2013 (9) TMI 1076 - AT - Income Tax

Penalty levied u/s 271(1)(c) - Held that - The assessment in this case was framed on 11th Nov. 2008 and before completion of the said assessment the assessee vide letter dt. 22nd Jan. 2007 i.e. just after the search operation on 18th Jan. 2007 stated that he was prepared to pay tax on legitimate and correct amount of income as may be mutually determined on agreed basis. The assessee also stated that the said letter be treated as statement under s. 132(4) of the Act thereby entitling the assessee to the benefits of Expln. 5 to s. 271(1)(c) of the Act. The AO nowhere stated that the contents of the said letter were wrong and not accepted. In other words he had not stated anything to disprove the contents of the said letter in the assessment order dt. 11th Nov. 2008. Moreover whatever was offered by the assessee in his return of income has been accepted by the AO while framing assessment under s. 143(3) r/w s. 153A of the Act. Therefore the penalty 271(1)(c) of the Act was not leviable in this case - Decided in favour of assessee

Issues Involved:
1. Confirmation of penalty levied under section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Explanation 5 to section 271(1)(c) for immunity from penalty.
3. Validity of the assessee's claim that no concealment of income or furnishing of inaccurate particulars occurred.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty Levied Under Section 271(1)(c):

The primary grievance of the assessee was the confirmation of a penalty of Rs. 7,26,159 levied by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961. The penalty was based on the difference between the income declared in the original return filed under section 139(1) and the income disclosed in the return filed under section 153A, post-search operation. The AO initiated penalty proceedings on the grounds that the additional income declared in the return under section 153A was considered as concealed income.

2. Applicability of Explanation 5 to Section 271(1)(c) for Immunity from Penalty:

The assessee argued that the additional income disclosed in the return under section 153A should not attract penalty under section 271(1)(c) due to the immunity provided by Explanation 5 to section 271(1)(c). The assessee submitted a letter to the ADI, Investigation, Jodhpur, stating willingness to pay tax on the correct amount of income as mutually determined, which should be treated as a statement under section 132(4). However, the AO contended that the surrender was not made during the statement recorded under section 132(4) and that the letter did not specify the seized assets or quantify the undisclosed income, thus not qualifying for immunity under Explanation 5.

3. Validity of the Assessee's Claim of No Concealment or Furnishing of Inaccurate Particulars:

The assessee maintained that there was no concealment of income or furnishing of inaccurate particulars, as the income declared in the return under section 153A was accepted by the AO without any additions. The assessee highlighted that the additional income disclosed included cash available out of books and differences in short-term capital gains due to unawareness of section 50C provisions. The CIT(A) upheld the penalty, stating that the additional income was detected by the department and the letter submitted post-search did not qualify as a statement under section 132(4).

Tribunal's Findings:

The Tribunal noted that the assessment was framed based on the return filed under section 153A, and the income assessed was the same as declared by the assessee. The Tribunal observed that the AO accepted the cash available with the assessee and the difference in short-term capital gains was due to the provisions of section 50C, with all relevant facts disclosed by the assessee. The Tribunal emphasized that the penalty under section 271(1)(c) was not justified as the income declared in the return under section 153A was accepted by the AO, and there was no observation of non-disclosure in the return filed under section 153A.

Conclusion:

The Tribunal concluded that the penalty under section 271(1)(c) was not leviable, as the income declared by the assessee in the return under section 153A was accepted by the AO, and there was no concealment or furnishing of inaccurate particulars. The Tribunal's decision was fortified by the judgment of the jurisdictional High Court in CIT vs. Kanhaiyalal, which provided immunity under Explanation 5 to section 271(1)(c). Consequently, the penalty of Rs. 7,26,159 was deleted, and the appeal of the assessee was allowed.

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