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Issues involved: Confirmation of penalty u/s 271(1)(c) of the Income Tax Act for Assessment Year 2008-09 based on unexplained investment in jewellery found during search u/s 132 conducted on 19th July, 2007.
The appeal filed by the assessee challenged the penalty of Rs. 21,230 imposed by the AO u/s 271(1)(c) of the Income Tax Act for the Assessment Year 2008-09, which was confirmed by the Ld.CIT(A) -40, Mumbai. The assessee, deriving income from various sources, was unable to provide a satisfactory explanation for jewellery worth Rs. 62,447 claimed during assessment proceedings post the search conducted on 19th July, 2007. The AO treated this as deemed income u/s 69A and levied the penalty. The Ld.CIT(A) upheld the penalty citing finality of the quantum addition in the assessee's case, leading to the appeal before the ITAT. During the appeal, the assessee relied on a decision of the ITAT in a similar case, arguing that penalty cannot be levied u/s 271(1)(c) if the search was initiated after 01.06.2007, as per section 271 AAA. The Ld. DR, however, supported the AO and Ld.CIT(A) orders. The ITAT noted that the search in the Kanakia Group, to which the assessee belonged, was conducted on 19.07.2007. As per section 271 AAA, if the search was initiated after 01.06.2007, penalty can only be levied under that section, not u/s 271(1)(c). Since the AO incorrectly applied the penalty provision, the ITAT held that the Ld.CIT(A) was unjustified in confirming the penalty, leading to the deletion of the penalty. Result: The ITAT allowed the appeal filed by the Assessee, and the impugned penalty of Rs. 21,230 was deleted.
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