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2010 (2) TMI 1189 - AT - Income TaxPenalty u/s 271(1)(c) - return filed in response to notice u/s 153A - eligibility to immunity prescribed in Expln. 5. - HELD THAT - In the instant case, assessees filed original return prior to the search u/s 132. Assessees disclosed an additional income during the search and filed the return in response to notice under s. 153A and honoured the said disclosed additional income. Undisputedly, the said income was neither recorded in the books of account nor disclosed to the CIT/Chief CIT before the search nor the source of the same explaining the manner of deriving was provided. We following the decision of Third Member Bench in the case of Kirit Dahyabhai Patel 2009 (6) TMI 654 - ITAT AHMEDABAD-B have come to the conclusion that since additional income declared in returns filed in response to notice u/s 153A does not fall under category of return mentioned in Expln. 5 to s. 271(1)(c), assessees were not entitled to immunity from penalty CIT(A) was not justified in deleting the penalty levied by the AO on additional income declared in returns filed in response to notice u/s 153A without examining that assessees had fulfilled the requirement of immunity prescribed in Expln. 5. No such argument has been advanced before us either that assessees were fulfilling these requirements of immunity to grant benefit under Expln. 5. We thus while setting aside the first appellate order to this extent, restore the penalty levied by the AO on such additional income declared in returns filed in response to notice under s. 153A. The grounds are accordingly allowed. Consequently the appeals are allowed. In the result, appeals are allowed.
Issues Involved:
1. Maintainability of appeals with penalty effect below Rs. 2 lakhs. 2. Legality of penalty under Section 271(1)(c) on income declared in response to notice under Section 153A. 3. Applicability of Explanation 5 to Section 271(1)(c) for immunity from penalty. 4. Relevance of prior Tribunal decisions and their applicability to current cases. 5. Consistency in Tribunal decisions across different assessment years within the same group. Detailed Analysis: 1. Maintainability of Appeals with Penalty Effect Below Rs. 2 Lakhs: The preliminary objection was raised regarding the maintainability of the appeal for the assessment year 2003-04, where the penalty effect was below Rs. 2 lakhs. The Revenue argued that the issue was of legal nature and repetitive, thus maintainable under CBDT Instruction No. 5 of 2008. The Tribunal, referencing the decision in CIT vs. Madhukar K. Imandar (HUF), concluded that appeals should not be filed if the tax effect is below Rs. 2 lakhs, even if the issue is recurring. Consequently, the appeal ITA No. 1008/Pn/2009 was dismissed as it violated the said instruction. 2. Legality of Penalty Under Section 271(1)(c) on Income Declared in Response to Notice Under Section 153A: The Tribunal examined the legality of penalties imposed on additional income declared in response to notices under Section 153A. The assessees argued that the income was declared to avoid litigation and buy peace of mind, claiming that no penalty should be levied. The Tribunal reviewed the first appellate authority's decision, which relied on the Pune Bench's decision in Smt. Sarla M. Ahuja, stating that penalty is not leviable on income declared in response to notice under Section 153A. However, the Tribunal found that the CIT(A) had not properly applied the decision and failed to consider the Third Member decision in Asstt. CIT vs. Kirit Dahyabhai Patel, which concluded that additional income declared in returns filed in response to notice under Section 153A does not fall under the category of return mentioned in Explanation 5 to Section 271(1)(c), thus not entitled to immunity from penalty. 3. Applicability of Explanation 5 to Section 271(1)(c) for Immunity from Penalty: Explanation 5 to Section 271(1)(c) provides conditions under which an assessee can be deemed to have concealed income unless certain conditions are met. The Tribunal noted that the CIT(A) did not evaluate whether the conditions of Explanation 5 were fulfilled by the assessees. The Tribunal emphasized that for immunity under Explanation 5, the income or transactions resulting in such income should be recorded in the books of account or disclosed to the CIT before the date of the search. The Tribunal concluded that the CIT(A) erred in deleting the penalty without examining the fulfillment of these conditions. 4. Relevance of Prior Tribunal Decisions and Their Applicability to Current Cases: The Tribunal discussed the relevance of prior decisions, particularly the Pune Bench's decision in Smt. Sarla M. Ahuja and the Third Member decision in Kirit Dahyabhai Patel. The Tribunal found that the CIT(A) had misapplied the decision in Smt. Sarla M. Ahuja by not considering the specific context and conditions under which the penalty was deleted in that case. The Tribunal highlighted that the decision in Kirit Dahyabhai Patel, being a later and more detailed decision, should be given precedence, especially since it addressed the issue of additional income declared in response to notice under Section 153A more comprehensively. 5. Consistency in Tribunal Decisions Across Different Assessment Years Within the Same Group: The Tribunal noted that in the Kalantri Group cases, the AO had accepted the income shown in the return filed in response to notice under Section 153A and levied penalties on the difference between the income declared in the original return and the assessed income under Section 153A. The Tribunal found that the CIT(A) had not properly addressed this basis for levying penalties. The Tribunal also emphasized the importance of consistency in applying legal principles across different assessment years within the same group, referencing the Third Member decision in Kirit Dahyabhai Patel and the decision of the Hon'ble Bombay High Court in Sheraton Apparels vs. Asstt. CIT. Conclusion: The Tribunal dismissed the appeal ITA No. 1008/Pn/2009 due to the penalty effect being below Rs. 2 lakhs and allowed the remaining appeals, restoring the penalties levied by the AO. The Tribunal emphasized the proper application of Explanation 5 to Section 271(1)(c) and the need for consistency in legal principles across different assessment years within the same group.
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