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2015 (5) TMI 1101 - AT - Income TaxLevy of Penalty u/s.271(1)(c) - addition based on the loose papers found and seized during the course of search - notice u/s.153A - Held that - Since admittedly in the instant case no money bullion jewellery or any valuable article were found which were owned by the assessee and the additional income was declared in the return filed in response to notice u/s.153A on the basis of entries in loose papers etc. found during the course of search which has been accepted by the AO in assessment therefore we are of the considered opinion that no penalty u/s. 271(1)(c) of the I.T. Act is leviable on account of above 3 additions. We therefore direct the AO to cancel the penalty on account of the above 3 additions. Assessee could not substantiate as to why penalty shall not be levied u/s. 271(1)(c) on account of Unexplained investment in Furniture Capital introduced in Kirti Developers Cost of land paid to R.B. Moze and Interest paid to Shriram Soni Levy of penalty on account of sales unrecorded since the assessee is a land developer and the addition of 55, 000/- made by the AO was on account of sales unrecorded which was due to non receipt of the amount therefore we find force in the submission of the assessee that it is a debatable issue as to whether the amount received has to be offered as the sale proceeds or the amount agreed to be received has to be offered as sale proceeds. In view of this we are of the considered opinion that penalty cannot be levied on this amount of 55, 000/- the issue being debatable. Levy of penalty on account of addition on account of 50% of donations claimed as Advertisement Expenses and on account of estimated disallowance of Car Petrol and Telephone expenses are concerned we agree with the assessee that penalty cannot be levied on account of estimated addition. As in the case of CIT Vs. Ajaib Singh and Co 2001 (8) TMI 79 - PUNJAB AND HARYANA High Court has held that penalty cannot be levied on account of addition to income based on estimate and disallowance of expenditure. The Hon ble Chattisgarh High court in the case of CIT Vs. Vijay Kumar Jain 2010 (4) TMI 386 - CHHATTISGARH HIGH COURT has also upheld the decision of the Tribunal where the Tribunal has upheld the order of the CIT(A) in cancelling the penalty levied on account of estimated GP addition. Penalty levied on account of agricultural income treated as business income - Held that - We find similar addition was made in A.Y. 1998-99 which was upheld by the CIT(A). However no penalty was levied by the AO on such treatment of agricultural income as undisclosed income. As the AO had not levied penalty u/s.271(1)(c) of the I.T. Act in the preceding year therefore it is not open to the AO to impose penalty on the admittedly identical facts for the impugned assessment year. We further find merit in the submission of the Ld. Counsel for the assessee that the computation of agricultural income from rubber plantation was purely on estimate basis which is on the basis of minimum quantity of 6kg/tree. However it cannot be said that the production of rubber from a tree will always be at the minimum of 6kg/tree. It may vary from tree to tree. Sometimes it may be more and sometimes it may be less. Therefore addition may be justified in quantum proceedings. However the same in our opinion cannot be the basis for imposing penalty u/s.271(1)(c) of the I.T. Act. Assessee appeal partly allowed.
Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act. 2. Additional income declared post-search. 3. Explanation 5 and 5A to Section 271(1)(c). 4. Penalty on estimated additions and debatable issues. 5. Treatment of agricultural income as business income. Issue-wise Detailed Analysis: 1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act: The primary issue in this case is the levy of penalty amounting to Rs. 16 lakhs under Section 271(1)(c) of the Income Tax Act, which was upheld by the CIT(A). The penalty was imposed due to the assessee's concealment of particulars of income and filing inaccurate particulars of income, as observed by the Assessing Officer (AO). 2. Additional Income Declared Post-Search: The assessee initially filed a return declaring a total income of Rs. 18,09,360/-. After a search conducted under Section 132(1) of the Income Tax Act, the assessee filed a return under Section 153A declaring a total income of Rs. 55,77,038/-, thus disclosing additional income of Rs. 37,67,678/-. The AO assessed the total income at Rs. 79,66,750/-. The additional income was declared due to the search action, and it was not considered voluntary by the AO, leading to the levy of penalty. 3. Explanation 5 and 5A to Section 271(1)(c): The assessee argued that Explanation 5A, inserted by the Finance Act, 2007, applies to searches initiated on or after 01-06-2007, which was not the case here as the search occurred on 24-06-2003. Therefore, Explanation 5A was not applicable. The Tribunal agreed, stating that the additional income was based on entries in loose papers found during the search and not on any money, bullion, or jewellery, thus falling under Explanation 5, which does not apply to this case. 4. Penalty on Estimated Additions and Debatable Issues: The Tribunal found that penalty cannot be levied on estimated additions or debatable issues. Specifically: - Sales Unrecorded (Rs. 55,000/-): The Tribunal considered this a debatable issue as the amount was not received by the assessee, and thus, no penalty was warranted. - Estimated Disallowance (Rs. 36,500/- and Rs. 54,500/-): The Tribunal held that penalty cannot be levied on estimated disallowances, relying on decisions from the Punjab & Haryana High Court and Chattisgarh High Court. 5. Treatment of Agricultural Income as Business Income: The assessee had declared agricultural income from rubber plantations, which was partially treated as business income by the AO. The Tribunal noted that similar additions were made in A.Y. 1998-99 without penalty. The Tribunal held that since the computation of agricultural income was on an estimate basis and varied from tree to tree, it could not be the basis for imposing a penalty under Section 271(1)(c). Conclusion: The Tribunal directed the AO to cancel the penalty on the additional income declared post-search (Rs. 37,67,679/-) and other specific additions, while upholding the penalty on certain unexplained investments and interest payments. The appeal was partly allowed, and the AO was instructed to recompute the penalty accordingly.
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