2010 (10) TMI 1071 - AT - Income Tax

Summary

Issues Involved:
1. Justification of penalty cancellation u/s 271(1)(c) by CIT (A).
2. Entitlement for immunity under Explanation 5 to section 271(1)(c).
3. Addition u/s 68 and its impact on penalty.

Summary:

1. Justification of Penalty Cancellation u/s 271(1)(c) by CIT (A):
The primary issue was whether the CIT (A) was justified in canceling the penalty levied by the A.O. u/s 271(1)(c) on the undisclosed income declared by the assessee following a search and seizure operation u/s 132. The assessee argued that the declaration was made to avoid litigation and under the understanding that no penalty would be levied. However, the A.O. did not accept this explanation, stating that the undisclosed income would not have been detected without the search action.

2. Entitlement for Immunity under Explanation 5 to Section 271(1)(c):
The assessee claimed immunity from penalty under Explanation 5 to section 271(1)(c), arguing that the income was declared during the search and taxes were paid. The CIT (A) accepted this plea, citing precedents such as CIT vs. S.D.V. Chandru and CIT vs. Kanhaiyalal. However, the Tribunal referred to the decision in ACIT vs. Kirit Dahyabhia Patel, which held that immunity under Explanation 5(2) is confined to returns for the year in which the previous year is yet to end or the time for filing the return u/s 139(1) is yet to expire. Since the due dates for filing returns for the relevant assessment years had already expired, the Tribunal concluded that the assessee was not entitled to immunity.

3. Addition u/s 68 and Its Impact on Penalty:
For A.Y. 2001-02, the A.O. also made an addition u/s 68 for unexplained cash credits. The CIT (A) confirmed the penalty for this addition, as the assessee could not provide confirmations for the loans. The Tribunal upheld this decision, noting that the assessee admitted the undisclosed income in the bank account during the search and did not deny ownership of the account in the statement recorded u/s 132(4).

Conclusion:
The Tribunal reversed the CIT (A)'s order and restored the A.O.'s penalty orders, concluding that the assessee had concealed income and was not entitled to immunity under Explanation 5 to section 271(1)(c). The appeals of the Revenue for the assessment years 2001-02 to 2004-05 were allowed.