2014 (7) TMI 1218 - AT - Income Tax

Penalty imposed u/s 271(1)(C) - undisclosed income in response to the notice issued u/s 153A - Held that - CIT(A) was not justified in upholding the penalty levied by the AO in the present case wherein returned undisclosed income in response to the notice issued u/s 153A was accepted by the AO in the assessment framed u/s 153A / 143(3) of the Act. We thus while setting aside orders of the authorities below direct the AO to delete the penalty in question levied in the years in appeals. The ground is accordingly allowed in favour of the assessee.

Summary

Issues: Questioning the upholding of penalty imposed under section 271(1)(c) of the Income Tax Act by the Ld. CIT(A).

Analysis:
1. The main contention raised by the Ld. AR was that since no concealment was detected by the revenue and the income declared in the return filed under section 153A was voluntary and accepted in the assessment made under sections 153A/143(3) of the Act, there was no basis for levying the penalty under section 271(1)(c) of the Act. The argument was supported by citing various decisions in favor of the assessee with similar facts.

2. The Ld. DR, on the other hand, relied on the orders of the authorities below and the decisions they referenced. It was emphasized that after the search conducted, the assessee disclosed its income, which was previously undisclosed.

3. The factual background revealed that the assessee, a construction and real estate business, had not disclosed the correct income in the original returns filed before the search. Subsequently, after the search, the assessee filed returns under section 153A showing higher incomes, including amounts from previously undisclosed sources. The assessee explained that certain activities were undertaken on a no-profit-no-loss basis to maintain customer relations and goodwill, which were not initially disclosed due to lack of profit. The income from these activities was voluntarily offered for taxation.

4. The Tribunal analyzed the relevant provisions and previous decisions, notably the case of Prem Arora vs. DCIT, where it was established that for the imposition of penalty under section 271(1)(c) post a search assessment under section 153A, the original return of income filed under section 139 cannot be considered. The Tribunal concluded that once the return of income under section 153A is accepted by the Assessing Officer, it cannot be deemed as concealment of income or furnishing inaccurate particulars. The Tribunal further clarified the application of Explanation 5 in such cases.

5. Based on the above analysis, the Tribunal found that the penalty imposed by the AO and upheld by the CIT(A) was not justified, as the undisclosed income voluntarily declared in response to the notice under section 153A was accepted in the assessment. Consequently, the Tribunal directed the AO to delete the penalties imposed in the respective years, allowing the appeals in favor of the assessee.

6. The final decision was pronounced on 25th July 2014, setting aside the orders of the authorities below and directing the deletion of the penalties levied, thereby allowing the appeals of the assessee.