2017 (1) TMI 1508 - AT - Income Tax

Penalty levied under section 271(1)(c) - Held that - The issue arising in the present appeal is in respect of Explanation 5 to section 271(1)(c) of the Act which was attracted in respect of searches conducted prior to 01.06.2007 and Explanation 5A to section 271(1)(c) of the Act is attracted to the searches carried out on or after 01.06.2007. But both the provisions deal with the cases of additional income offered pursuant to search action at the premises of assessee. As pointed out in the paras hereinabove the additional income in the present case was offered after Survey action and consequently there is no merit in the levy of penalty for concealment under Explanation 5 to section 271(1)(c) of the Act. Recording of satisfaction while initiating penalty proceedings against the assessee while completing assessment order - The perusal of assessment order passed under section 143(3) of the Act dated 29.10.2007 reflects no satisfaction whatsoever recorded by the Assessing Officer while initiating penalty proceedings in the case of assessee. The satisfaction by the Assessing Officer is missing except for direction to issue notice under section 274 of the Act initiating penalty under section 271(1)(c) of the Act. In the absence of the same the Assessing Officer is not empowered to initiate and complete penalty proceedings against the assessee. Accordingly we hold so. The penalty proceedings for concealment are thus not leviable even on this jurisdictional issue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Applicability of Explanation 5 to section 271(1)(c) regarding additional income offered during survey.
3. Validity of penalty proceedings initiated without proper satisfaction recorded by the Assessing Officer.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The appeals concern the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2006-07. The assessee, engaged in the jewellery business, had filed the return of income on 25.09.2006, declaring a total income of ?5,34,270/-. During a survey under section 133A and a search at the residential premises, the assessee offered additional income to avoid litigation. The additional income included excess stock of gold and silver but excluded ?9,502/- on account of errors and omissions. The Assessing Officer accepted the income offered but made an additional inclusion of ?9,502/-. Subsequently, a penalty of ?74,998/- was levied under section 271(1)(c) for concealing particulars of income and evading tax.

2. Applicability of Explanation 5 to Section 271(1)(c):
The primary issue was whether Explanation 5 to section 271(1)(c) applied to the additional income offered during the survey. The assessee argued that the additional income was disclosed during a survey, not a search, and thus Explanation 5 was not applicable. The Tribunal agreed, stating that Explanation 5 applies only in cases of search and not survey. The additional income offered during the survey does not fall under the purview of Explanation 5 to section 271(1)(c). Since the assessee included the additional income in the return, which the Assessing Officer accepted with minor variations, no penalty under section 271(1)(c) was leviable.

3. Validity of Penalty Proceedings Initiated Without Proper Satisfaction:
The Tribunal also noted that the Assessing Officer did not record proper satisfaction while initiating penalty proceedings. The assessment order lacked any recorded satisfaction, except for the direction to issue a notice under section 274. Without such recorded satisfaction, the Assessing Officer was not empowered to initiate and complete penalty proceedings. This jurisdictional issue further invalidated the penalty proceedings.

Conclusion:
The Tribunal ruled in favor of the assessee, concluding that no penalty under section 271(1)(c) was leviable. The additional income offered during the survey did not attract Explanation 5, and the absence of recorded satisfaction by the Assessing Officer invalidated the penalty proceedings. Consequently, both appeals of the assessee were allowed.