2012 (9) TMI 1007 - AT - Income Tax

Penalty under section 271(1)(c) - return of income filed in response to notice issued u/s. 153A. - Held that - Penalty under section 271(1)(c) cannot be imposed on the income which was included by the assessee in the return filed in response to notice under section 153A of the Act. Disallowance of expenditure - addition on the basis of seized loose - Held that - The documents being belonging to the assessee, the assessee is in a better position to explain the same and assessee chooses not to explain the same, therefore, the claim of the assessee cannot be accepted on the face of it. The set off can be granted only if assessee is able to explain that the amount shown on the debit side are the expenditure either incurred for the purpose of business or have been incurred to earn the amount which is shown in the credit side. Here it may be the contention of the assessee that amount has come to the credit from various entities and paid also by way of various entries to various parties, therefore, aggregate of the credit entries alone cannot be taken as income as the same should considered to be credits by earlier debit entries. However, in absence of dates of the receipts and payments such claim of the assessee cannot be accepted. Such claim can be taken into account only when the dates of the credit and debit entries are known. What is known in the present case is opening balance of ₹ 46.00 lacs as on 5/9/2005 and the dates of other entries are not known. Penalty u/s 271(1)(C) - Income for which the set off /telescoping was allowed by the Ld. CIT(A) in quantum appeal - Held that - The nature of credit as well as debit entries has not been determined to take home the point that what is depicted on the seized paper is the income of the assessee. It is not the case of the department that the parties mentioned therein cannot be approached to determine the character of the amount stated in the seized documents. No such attempt has been made by the department to ascertain the character of receipts as well as payments. Therefore, the addition itself is only on the basis of presumption laid down in section 132(4). Further, for the purpose of levy of penalty it is to be established that what is assessed is the concealed income of the assessee. The amounts stated on the seized document has also not been related to any cash or assets seized during the course of search. In absence of any such material and cogent evidence that the amount stated in the seized document is in the nature of income, we do not consider it just and proper to uphold the concealment penalty on the addition. We may also mention that Ld. CIT(A) has clearly given the set off of a sum of ₹ 79,70,191/- to the assessee on account of additional income declared by the assessee in the return field in response to section 153A of the Act, therefore, Ld. CIT(A) has wrongly rejected such claim of the assessee. Since we have held that it is not a fit case where levy of concealment penalty cannot be justified, the alternative claim of the assessee has became academic that penalty should not be levied with respect to amounts which has been held to be set off by Ld. CIT(A).

Issues Involved:
1. Penalty under Section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2001-02 to 2003-04.
2. Penalty under Section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2004-05 and 2005-06.
3. Quantum appeal for assessment year 2006-07.
4. Penalty under Section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2006-07.

Detailed Analysis:

1. Penalty under Section 271(1)(c) for Assessment Years 2001-02 to 2003-04:

The appeals ITA No.409/Mum/2009 to ITA No.411/Mum/2009 pertain to the penalty under Section 271(1)(c) of the Income Tax Act, 1961. The common facts include a search operation conducted on the assessee's premises on 10/01/2006, leading to the filing of returns under Section 153A. The penalties were imposed for concealment of income based on payments made to government departments, recorded in seized loose papers, and debited as business expenditure.

The Tribunal referenced the Delhi ITAT decision in Prem Arora vs. DCIT, which held that penalty under Section 271(1)(c) is not imposable if the income is declared in the return filed in response to notice under Section 153A. The Tribunal followed this precedent, concluding that since the income was declared in the return filed under Section 153A, no concealment penalty could be imposed. Consequently, the penalties for these years were deleted, and the appeals were allowed.

2. Penalty under Section 271(1)(c) for Assessment Years 2004-05 and 2005-06:

For ITA No.290/Mum/2009 (A.Y. 2004-05), the penalty was levied on amounts declared in the return filed under Section 153A, including bogus purchases, payments to government departments, and unexplained credits. The Tribunal found that the penalty for bogus purchases and payments to government departments was not leviable as these were disclosed in the return filed under Section 153A. For the unexplained credit of Rs. 2,10,00,000, it was noted that this amount was part of the income declared across three years (2004-05, 2005-06, and 2006-07) and was merely shifted between years. Hence, no concealment penalty was warranted for this amount. The penalty for the estimated addition under Section 14A was also deleted due to the smallness of the amount and lack of evidence of concealment.

For ITA No.291/Mum/2009 (A.Y. 2005-06), the penalty related to unexplained credits, bogus purchases, and payments to government departments, all of which were disclosed in the return filed under Section 153A. The Tribunal followed the same reasoning as for the earlier years, deleting the penalty.

3. Quantum Appeal for Assessment Year 2006-07:

In ITA No.292/Mum/2009 (A.Y. 2006-07), the issue was the addition of Rs. 1,22,67,545 based on seized loose papers. The assessee argued for the set-off of debit entries against the credit entries in the seized documents. The Tribunal held that the onus was on the assessee to prove the nature of the debit entries as business expenditure, which was not done. The Tribunal upheld the addition but noted that the assessee had declared additional income of Rs. 79,70,191 to cover discrepancies, which was set off by the CIT(A). The appeal was dismissed.

4. Penalty under Section 271(1)(c) for Assessment Year 2006-07:

In ITA No.3817/Mum/2011 (A.Y. 2006-07), the penalty was levied on the addition of Rs. 1,22,67,545. The Tribunal found that the nature of the entries in the seized documents was not determined, and the addition was based on presumption. Given the lack of cogent evidence and the set-off granted by the CIT(A) for the additional income declared, the Tribunal held that the penalty was not justified and deleted it. The appeal was allowed.

Conclusion:

The Tribunal concluded by allowing the appeals related to penalties for the assessment years 2001-02 to 2005-06 and 2006-07, while dismissing the quantum appeal for A.Y. 2006-07. The penalties were deleted based on the principle that income declared in the return filed under Section 153A cannot be subjected to concealment penalty. The judgment emphasized the importance of proper evidence and the distinction between assessment and penalty proceedings.

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