1)(c) applied, providing immunity from penalty as the income was disclosed under section 132(4). The penalty was canceled, citing precedents from various High Courts supporting this view.

Tribunal's Analysis and Conclusion:
The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision, noting that the disclosure under section 132(4) was not disputed. The Tribunal referenced multiple High Court decisions that supported the view that immunity under Explanation 5 to section 271(1)(c) is available for income disclosed during a search. The Tribunal dismissed the revenue's appeal, emphasizing that when two interpretations are possible, the one in favor of the taxpayer should be adopted.

2. Deletion of Penalty Levied under Section 271(1)(c) for the Assessment Year 2006-07

Facts of the Case:
A search and seizure operation under section 132 was conducted on 16-11-2005. The assessee filed a return on 13-3-2007 declaring a total income of Rs. 4,41,22,830. The assessment was completed under section 143(3) on 10-12-2007 on a total income of Rs. 4,51,30,890. During the search, jewellery worth Rs. 2,60,75,498 was found, out of which Rs. 1,41,61,371 was seized. The assessee explained jewellery worth Rs. 1,14,37,416 as belonging to family members. However, jewellery worth Rs. 10,08,057 could not be reconciled, leading to an addition as unexplained expenditure and initiation of penalty proceedings under section 271(1)(c).

Assessing Officer's Contention:
The jewellery worth Rs. 10,08,057 did not match the reconciliation chart in terms of weight and description, leading to the imposition of a penalty for concealing particulars of income.

Assessee's Defense:
The assessee argued that the discrepancies were due to variations in weight and description, which could be attributed to different valuation methods. The assessee chose not to dispute the addition to avoid prolonged litigation but maintained that there was no concealment of facts.

Commissioner of Income-tax (Appeals) Decision:
The Commissioner of Income-tax (Appeals) noted that the discrepancies were not substantial and could be due to different valuation methods. The penalty was canceled, as the addition was made only due to higher assessed income and not due to concealment.

Tribunal's Analysis and Conclusion:
The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision, agreeing that the discrepancies in jewellery valuation were debatable and did not indicate concealment. The Tribunal emphasized that penalty should not be treated as mandatory due to a difference between assessed and returned income. The Tribunal dismissed the revenue's appeal, supporting the view that the assessee's explanation was reasonable and the penalty was unjustified.

Conclusion:
The Tribunal dismissed the revenue's appeals for both assessment years, upholding the decisions of the Commissioner of Income-tax (Appeals) to cancel the penalties levied under section 271(1)(c) of the Income-tax Act. The Tribunal emphasized the principle that when two interpretations are possible, the interpretation favoring the taxpayer should be adopted.

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